[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                         EXAMINING PROPOSALS ON


                      INSURANCE REGULATORY REFORM

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON CAPITAL MARKETS,

                       INSURANCE, AND GOVERNMENT

                         SPONSORED ENTERPRISES

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 16, 2008

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-107



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York         MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois          PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York         EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina       FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York           RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio              JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma                  KEVIN McCARTHY, California
                                     DEAN HELLER, Nevada

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
 Subcommittee on Capital Markets, Insurance, and Government Sponsored 
                              Enterprises

               PAUL E. KANJORSKI, Pennsylvania, Chairman

GARY L. ACKERMAN, New York           DEBORAH PRYCE, Ohio
BRAD SHERMAN, California             JEB HENSARLING, Texas
GREGORY W. MEEKS, New York           CHRISTOPHER SHAYS, Connecticut
DENNIS MOORE, Kansas                 MICHAEL N. CASTLE, Delaware
MICHAEL E. CAPUANO, Massachusetts    PETER T. KING, New York
RUBEN HINOJOSA, Texas                FRANK D. LUCAS, Oklahoma
CAROLYN McCARTHY, New York           DONALD A. MANZULLO, Illinois
JOE BACA, California                 EDWARD R. ROYCE, California
STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West 
BRAD MILLER, North Carolina              Virginia
DAVID SCOTT, Georgia                 ADAM PUTNAM, Florida
NYDIA M. VELAZQUEZ, New York         J. GRESHAM BARRETT, South Carolina
MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin,               TOM FEENEY, Florida
LINCOLN DAVIS, Tennessee             SCOTT GARRETT, New Jersey
PAUL W. HODES, New Hampshire         JIM GERLACH, Pennsylvania
RON KLEIN, Florida                   TOM PRICE, Georgia
TIM MAHONEY, Florida                 GEOFF DAVIS, Kentucky
ED PERLMUTTER, Colorado              JOHN CAMPBELL, California
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 16, 2008...............................................     1
Appendix:
    April 16, 2008...............................................    45

                               WITNESSES
                       Wednesday, April 16, 2008

Arricale, Frances, Executive Director, Interstate Insurance 
  Product Regulation Commission..................................    31
Dinallo, Hon. Eric, Superintendent, Department of Insurance, 
  State of New York, on behalf of the National Association of 
  Insurance Commissioners (NAIC).................................    13
Minkler, Thomas J., CIC, President, Clark-Mortenson Agency, Inc., 
  on behalf of the Independent Insurance Agents and Brokers of 
  America........................................................    29
Mirel, Lawrence H., Partner, Wiley Rein LLP, on behalf of the 
  Self-Insurance Institute of America (SIIA).....................    25
Nason, Hon. David G., Assistant Secretary for Financial 
  Institutions, U.S. Department of the Treasury..................    10
Pile, Donna, CIC, CPIW, CPIA, Managing Partner, A.G. Perry 
  Insurance Agency, on behalf of the National Association of 
  Professional Insurance Agents (PIA)............................    33
Shore, Alastair, Senior Vice President and Chief Underwriter, 
  CUNA Mutual Group, on behalf of the American Council of Life 
  Insurers and the American Insurance Association................    27

                                APPENDIX

Prepared statements:
    Kanjorski, Hon. Paul E.......................................    46
    Bachus, Hon. Spencer.........................................    48
    Arricale, Frances............................................    50
    Dinallo, Hon. Eric...........................................    69
    Minkler, Thomas J............................................    86
    Mirel, Lawrence H............................................    98
    Nason, Hon. David G..........................................   106
    Pile, Donna..................................................   110
    Shore, Alastair..............................................   114

              Additional Material Submitted for the Record

Kanjorski, Hon. Paul E.:
    Statement of Eric D. Gerst, Esq..............................   124
    Statement of the National Association of Mutual Insurance 
      Companies..................................................   136
    NIPR PowerPoint presentation for PIA.........................   146


                         EXAMINING PROPOSALS ON



                      INSURANCE REGULATORY REFORM

                              ----------                              


                       Wednesday, April 16, 2008

             U.S. House of Representatives,
                   Subcommittee on Capital Markets,
                          Insurance, and Government
                             Sponsored Enterprises,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 3:36 p.m., in 
room 2128, Rayburn House Office Building, Hon. Paul E. 
Kanjorski [chairman of the subcommittee] presiding.
    Members present: Representatives Kanjorski, Ackerman, 
Meeks, Moore of Kansas, McCarthy, Scott, Bean, Murphy; Pryce, 
Hensarling, Manzullo, Royce, Barrett, Price, and Davis.
    Chairman Kanjorski. This hearing of the Subcommittee on 
Capital Markets, Insurance, and Government Sponsored 
Enterprises will come to order. Without objection, all members' 
opening statements will be made a part of the record.
    Good afternoon, and I apologize for the delay in getting 
this hearing started today, but unfortunately intervening 
business on the Floor required us to be away. We meet today to 
examine proposals on insurance regulatory reform. Today's 
hearing is the third in our subcommittee's series on these 
matters. I would like to thank Ranking Member Pryce for again 
joining me in inviting today's witnesses.
    At our hearings last fall, we heard about the need for 
reform from key participants of the insurance industry, 
consumer groups, regulators, and legislators. Today we will 
consider specific proposals to solve some of the problems that 
we learned about at those prior hearings. I firmly believe that 
the Congress should take some action on insurance regulation.
    Our first panel today features a spokesperson of the State 
regulators and a representative of the would-be Federal 
regulator of insurance.
    Superintendent Eric Dinallo will discuss the most recent 
plans of the National Association of Insurance Commissioners 
for modernizing insurance regulation. Assistant Secretary David 
Nason will review the insurance reform proposals contained in 
the Treasury Department's ``Blueprint for a Modernized 
Financial Regulatory Structure.''
    This Blueprint is an important discussion document for us 
to consider. It makes a number of short-term and long-term 
recommendations, some of which I like, and some of which 
concern me. The Blueprint's ideas on changing insurance 
regulation, however, merit our careful consideration. I am 
especially pleased that the Treasury Department recommends the 
creation of an Office of Insurance Oversight--an idea that I 
have discussed for a number of years and incorporated into the 
Financial Services Committee's oversight plan for the 110th 
Congress.
    Shortly after September 11th, it became very clear to me 
that the Federal Government lacks the expertise it needs on 
insurance policy. Our experiences after Hurricane Katrina and 
the ongoing problems in the bond insurance marketplace have 
only reinforced my views.
    Moreover, a simple online search of the term ``insurance'' 
using the Legislative Information System yields 87 bills 
introduced in this Congress and referred to the Financial 
Services Committee. Regardless of whether or not the Federal 
Government directly regulates insurance, we must educate 
ourselves on insurance policy and build a knowledge base in the 
Federal Government on these matters.
    Therefore, tomorrow, I will introduce legislation to 
establish an Office of Insurance Information within the 
Treasury Department. This legislation builds on my ideas and 
includes the functions envisioned in the Blueprint for this 
office. I look forward to a substantive debate on this proposal 
in the weeks ahead.
    On today's second panel, each witness will discuss one 
option for insurance regulatory reform, its merits, and what 
problems the solution seeks to solve. As part of the ground 
rules for today's proceedings, I have asked everyone to refrain 
from criticizing another proposal in his or her written and 
oral testimony.
    The reasons for this request are two-fold. First, insurance 
is a complicated issue. Direct testimony about one proposal at 
a time should help us to understand each of them better. 
Second, I do not view these reforms as mutually exclusive of 
one another. We will likely work cooperatively on many of them 
moving forward. For example, we could ultimately consider my 
legislation on forming an Office of Insurance Information in 
conjunction with a bill to streamline agent and broker 
licensing.
    As we proceed today, the members of the Capital Markets 
Subcommittee should remain open to considering all reform 
ideas. The status quo on insurance regulation, however, no 
longer works. We live in an increasingly global marketplace and 
insurance policy must keep pace. We have lost many 
manufacturing jobs overseas, and we must ensure that jobs in 
the insurance industry do not suffer a similar fate.
    We must move swiftly, but we also need to be smart about 
it. We will need the help of the experts from the States, and I 
urge those here today to work cooperatively with us.
    I would like to recognize the ranking member, Ms. Pryce, 
for 5 minutes for her opening statement.
    Ms. Pryce. Thank you, Mr. Chairman. I won't take all the 
time. This is the third hearing that we have held in this 
Congress focusing on insurance regulatory reform. The previous 
hearings in October focused on the need for reform. I am 
pleased that today we have moved on to discussing concrete 
ideas for actual reform, and, in particular, I would like to 
welcome the Treasury Department; their recently released 
Blueprint for a Modernized Financial Regulatory Structure is a 
bold departure from the piecemeal approach at regulatory reform 
that we have come to depend on.
    While I don't necessarily endorse every policy 
recommendation included in the Blueprint, it provides a clear 
starting place for our discussions and it will facilitate a 
broader debate as we move forward. I share the chairman's 
interest in exploring the Treasury's recommendation that 
Congress create an Office of Insurance Oversight within 
Treasury to lead America's international insurance interests.
    One of the most salient arguments for an optional Federal 
charter could be the disadvantage the current State structure 
presents for the United States in the global insurance 
marketplace. The world has changed very much since World War 
II, but over the same period, the Federal Government has left 
our insurance regulations largely untouched. Now, in many 
respects, that has worked well in some lines in some places. 
But, European competitors are moving to regional and global 
standards for insurance oversight and the Federal oversight 
office would at least give us one national voice.
    While I am not convinced that replacing 50 regulatory 
bureaucracies with 51 will necessarily accomplish this, I do 
think we need an open airing of all proposals.
    And, on our second panel, I look forward to hearing from 
our witnesses today. The efforts of myself and Congressman 
Moore--we are working towards strengthening and expanding the 
Liability Risk Retention Act. Risk retention groups often act 
as the insurer of last resort for unique or hard-to-insure 
risks. They were first used by Congress to ease the crisis and 
product liability reform, and later to meet needs for medical 
malpractice insurance. Today, they are used by doctors, 
universities, and even public housing authorities to provide 
liability insurance where it is either unavailable or 
unaffordable.
    So, H.R. 5792, which was introduced yesterday, closes some 
of the loopholes identified by the GAO and the NAIC improving 
corporate government standards and general disclosures, while 
expanding the Act to allow risk purchasing groups to procure 
commercial property insurance with their members. With 
commercial property insurance becoming increasingly expensive, 
consumers would be benefitted if risk retention groups could be 
expanded to provide additional coverage for their needs. This 
is just one of many reform proposals that we will hear about 
today, and I look forward to all our witnesses' testimony.
    Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you, Ms. Pryce.
    And now, we will hear from the gentleman from New York, Mr. 
Ackerman, for 3 minutes.
    Mr. Ackerman. Thank you very much, Mr. Chairman.
    There seems to be general agreement that insurance 
regulation, which is principally tasked to State governments, 
is in need of reform. Insurance products have undoubtedly 
evolved since many State insurance laws were enacted, and, 
insurance regulation in some cases needs to catch up with the 
industry.
    And, while I understand the burden that comes with having 
50 different sets of regulations, some of which are outdated, I 
am not certain that an optional Federal charter is the most 
responsible solution, either for insurers or consumers.
    Accordingly, I am pleased that the subcommittee has taken 
this issue up, and I want to thank the chairman for his 
leadership. If the recent troubles in the housing sector have 
taught us any lesson, it is that we probably don't know as much 
as we think we do about how our markets work and what the 
proper regulatory environment should be. In the same way that a 
diversified portfolio acts as a shield against loss, I wonder 
if the diversity of regulatory systems among the States might 
not have a similar effect on the insurance market.
    I look forward to hearing from all of our expert witnesses 
this afternoon, and I am particularly pleased to once again 
welcome New York State Superintendent of Insurance Eric Dinallo 
to our witness stand. Mr. Dinallo has proven to be an 
articulate voice since he was sworn in as Superintendent of 
Insurance in New York last year, and he is here today 
representing the National Association of Insurance 
Commissioners.
    I welcome him as well as Secretary Nason. I thank you, Mr. 
Chairman, for scheduling this hearing and I yield back the 
balance of my time.
    Chairman Kanjorski. Thank you, Mr. Ackerman.
    We will now hear from our good friend from California, Mr. 
Royce, for 3 minutes.
    Mr. Royce. Thank you very much, Mr. Chairman. And I would 
like also to thank you not just for your continued leadership 
on regulatory reform for insurance, but for your comments 
today, that tomorrow you will be introducing this legislation 
for an Office of Insurance Information, because I think such a 
concept really would solve many of the problems experienced 
throughout the sector.
    I think it especially would address some of the global 
competitiveness issues that a lot of us are worried about. 
Certainly, from my view, it would be a step closer to 
establishing the concept of an optional Federal charter for 
insurance, which would provide a much needed regulatory 
alternative to what has become a very tangled, bureaucratic web 
of State-based insurance regulators.
    I would like to share with you also, Mr. Chairman, that 
this is the third hearing on insurance regulatory reform that 
we have had in the past 6 months or so and with each of those 
hearings, I believe, we seem to gain a better and better 
understanding of this very complex, yet very vital industry, as 
well as the difficulties resulting from the regulatory 
structure currently overseeing this industry.
    And, I would like to commend Assistant Secretary Nason for 
his work on the Treasury Department's Blueprint for a 
Modernized Financial Regulatory Structure. As that Blueprint 
notes, we have a regulatory structure that very closely 
resembles the models which existed in the 1930's--4 generations 
ago--and overseeing the financial services sector that has 
evolved greatly since then really demands some action on our 
part.
    The time has come to begin the debate on the best way to 
restructure our regulatory model, and I really want to commend 
the Treasury for taking this vital step. As I pointed out in my 
op-ed in the Wall Street Journal today, nowhere is redundant 
and anti-competitive regulation more apparent than in the 51 
regulators currently overseeing our Nation's insurance 
industry.
    Price controls and bureaucratic delays are rampant at the 
State level. They punish American consumers. They also punish 
our industry and frankly the cost of this, as the nonprofit 
American Consumer's Institute recently found, the net cost to 
the consumers themselves of the excessive overlapping 
duplicative regulation that we struggle under is $13.7 billion 
annually, and that is in the form of higher premiums that our 
constituents have to bear as a result of these lack of 
economies of scale as a result of not having a national market.
    Above and beyond the tangled bureaucratic web controlling 
the U.S. marketplace, events which have occurred over the past 
few years have highlighted the limited insurance expertise at 
the Federal level. Whether it is in response to a financial 
shock, like what we have seen in the municipal bond insurance 
sector or responding to a national crisis or formulating tax 
policy or negotiating free trade agreements, where we are 
trying to open up markets overseas for our industry, there is 
no formal representation for insurance carriers or their 
holders currently within the Federal Government.
    The National Insurance Act, which I have co-authored with 
Congresswoman Melissa Bean, would establish an optional Federal 
charter for insurance, thereby creating an effective 
alternative to the State-based system, and establishing a world 
class regulator better equipped to represent America's insured 
and insurers in Washington and throughout the world.
    And again, I would like to thank you, Mr. Chairman, for 
holding this series of hearings, which I think have been so 
effective, and I look forward to hearing from our witnesses on 
the panel.
    Chairman Kanjorski. Thank you very much, Mr. Royce.
    Now, we will hear from the gentleman from Kansas, Mr. 
Moore, for 3 minutes.
    Mr. Moore of Kansas. Thank you, Mr. Chairman, for convening 
this important hearing today. Yesterday, Ranking Member Pryce--
as she indicated--and I introduced bipartisan legislation that 
could have a modest but very important effect on increasing 
capacity in the commercial property insurance marketplace for 
those who need access the most.
    H.R. 5792, the Increasing Insurance Coverage Options for 
Consumers Act, would do this by allowing risk retention groups 
and risk purchasing groups to expand their insurance offerings 
to include commercial property coverage. Currently, they are 
limited to offering liability coverage. To break down a product 
liability tort law led to an insurance availability crisis in 
the mid-1970's. The insurance industry responded to the product 
liability risk crisis by increasing rates, not renewing 
coverage, and avoiding policyholders that sold products the 
underwriters considered hazardous.
    In response to recurring shortages of liability insurance, 
Congress enacted the Products Risk Retention Liability Act of 
1981. This Act authorized a group of similar businesses with 
similar risk exposures to form risk retention groups to self-
insure those risks on a group basis and it also created risk 
purchasing groups to allow insurers to market on a group basis.
    The Act was amended in 1986 into its present form as the 
Liability Risk Retention Act. In addition to expanding the 
scope of the Act beyond just product liability to all kinds of 
liability, the 1986 amendments also provided that risk 
retention groups would be regulated primarily by the 
domiciliary States with only limited regulatory oversight by 
non-domiciliary States in which the risk retention groups 
operate.
    At the request of Mike Oxley, the former chairman of the 
Financial Services Committee, the GAO conducted a study on the 
regulation of risk retention groups. On August 15, 2005, the 
GAO filed a report and concluded that risk retention groups 
have had an important effect on increasing the availability and 
affordability of commercial liability insurance. In addition, 
the GAO found that the LRRA's partial pre-emption of State 
insurance laws has resulted in a regulatory scene characterized 
by widely divergent State standards.
    As a result, the GAO believes risk retention groups would 
benefit from uniform, baseline, regulatory standards, and 
corporate government standards. First and foremost, our 
legislation would address the shortcomings identified in the 
GAO report for these groups by codifying the National 
Association of Insurance Commissioner's proposed corporate 
government standards for risk retention groups into law. This 
important change will ensure that the interests of the 
management of these groups and the members will be aligned.
    Additionally, recent catastrophic events such as Hurricane 
Katrina and the 9/11 attacks led to affordability and 
availability crises in the property insurance marketplace in 
certain areas similar to the problems we saw with product 
liability in the 1980's. I believe the time is now, before we 
experience another hard market for commercial property 
insurance to expand the Liability Risk Retention Act to include 
property coverage. This will add much-needed capacity to the 
commercial insurance marketplace by improving competition, 
which relates to more affordable and available coverage. This 
legislation not only enjoys bipartisan support on this 
committee, but it also has the support of a broad swath of the 
insurance industry, consumer groups, public housing 
authorities, and Realtors, among others.
    I look forward to hearing the testimony of the witnesses, 
and I hope that we can quickly move this important legislation 
through the committee.
    Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you, Mr. Moore.
    We will now hear from the gentleman from Kentucky, Mr. 
Davis, for 2 minutes.
    Mr. Davis. Thank you, Chairman Kanjorski, and Ranking 
Member Pryce, for holding this hearing today on the various 
proposals for insurance reform.
    In March, I was honored to collaborate once again with my 
good friend from Georgia, Representative David Scott, on H.R. 
5611, the National Association of Registered Agents and Brokers 
Reform Act. We both introduced this bipartisan bill with 14 
original cosponsors, and are now up to 30 cosponsors. As you 
all know, the Gramm-Leach-Bliley Act would have created NARAB 
in the event that the States did not satisfy the producer 
licensing reform requirements outlined in the underlying bill, 
but because the States were perceived to have a level of 
licensing reciprocity, NARAB was never created.
    Nearly 10 years since the passage of Gramm-Leach Bliley, we 
are still in need of progress on this issue. H.R. 5611 mandates 
the creation of NARAB. The board will operate generally in the 
same way as the provision in Gramm-Leach Bliley. In short, 
agents and brokers licensed in good standing in their home 
State and meeting NARAB member criteria will be able to join 
NARAB.
    NARAB members would still pay the appropriate fees required 
by each State in which they are licensed. NARAB would not have 
any Federal regulatory authority. I have a number of 
outstanding concerns about creating a Federal regulatory. NARAB 
II is, in my view, a meaningful contribution to the broader 
debate over how to go about reforming the various aspects of 
insurance regulations.
    I look forward to hearing from the witnesses today, in 
particular about targeted reform measures like NARAB II, and 
whether or not these reforms will be helpful in simplifying the 
process while maintaining the current State-based system.
    Thank you, Mr. Chairman, and I yield back.
    Chairman Kanjorski. Thank you very much, Mr. Davis.
    We will now hear from Mr. Scott of Georgia for 3 minutes.
    Mr. Scott. Thank you, Mr. Chairman. I, too, want to 
congratulate you and the ranking member for having this 
important hearing examining proposals to reform insurance 
regulation.
    As the insurance industry continues to be primarily 
regulated at the State level, with many involved wanting 
increased Federal oversight, I am interested in hearing the 
views and concerns of our distinguished witnesses as we work 
towards some sort of consensus on how to proceed. I believe we 
all agree on this--that regulatory reform is indeed necessary, 
but like with any type of reform it will take time--it will 
take discussions and compromise on how we may move forward.
    We certainly want to take into account the actual 
operations of these businesses--how to ensure whatever action 
we do take does not deter competition, and does not lessen 
efficiency or increase costs of operating. From the development 
of global markets to the various and detailed policy rationales 
towards pursuing regulatory reforms, we must take all into 
account, and we must listen to both sides of the issue before 
taking any further action.
    I want to comment very briefly, and just expand for a 
moment on a bill that I recently introduced with my good friend 
Geoff Davis from Kentucky, and that is the National Association 
of Registered Agents and Brokers Reform Act, H.R. 5611, that 
Representative Davis spoke to a moment ago. It is very 
important to show that this is a very strong bipartisan effort, 
a great start towards reform which would help ensure adequate 
agent and broker licensing as well as increase competition and 
great choices for consumers, which is the most important thing.
    Our legislation will help reform and modernize a very 
important part of State insurance regulation, which is the 
agent and broker licensing. The legislation will further 
benefit consumers through increased competition among agents 
and brokers, which leads to greater consumer choice. This 
legislation is straightforward. Insurance agents and brokers 
who are licensed in good standing in the home States can apply 
for membership in the National Association of Registered Agents 
and Brokers or NARAB, which would allow them to operate in 
multiple States, which is a very, very important and necessary 
feature as we move forward with this reform.
    A private, nonprofit NARAB entity consisting of State 
insurance regulators and marketplace representatives will serve 
as a portal for agents and brokers to obtain non-resident 
licenses in additional States. And this is, of course, provided 
that they pay the required State non-resident licensing fees 
and that they meet the NARAB standards for membership.
    Membership in NARAB would be voluntary and would not affect 
the rights of a non-member producer under any State license. 
Our bill would also establish membership criteria, which is 
again a very important need, which would include standards for 
personal qualification, such as education, training, and 
experience.
    And, further, member applicants would be required to 
undergo a national criminal background check to protect and 
give the proper protections to consumers that they need. And, 
to be very clear, NARAB would not be a part of nor report to 
any Federal agency and would not have any Federal regulatory 
power.
    And, finally, Mr. Chairman, Federal legislation is needed 
to ensure a reciprocal licensing process for insurance agents 
and brokers. And Congress, as my good friend Mr. Davis has 
mentioned, has already endorsed this concept with Gramm-Leach-
Bliley. We are just picking up where that leaves off.
    I believe the increased competition among agents and 
brokers that our bill would create will be beneficial to all, 
and on all accounts be more fair. And, in addition, and of most 
importance, greater consumer choice as more and more agents 
operate across State lines, this problem as reciprocity has 
become worse and it has become apparent to me and others here 
in Congress that true non-resident licensing reform for 
insurance agents could only really be achieved through 
legislation on the Federal side.
    Our legislation has support, as we mentioned, from both 
sides of the aisle, because this is not a Democrat or 
Republican issue. It is an issue of great importance to all of 
the American people.
    I look forward to working with my colleagues, and you, Mr. 
Chairman, of course, on this important piece of legislation. 
And I look forward to hearing from our distinguished witnesses.
    Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you, Mr. Scott.
    We will now hear from Mr. Manzullo of Illinois for 2 
minutes.
    Mr. Manzullo. Mr. Chairman, thank you for holding this 
hearing today. These times of financial uncertainty have 
seriously raised questions about our current regulatory 
schemes. And it's more important than ever to be engaged in 
serious discourse over the who, the how, and the why of 
regulation.
    A part of what we are examining today is the question of 
who should be regulating the insurance industry. This topic has 
been broached in hearings twice before during this Congress, 
and I commend the chairman for engaging the industry and 
regulators in extensive dialogue on the issue. After listening 
to the testimonies from our previous hearing, I remain open, 
but skeptical--actually, more skeptical than open--about the 
optional Federal charter concept. I remain skeptical, because 
it is still being touted as a concept without a substantive 
plan that describes the how or addresses issues like the fiscal 
impact on the States or the impact on smaller insurers.
    I have yet to see evidence that the State regulatory system 
has failed the insurance industry. My home State of Illinois is 
a model of insurance regulation with over 1,470 insurance 
companies licensed to do business in our State. I am 
unconvinced that the Federal Government could be more 
responsive to the unique needs of local markets and conditions 
than a State regulator.
    I am further concerned that the resulting industry 
fragmentation would bring fiscal damage to the State of 
Illinois and squeeze out those smaller companies which may 
choose to remain State-regulated. When I shopped for insurance 
on my firm a couple of years ago, I had no less than seven 
quotes from seven different insurance companies, and I picked 
the one that ended up with the broadest coverage at the 
cheapest price. And I don't want to do anything to prevent the 
folks of Illinois from having that type of choice.
    Again, I want to thank the chairman for his commitment to 
hearing all sides of the issue. There is still much to be 
discussed before decisive action can be taken.
    Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you, Mr. Manzullo.
    And now, finally, we will hear from Ms. Bean of Illinois 
for 3 minutes.
    Ms. Bean. Thank you, Mr. Chairman, and Ranking Member 
Pryce, for holding today's hearing.
    As always, I would also like to thank our panel for their 
expertise and for being here to share it with us. Today's 
hearing is to consider the various proposals on how to best 
achieve insurance regulatory reform. It is important and it is 
timely. Within the last several weeks alone, two new pieces of 
insurance reform legislation authored by committee members have 
been introduced. And the Treasury Department issued its series 
of recommendations to improve the regulatory framework of our 
financial services, including the insurance industry.
    While these approaches may differ, the theme is common. 
There is a clear need for comprehensive and meaningful reform. 
As you know, last July, Representative Royce and I introduced 
H.R. 3200, the National Insurance Act, which would create an 
optional Federal charter for life and property casualty 
insurers. Our bill seeks to increase consumer choice and 
improve industry competitiveness. I was pleased to see the 
recently-released Treasury Blueprint echo the sentiments of the 
Bloomberg-Schumer report on the importance of creating an 
optional Federal charter to overhaul the Nation's 135-year-old 
system for insurance regulation and to help maintain the 
preeminence and competitiveness of the U.S. capital markets.
    Furthermore, as a resident of and Representative for 
Illinois, like Congressman Manzullo mentioned, I have seen 
firsthand the benefits to consumer pricing and product options 
in a deregulated environment, which could be seen across the 
Nation if they were freed from State price controls and 
regulatory hurdles.
    I believe H.R. 3200 can extend those benefits to consumers 
nationally, and, I want to associate myself with the remarks of 
my colleague and co-sponsor, Representative Royce, in that 
regard.
    In the interim, I want to strongly commend Chairman 
Kanjorski's plan to establish an Office of Insurance 
Information. I see this, and I don't believe I'm alone in 
seeing this as a vital step towards providing greater industry 
agility and a modern, regulatory alternative to the antiquated 
and burdensome system of State insurance regulation. I look 
forward to hearing our panelists' testimony and recommendations 
for how we should proceed.
    Thank you, and I yield back.
    Chairman Kanjorski. Thank you very much, Ms. Bean.
    And now, I will introduce the panel. As you know, we are 
under the bell, so there is a vote on now, and we will have 
about 15 minutes to get there. But maybe we can tailor you both 
in before we have to leave.
    So thank you for appearing before the subcommittee, and 
without objection, your written statements will be made a part 
of the record. You will each be recognized for a 5-minute 
summary of your testimony. And if you can do that, we will 
appreciate it.
    First, we will hear from the Honorable David G. Nason, 
Assistant Secretary for Financial Institutions, Department of 
the Treasury, to discuss the Treasury's regulatory Blueprint 
with regard to the insurance recommendations.
    Mr. Nason?

STATEMENT OF THE HONORABLE DAVID G. NASON, ASSISTANT SECRETARY 
  FOR FINANCIAL INSTITUTIONS, U.S. DEPARTMENT OF THE TREASURY

    Mr. Nason. Thank you very much, Mr. Chairman.
    Let me first say that I am delighted to hear that you are 
planning to introduce legislation creating an Office of 
Insurance Information. You have been a leading voice on these 
issues for a long period of time, and we would be delighted to 
work with you on that as soon as we see the text of that 
legislation. We look forward to that, and it is just welcome 
news from this hearing today, so thank you so much for that.
    Thank you, Chairman Kanjorski, Ranking Member Pryce, and 
members of the subcommittee for inviting me to appear before 
you today to discuss the need for insurance regulatory reform. 
On March 31st, Treasury released a report on financial services 
regulation entitled, ``Blueprint for a Modernized Financial 
Regulatory Structure.'' The Blueprint reflects a year-long 
effort intended to provoke thoughtful discussion as we 
collectively work toward modernizing all sectors of the 
financial services industry. The Blueprint is not and has never 
been intended to be a response to recent stress in the credit 
markets.
    The Blueprint presents a conceptual model for an optimal 
regulatory framework. The regulation of all financial services 
products, including insurance, is addressed in this framework. 
Treasury's Blueprint also presents a series of short-term and 
intermediate term recommendations that could in our view 
immediately improve and reform the U.S. financial services 
regulatory structure.
    Some of our recommendations focus on eliminating some of 
the duplication inherent in the U.S. regulatory system; but, 
more importantly, they try to modernize the regulatory 
structure applicable to certain sectors in the financial 
services industry within the current framework, including 
insurance.
    Today, I will address some of the Treasury's 
recommendations with regard to modernizing insurance regulation 
in the near term. Insurance performs an essential function in 
our domestic and global economies by providing a mechanism for 
businesses and citizens to safeguard their assets from a wide 
variety of risks. Unlike banks and other financial institutions 
that are regulated primarily at the Federal level or on a dual 
Federal/State basis, insurance companies in the United States 
are regulated almost entirely by the States.
    The constitutional and statutory allocation of regulatory 
power between the Federal Government and the States has a 
complex evolution. For over 135 years, States have regulated 
insurance with little direct Federal involvement. In 1869, the 
Supreme Court concluded that the issuance of an insurance 
policy was not interstate commerce. In 1944, some 76 years 
later, the Court reversed itself holding that insurance was 
indeed subject to Federal regulation and Federal antitrust law.
    In 1945, before any assumption of Federal regulatory 
authority over insurance, Congress passed the McCarran-Ferguson 
Act, which ``returned'' the regulatory jurisdiction over the 
business of insurance back to the States. But, much like other 
financial services, over time the business of providing 
insurance has developed a more national focus, even within the 
State-based regulatory structure. The inherent nature of our 
State-based regulatory system makes the process of developing 
products cumbersome and more costly.
    There are a number of inherent inefficiencies associated 
with the State-based insurance regulatory system. Economic 
inefficiency appears to have resulted, both from the substance 
of regulation, such as price controls, and also from its 
structure, multiple, non-uniform, regulatory regimes.
    In addition to a more national focus today, the insurance 
marketplace also operates globally with many significant 
foreign participants. A State-based regulatory system creates 
increasing tensions in such a global marketplace, both in the 
ability of U.S.-based firms to compete abroad, and the 
allowance of greater participation of foreign firms in U.S. 
markets.
    Treasury believes that the fundamental question is whether 
our current State-based system of insurance regulation is up to 
the task of meeting the challenges of today's evolving and 
increasingly global insurance market. The establishment of an 
OFC structure would provide insurance market participants with 
the choice of whether to be regulated at the national level or 
to continue to be regulated by the States. OFC insurance 
regulatory structure should enhance competition among insurers 
in national and international markets. It should increase 
efficiency. It should promote more rapid, technological change. 
It should encourage product innovation. It should reduce 
regulatory costs and, most importantly, it should provide a 
high quality of consumer protection.
    Treasury also recommended in its Blueprint, which was very 
similar to what you just mentioned Chairman Kanjorski, an 
Office of National Insurance (ONI) to regulate those engaged in 
the business of insurance pursuant to an OFC. The commissioner 
of national insurance would head the ONI and would have 
specified, regulatory supervisory enforcement, corrective 
action, and rehabilitative powers to oversee the organization, 
incorporation, operation, regulation, and supervision of 
insurance industries.
    The Blueprint also mentioned an Office of Insurance 
Oversight, which is very similar to the idea that you just 
discussed, Mr. Chairman, and while Treasury believes that an 
OFC offers the best opportunity to develop a modern and 
comprehensive system of insurance regulation in the near term, 
we acknowledge that the OFC debate in the Congress is ongoing.
    At the same time, Treasury believes that some aspects of 
the insurance segment in its regulatory regime require 
immediate attention. In particular, Treasury recommended that 
the Congress establish an Office of Insurance Oversight within 
Treasury.
    The OIO through its insurance oversight, would be able to 
focus immediately on key areas of Federal interest in the 
insurance sector. The OIO should be established to accomplish 
two main purposes. First, the OIO should exercise newly-granted 
statutory authority to address international regulatory issues 
such as reinsurance collateral.
    Second, the OIO would serve as an advisor to the Secretary 
of the Treasury on major domestic and international policy 
issues. Once the Congress does enact significant insurance 
regulatory reform establishing an OFC, the OIO could be 
incorporated into the OFC framework.
    We appreciate the efforts of the chairman and the members 
of the subcommittee in evaluating issues associated with 
modernizing insurance regulation. And we look forward to 
continuing to work with the Congress toward finding an 
appropriate balance as proposals for Federal and State 
regulation of insurance are considered.
    Thank you.
    [The prepared statement of Assistant Secretary Nason can be 
found on page 106 of the appendix.]
    Chairman Kanjorski. Okay, we were going to try to sneak you 
in, Mr. Dinallo, but we have come to the conclusion that we are 
not going to be able to do that.
    So the Chair is going to recess the hearing until after 
these votes, and then return. I urge all my colleagues to come 
back, because obviously, this testimony is very important. We 
need some questions answered.
    The subcommittee now stands in recess.
    [Recess]
    Chairman Kanjorski. The subcommittee will come to order. We 
finished Mr. Nason's testimony, and now we will get to our 
friend, Mr. Dinallo.

   STATEMENT OF THE HONORABLE ERIC DINALLO, SUPERINTENDENT, 
 DEPARTMENT OF INSURANCE, STATE OF NEW YORK, ON BEHALF OF THE 
     NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC)

    Mr. Dinallo. Thank you, Chairman Kanjorski, and members of 
the subcommittee. I am here to testify on behalf of NAIC, and, 
although I am here in that capacity, I am not here to blindly 
defend every aspect of State insurance regulation, which can at 
times be somewhat of a clunky affair.
    Instead, I am here to headline that in the spirit of a new 
approach to move to a regulatory model that invites and accepts 
a Federal involvement, I want to discuss some of those options 
and lay out some possibilities that I think would help. But 
while the topic is comprehensive reform for insurance 
regulation, I think it's important that you hear from someone 
who has been on both the securities side and on the insurance 
side.
    And on the insurance side, both in a regulatory context and 
on the private side, it is my opinion that State regulation has 
actually been extremely effective over the last 100 years on 
the 2 key measures of that effectiveness. The two things you 
would ask of an insurance regulator is whether there has been 
good oversight of solvency and consumer protection.
    And on those bases, I think the system, both the regulators 
and the industry, have done a world class job, and, I think as 
you see over now the past, it's rather lacking many of the 
scandals and the insolvencies and the market meltdowns that you 
have seen in other sectors of the financial services community.
    However, we do understand the need for improvement, 
especially around product and producer licensing and 
registration, and the uniformity in those areas. And there, I 
think, there is an important role for the Federal Government to 
play. The States sometimes do need help in achieving the 
uniformity of standards in those areas, and some of the 
Members' comments today, I think, are on point in those areas.
    Although the NAIC is constantly working to achieve 
uniformity, it doesn't always succeed. And if achieving that 
objective requires the assistance of the Federal Government, we 
are not adverse to that help. So let me give you a few ideas 
for that.
    I think I see five possible options. They break into two 
halves. There are those that the States do themselves, and 
those where the Federal Government has an important role. The 
first two are the interstate compact model, which may be 
appropriate to be used beyond the life insurance product 
approval. But, obviously, we are still only at about 31 States, 
although New York has seriously considered entering it, but it 
is an area where it is hard to achieve 50-State participation.
    The second is the existing NAIC accreditation program, 
which also could be expanded beyond its current focus of 
financial solvency regulation, but again there are challenges 
there. The three models that I think have Federal involvement 
and the first being to provide some Federal incentive for 
States to reach compliance with the national standards, for 
instance, under the first NARAB provisions of Gramm-Leach-
Bliley.
    The second is State regulators through the NAIC set the 
standards in targeted areas of insurance regulation, and then a 
Federal mandate imposes those standards on States that don't 
voluntarily adopt them. But the last, that I think is the best, 
is an approach that I think we should seriously consider. It is 
what I would consider a FINRA-like model, which would give NAIC 
the regulatory authority over some aspects of insurance 
regulation as FINRA has over securities firms and dealers with 
the Federal Government essentially authorizing either the NAIC 
to do that or some other entity.
    From my experience on the securities side, it has worked 
very well with the NASD and the States, before it was called 
FINRA. And I think it has been something through the central 
registration depository or CRD. My experience is on the private 
side and the public side it was something that was not 
complained about very often.
    It was effective, and it had the benefits of giving some 
appropriate discretion to the States on certain issues around 
producers. It was not a new Federal bureaucracy. There was a 
single point of contact if we have that, and it brings 100 
years of regulatory experience to it. It is streamlined, but it 
leaves the power at the State level, much as is appropriate, 
and doesn't run afoul of some of the pitfalls of an optional 
Federal charter, which I think does create problems that we 
seriously have to consider concerning regulatory arbitrage and 
issues concerning duplication.
    NAIC, however, is not just waiting for that outcome. I 
think the system is more streamlined than our critics would 
have some, I believe, we're constantly modernizing without 
problems affecting other markets and without sacrificing strong 
consumer protections. As the written testimony makes clear, 
there are major reforms under way in producer licensing and 
uniformity in those areas, and the licensing of new companies. 
All 50 States, for instance, accept a uniform filing form and I 
think that we should be proud of what just happened in the bond 
insurance area, where in just several weeks, 49 States licensed 
the Berkshire Assurance Corporation to step in to the void on 
the bond insurance crisis.
    The interstate compact is still there, but you have heard 
what I have said about that. Passporting reinsurance, I think, 
is a good idea. And I also know the NAIC is coming out with a 
new proposal on reinsurance, which I think will be a good step 
in the right direction and could be the answer there. And all 
those are supported by uniform standards, and some of the most 
advanced technology.
    In closing, I just want the committee to know that I and 
Sandy Praeger, the States and NAIC, want to partner with you to 
see the successful aspects of the State-based system and fix 
the areas that need improvement. But I believe this offer is a 
major step forward, a major change in NAIC's position, which I 
think is important and is a definite step towards modernizing a 
very important aspect of financial services in this country, 
and I would look forward to working with you on that 
undertaking.
    Thank you.
    [The prepared statement of Mr. Dinallo can be found on page 
69 of the appendix.]
    Chairman Kanjorski. Thank you, Mr. Dinallo.
    Mr. Nason, I do not know whether to take the testimony of 
our last witness as an offer.
    How would you read it, and how do you think we should 
respond to that offer?
    Mr. Nason. I think that we should respond by saying we 
welcome working with the NAIC. I think the way I interpret 
those comments is that it is a recognition that the insurance 
regulatory structure needs to be modernized. I think that we 
can continue to try to work around the edges, or we can go to 
the fundamental concern, which is that we need to recognize the 
fact that insurance is a $6 trillion industry. It is a national 
industry, and it needs significant reform.
    Those are tough decisions to make, but we would be happy to 
work with the NAIC and you, of course, on all these issues.
    Chairman Kanjorski. Do you believe that the Blueprint laid 
out by Treasury is the proper process, or do we need further 
studies and further examination?
    Mr. Nason. Oh, no. We certainly need to engage with the 
Congress. The Blueprint was not intended to be a solution to 
all these issues. It was intended to start a debate. It was 
intended to take some positions that we think are appropriate 
in terms of engaging with the Congress on how to deal with 
these issues, but the Blueprint is not intended to be the end-
all of a discussion about these issues. It just was important 
for the Treasury to take some positions and lean a little bit 
more forward in terms of how to deal with regulatory structure 
issues, including insurance.
    Chairman Kanjorski. How soon do you think it is possible to 
enact into law some of the suggestions? Do you think we can get 
it done in this term or in this session of Congress?
    Mr. Nason. Well, we stand ready to work with you as much as 
possible. I know we are anxiously awaiting to see what the 
legislation looks like that you are proposing on the Office of 
Insurance Information.
    I know that I and my staff will be working with you as soon 
as possible to see if that can get done. I know that we'll put 
all of our energy there, but the goal of the Blueprint was not 
to create expectations that we would be able to implement those 
things by the end of the calendar year. It was just intended to 
start a debate.
    The precedent we are using is the green book in 1991, which 
led to the Gramm-Leach-Bliley, or was part of the discussions 
leading to the Gramm-Leach-Bliley Act of 1999, and that is the 
focus that we are using for these types of issues. These are 
long, complex issues that require a lot of debate.
    Chairman Kanjorski. I just have a moment or so left. Mr. 
Dinallo, could you give us a little insight?
    How did you get 49 States to approve the new bond insurer 
of Berkshire Hathaway so quickly when we know how laborious, 
sometimes, the process has been in the past?
    What did you uniquely do to get those States to sign it? 
Was it the exigency of the situation that caused them to react 
quickly, or what?
    Mr. Dinallo. I think it was partly the exigency of the 
situation, but one of the reasons I did initially reach out to 
Jane of Berkshire Hathaway was I had an instinct that because 
of their franchise value, because of the indisputable depth of 
their capital, and because of their long-term status in 
financial services that it would be an easy sell, so to speak, 
in the rest of the States.
    So that was one of the factors. I'm not surprised that 
coupling the exigency of the situation with that kind of a 
company, it was able to be done. I also think that there was an 
indication here that the States are in fact getting their act 
together a bit. So here, 49 States in several weeks, it's hard 
to ask for more than that, I think. And I think it is the case 
that we have made positive changes. The systems are there. The 
problem is to have model laws that are the same in every State. 
That's going to be a challenge. I concede that.
    I think Congressman Scott's points are correct, that on the 
training of the brokers, the licensing, education, those should 
not be dramatically different as a minimum from State-to-State.
    Chairman Kanjorski. Very good. Mr. Royce?
    Mr. Royce. Thank you, Mr. Chairman.
    Mr. Nason, the Treasury Department's Blueprint for a 
Modernized Financial Regulatory Structure covers the history of 
insurance regulation as well as many of the problems 
experienced right now by the current, State-based system. I was 
going to ask you if you believe there is one line of insurance, 
either property casualty or life insurance, for example, that 
would benefit more than the other from having the option to 
choose Federal regulation as opposed to State.
    Mr. Nason. Thank you for the question, and also, I just 
want to go back and thank you for the kind words about the 
Treasury Blueprint. A lot of people worked very hard on that.
    I think that there is an interesting discussion about an 
optional Federal charter for insurance, and it is whether or 
not it should be just life insurance, or should include 
property and casualty insurance. I think that it is our view 
that both should be part of the requirement.
    Mr. Royce. It is a different paradigm. It is a different 
model.
    Mr. Nason. There are differences, but there are also 
similarities. The similarities are that the companies are both 
national in scope. They both are providing coverage in a 
variety of States. So there are a lot of differences.
    While the regulatory overlap and duplication of the 
structure inhibits both the property and casualty insurers are 
also inhibited in their competitive pressures by some of the 
aspects of regulation of the States such as price controls. And 
we think that could be dealt with.
    Mr. Royce. How much should we be concerned by Europe's move 
to one national market for all of Europe?
    Mr. Nason. I think that we should take that lesson and 
understand that this is a national market. I think that we 
would be better situated to engage with the Europeans in both 
welcoming insurers to come into the United States and allowing 
insurers in the United States to participate in international 
markets. So I think that we should take a lot of interest and 
learn from that.
    Mr. Royce. The Treasury Blueprint that the Treasury has put 
out speaks of the interconnectiveness, the increased 
interconnectiveness between financial services products, the 
conversions of banking and securities and insurance markets.
    Why do you believe it is necessary to regulate the 
financial services sector by objective rather than by product?
    Mr. Nason. Well, the goal there you are referring to is our 
optimal model in the Blueprint, and the goal there was not to 
provide a specific recommendation as to what the regulators 
would look like. But we were trying to suggest that there is a 
discipline associated with describing what you are trying to 
achieve by objective. This was something that was used very 
effectively in other countries like Australia and the 
Netherlands. If you ask what objective you are trying to 
achieve, and the three objectives that we identified for the 
U.S. regulatory structure were consumer protect, market 
stability, and safety and soundness, you have a better sense of 
what we were trying to achieve by these regulatory objectives.
    Mr. Royce. When we go over to the issue of global 
competitiveness, on which we have had a number of studies, 
every major study that we have seen on this topic has included 
the establishment of an optional Federal charter for insurance, 
in the recommendations that they put forward.
    What are some of the immediate concerns which could be 
addressed through either an Office of National Insurance or 
something along the lines of an Office of Insurance Oversight?
    Mr. Nason. I think there are three immediate concerns that 
can be achieved: First, some Federal presence in a market that 
is national and global in scope; second, you can deal with some 
of the regulatory inefficiencies of having 50-plus regulators; 
and third, it is very important to have a regulator that can 
view trends, that can have systemic-type implications across 
the Nation. So those are the three big issues. I think each of 
them are addressed quite comprehensively in a national 
insurance office and in an optional Federal charter construct, 
and that is why we recommended it in the Blueprint.
    Mr. Royce. Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you very much, Mr. Royce.
    Now, the gentleman from New York, Mr. Ackerman.
    Mr. Ackerman. Thank you, Mr. Chairman.
    This is for Superintendent Dinallo. As the insurance 
industry evolves, and more and more Americans require insurance 
policies in States other than their own, or in multiple States, 
the need both for insurers and policyholders for insurers to be 
able to provide policies to policyholders in States in which 
they might not be accredited, the need is increasing.
    One of the least burdensome means through which this has 
been achieved thus far is through the interstate compact, a 
compact in which some of our larger States are not involved. 
Your State, Mr. Superintendent, New York, is one of those 
States that is not involved. My question is, will New York be 
joining the interstate compact?
    Mr. Dinallo. Well, I think the answer, Congressman, is that 
it is not entirely up to me or the Department. It is a decision 
that ultimately would reside with the Governor and the 
legislature, but I, certainly, and the Department at this point 
is certainly in favor of doing whatever we need to do, 
including recommending involvement in the compact. We have a 
few issues that we're working out with the interstate compact 
commission or committee, but I think on balance, it is the 
right thing.
    I do agree that there ought to be in these areas that you 
describe a certain seamlessness, which again, putting aside 
solvency and consumer protection, which I think is something 
not to be overlooked and the extremely positive history and 
insurance regulation is something that we should be very proud 
of. We should do everything we can to encourage product and 
producer licensing and registration that is when appropriate 
seamless.
    And so I think that as far as my support of it so to speak 
or the Department's support of it, it looks like we're headed 
in that direction. And if that will help with the rest of the 
government of New York State, then that is a positive trend.
    Mr. Ackerman. I applaud you on that decision and 
conclusion, and say at last, an interstate compact in which a 
New York governor can be proud.
    I yield back.
    Chairman Kanjorski. Mr. Barrett of South Carolina.
    Mr. Barrett. Thank you, Mr. Chairman.
    Gentlemen, thank you for hanging in there with this 
marathon today. I appreciate it.
    Mr. Superintendent, in South Carolina, we have done some 
things in the past that haven't been the best in the world, but 
we have a system that works pretty good, and we are extremely 
proud of it. And I don't want to do anything that's going to 
screw it up, just to be honest with you.
    In your experience, what types of Federal regulatory 
reforms do you think may break some of the regulations that are 
working pretty well right now?
    Mr. Dinallo. Well, I think there are a few issues. One is 
that I do have a strong instinct that any optional regulatory 
relationship I think is not a positive one. I think that the 
importance of regulation to a large degree is a rather close 
relationship where you get to understand the business, and they 
understand what the expectations are from the regulator.
    I think that the intimacy of the State system has in fact 
been the reason for such a positive history on solvency and 
consumer protection. I think that you have to have like a 
marriage. You have to be in a committed relationship, and the 
concept of an option is sort of doomed to regulatory arbitrage 
and a race to the bottom, and inevitable distancing that 
occurs.
    And I think that to the extent that it permits companies to 
essentially engage in that kind of conduct or the regulators 
just begin not to ask the tough questions or have the kind of 
attitude that we have had for a hundred years, I think, is 
really problematic. And I think that we should not race to deal 
with a clunkiness, which I think NAIC needs to concede and look 
to a success on the securities side through the CRD system and 
other mandated registration and licensing systems.
    We should not completely change a system that is in my mind 
if you had to pick the two bases to judge success in insurance 
regulation, we have actually been world class. We have not done 
what I think is the third most important, as well, which is 
making our companies competitive. And I think, though, that 
that can be improved by some of the ideas that we're ready to 
discuss now.
    Mr. Barrett. So you think that the idea of a one-size-fits-
all type of concept is not the best in the world in allowing 
the States some flexibility to meet their own market demands is 
probably a pretty good idea?
    Mr. Dinallo. Yes, I think because insurance besides being, 
time and again people say it's a consumer-oriented product, it 
is also very important to understand the local markets. In 
property, in particular, you'll have all kinds of localized 
issues, and I think that one size does not fit all, at all, in 
insurance.
    I think that is something that people have to be very, very 
aware of, and I think that is why it has been successful in the 
last 100 years, because insurance regulators are very aware 
that success is quiet, and, you know, we're like the CIA. And 
only bad things end up in the paper, usually, when regulators 
go awry.
    So one of the reasons why I have tried to have New York do 
some of the higher profile things that we have done in the last 
year is I do want people to understand what their regulators do 
for a living, because when they do it well, generally, it is 
quiet.
    Mr. Barrett. Right.
    Mr. Dinallo. And it has been pretty quiet. Quiet is good.
    Mr. Barrett. It is good. We only hear about the bad stuff, 
don't we?
    Mr. Secretary, kind of the same thing. I mean, tell me what 
you think the benefits of an optional Federal charter would be 
for a State like South Carolina that is doing things right.
    Mr. Nason. I think South Carolina has a lot to be proud of 
in terms of how they are handling their regulation. They have 
one of the best in terms of not being welcoming of price 
controls, and they have one of the best and most competitive 
automobile insurance markets in the country, along with 
Illinois.
    I just wanted to suggest that we are not trying to 
eliminate the South Carolina regulatory system, and that is why 
it is not a one-size-fits-all approach to have an optional 
Federal charter. Under an optional Federal charter system, 
companies can elect Federal regulation. There is always a 
discussion about whether or not that invites regulatory 
arbitrage, but we are not writing on a clean slate when we talk 
about an optional Federal charter. We are building off of a 
platform that has served this country extremely well in the 
banking sector. The dual banking sector has a very similar 
structure to this.
    And what do I think an optional Federal charter will do? I 
think it will provide higher standards, not lower. I think that 
companies will gravitate towards those higher standards because 
uniformity will provide lower costs and better products to 
consumers. I think it will make us more competitive, and I 
think you will get more competition, more business, and more 
people writing coverage in South Carolina than before.
    Mr. Barrett. I see my time is up, Mr. Chairman.
    May I ask one more question, if the Chair would be so kind?
    So you honestly believe that a Federal regulator sitting 
somewhere in a lofty position is going to be more agile and 
more responsive than somebody, a State regulator, a State 
person who is in my State, who knows the people, who knows what 
is going on, who has been on the ground and understands the 
system?
    Mr. Nason. I think that the Federal Government has a good 
history of doing solvency regulation, so yes, I do.
    Mr. Barrett. Okay. Thank you, sir.
    Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you, Mr. Barrett.
    Mr. Meeks of New York?
    Mr. Meeks. Thank you, Mr. Chairman.
    I am trying to decide, you know, I have been listening to a 
lot of people on this issue on both sides and trying to figure 
out which way. And I think that there has to be a way somewhere 
in the middle where we can make sure that we're protecting the 
consumers, as well as making sure that we are being competitive 
in nature, because the world is different than it was 30 or 40 
years ago; it was a much smaller world.
    So, let me ask this first, dealing with the globalization 
that we are currently in, and I guess I will ask Superintendent 
Dinallo this question. When global financial services talks are 
held in other countries, that's what I'm trying to focus. It 
makes some of our people competitive.
    Do you think it harms the U.S. standing to have an official 
that can speak for only one insurance matter compared to 
banking and securities officials who speak on a national voice? 
And do you think that this problem would exist with other 
regulatory proposals that lack a national regulator?
    Mr. Dinallo. Again, one has to look at what the reality is. 
I think that we are the most open, most transparent, most 
robust insurance market in the world. I think that you have 
four States: California, New York, Florida, and Texas. They 
rank among the top 10 insurance markets in the world, just as 
those States by themselves.
    I would argue that if the tradeoff between enhanced global 
competitiveness is the possibility for market disruption, 
insolvencies, and poor consumer protection, I think we're doing 
pretty well against that kind of benchmark versus messing with 
the system.
    Now, I don't dispute that we should step back and enhance 
the registration and licensing and product approval process 
that is unnecessarily clunky, I think, in the State system. But 
I would not seek to completely rewrite the regulation of the 
insurance industry off of the history that we have. And with 
all due respect, I would argue that some of what has gone on in 
commercial banking has not been entirely positive. And, I know 
that last time, there was this big debate about whether it was 
the State's fault or the Federal Government's fault.
    I don't think it's any one system's fault. I think that a 
dual, chartered system has real pitfalls to it, and sometimes 
there are mis-picks. And there is certainly a regulatory 
arbitrage that I think is one that we should consider seriously 
steering away from.
    Mr. Meeks. You know where the market seems to be going, and 
I agree.
    Those four States, right now, are the biggest. But as the 
China's of the world, and the India's of the world, and others 
continue to grow, and you look at the number of individuals 
that are there, and as they begin to be able to afford it, 
etc., then that is a market that a number of our companies, and 
I surely want them to be able to compete in.
    Do you believe that by not having a national regulator, 
having one system, this system would hurt our competitiveness?
    Mr. Dinallo. I think where it's most challenging is in 
reinsurance. And I have in other public statements supported 
the ideas of passporting for reinsurance, or I know people have 
discussed some kind of body, maybe Federal/State partnerships 
where you do have some designated lead States and you've 
discussed the solvency. You know, New York has been a leader on 
this decollateralization issue, and I think we should seriously 
look at what is becoming arguably a trade issue.
    But I think that it's just to me an issue of deciding 
whether you have a lead State or some kind of body that's 
responsible for what really matters in reinsurance to a large 
degree, which is solvency, and the legal system of that State 
and your ability to enforce court decisions.
    But I don't think that the lack of a Federal regulatory on 
the scale that you're talking about is something that's going 
to doom us to uncompetitiveness. Right now, I would hazard to 
guess that other financial services areas wish they had such an 
intact regulatory system that does not have some of the issues 
that we've gone through in the last several years, and other 
countries, I think, would actually be envious of where we are 
right now.
    Mr. Meeks. Let me just ask this question. I see my time is 
running out. I have one question I want to ask Mr. Nason, but I 
want to ask one more question of the superintendent, as well.
    What about the reinsurance industry? It's a very global 
industry. They write contracts on multi-State bases. Their 
customers are sophisticated insurance companies, unlike direct 
companies, and they're not subject to rate and form regulation.
    Do you think the reinsurance industry merits congressional 
consideration of a Federal regulation?
    Mr. Dinallo. I have said publicly that it is not Federal 
involvement that I have an issue with. What I am concerned 
about is the optional part of it, and I have said publicly that 
in reinsurance in particular, there may be a good role for the 
Federal Government. Maybe there ought to be a role, but, again, 
we haven't had some of the issues and the insolvencies that you 
would otherwise be fearful of in reinsurance.
    But, I would say they have all of them, because it's a pure 
capital play and it's among institutional players. There is the 
greatest possibility there, but I think you could do it through 
passporting or the other model that I know the NIC is going to 
come up with and I think that the chairman is considering.
    Mr. Meeks. Mr. Secretary, let me just quickly ask you this 
question. The superintendent is right in the sense that, you 
know, the system seems to have been working, protecting 
consumers for a long period of time. I know that the Treasury 
Blueprint talks about public policy goals such as stability, 
solvency, consumer protection, consistency, and uniformity. It 
seems as though under the State system, that has been 
successful.
    Why do you think a Federal regulator now, you know, who may 
not have the same interest that the local or State individuals 
have, who have made sure that consumers are protected, why 
would a Federal regulator be a better person to come in and do 
this regulation as opposed to New York, who has this great 
history? Or South Carolina, as has been mentioned?
    Mr. Nason. I agree with the superintendent that we haven't 
seen recent problems on the State side for insurance companies. 
But, let's not kid ourselves. The State regulatory regime for 
insurance is not without problems. There were significant 
insolvency concerns in the 1980's. Those led to other calls for 
Federal action for insurance regulation, so there are certainly 
concerns that we have seen in the insurance regulatory 
structure. And, the current things that we are seeing in the 
credit crisis, there are certain problems that we have seen in 
terms of State regulation and failures in State regulation for 
some of the banking areas. So it would be incorrect to suggest 
that State regulation is a model of perfection, while Federal 
regulation has been a failure.
    I think that it is also a false choice to assume that 
moving to a Federal regulator is going to abandon adequate 
consumer protection. That is certainly not the case. I mean, we 
had suggested in our Blueprint and we would be advocating quite 
strongly that there would be a very strong consumer protection 
component to any Federal regulator for insurance. So I think 
that we both agree that consumer protection is a very important 
part of insurance regulation.
    I think that the data are compelling, that we need to move 
to Federal regulation for insurance considering the changes 
that we've seen in the insurance market, and I think that it is 
incorrect to suggest that the State regulatory regime did not 
experience problems in our recent history, in fact.
    Mr. Meeks. Thank you, Mr. Chairman. I yield back.
    Chairman Kanjorski. Thank you, Mr. Meeks.
    Now, Mr. Scott of Georgia?
    Mr. Scott. Yes. Let me carry that line of thinking along, 
just a little bit, Mr. Secretary, and Mr. Superintendent.
    In fact, though, we're moving along pretty well. You know, 
I served in the Georgia House of Representatives for 8 years, 
down in Georgia, and in the State senate for 20 years. We're 
doing very well in Georgia. We're doing very well across with 
the system as we are moving.
    My concern about the Federal charter is I know one thing it 
would do. It would have a very devastating, negative impact on 
competition, especially with the smaller companies competing 
with the larger companies. There would also be some very 
problematic issues of timelines, of how would it be 
implemented.
    Why is it necessary to be implemented, especially when the 
system now is stable and is functioning? And on the two really 
important points of consideration, competition within the 
industry, and most of all the benefits to the consumer, because 
at the end of the day, that is really what we are after. The 
benefits to the consumer, the convenience of the consumer, and 
it just makes sense.
    Now, I just want to get to one example. According to the 
NAIC data, States generate roughly $2.75 billion in non-premium 
tax revenues from insurers and producers. Correct? My bill that 
we're working on, my colleague, Geoff Davis, and about 35 other 
co-sponsors are working with, requires the agents and the 
brokers to pay the licensing fees in every State in which they 
operate.
    But, under the proposal like the optional Federal charter, 
the States would forfeit these dollars for each insurer and 
producer that shifts to a Federal charter. That is a tremendous 
loss of revenue and another negative feature that would happen 
with the optional Federal charter. I am not in any way poking 
holes in this; I am just trying to bring a major point of 
clarity here.
    If the largest of insurers representing the vast majority 
of fees and premium volume become federally chartered, how will 
States recover from losing this $2.75 billion, the significant 
source of general revenue?
    Mr. Nason. Let me go back to the beginning of your 
question, first, to say that simply because we are doing well 
does not mean that we shouldn't be striving for improvement. If 
the goal of what we are trying to achieve is to provide 
benefits to the consumers, I think a regulatory structure that 
takes away redundancies and burdensome costs will be passed on 
to the consumer, and those consumers that we are trying to look 
after will have lower priced products and more choices, and 
will not have to suffer any detriment to consumer protection.
    With regard to your second question, the legislation that 
has been proposed in both Houses by Congresswoman Bean and 
Congressman Royce has provisions to protect some of the funding 
that is provided to the States in terms of State tax revenue to 
address some of those concerns that you are referring to. So 
the details of how that legislation is crafted to deal with 
some of those issues would need to be worked out, but I think 
they could be worked out.
    Mr. Scott. Let me continue that line of questioning.
    Mr. Dinallo, I would like for you to respond and give me 
your thoughts on that, as well. That is a significant amount of 
money, just one example. But I honestly believe that States 
having primary authority over the insurance industry is a 
legitimate regulatory entity.
    And as States are able to make their own rules, to comply 
with what that State deems important for their population and 
have the independence to grow in their own way, each State is 
different. Trying to make one shoe fit all feet in this room 
would be an impossibility, and that applies to these very 
diverse and different States with different features in each 
different region.
    But that dependence to grow in their own way and on their 
own time would further ensure competition within the industry. 
I think this is the case, don't you? And wouldn't ensuring 
States having the primary authority over the industry ensure 
that competition?
    I would like for you to talk about cost. You talked about 
efficiencies, you know. How would some Federal oversight 
increase or decrease efficiency?
    Mr. Dinallo. I think there is a history of the States being 
innovative. There are some attributes of a kind of a 
competitive system. I actually don't think competition among 
regulators is the worst thing in the world. I know that 
Secretary Paulson in his statement about the Blueprint said 
that as if it were a negative. I think sometimes it's a 
positive because I think the people demonstrate between 
themselves the best way and that can become a national 
standard, and I think that one always has to be aware of that.
    I think that you're correct that there is going be some 
loss of revenue base. But again, I don't think that Assistant 
Secretary Nason and I are so far apart on the following 
concept, which I think is something that you were talking about 
in your opening comments, we do need to find ways where we 
streamline and do nationalize certain aspects of insurance that 
I think would not run afoul of your concerns. And I think those 
should be in areas concerning registration and licensing, and I 
think we should get there. I think it's important. I urge the 
committee to look at what happened on the security site in 
those areas, and look at CRD and THINRA remodel now, because I 
think it's a way, it's the best way I can think of to achieve 
the best of all worlds, sort of the ultimate compromise--
although that's probably the wrong word--the maximal way to 
save the best parts of the different systems or the approaches 
of a Federal system, which I think we do need to worry a little 
bit about speed to market and the registration of producers. 
Those are important things.
    The States may never be able to do them as well as if the 
Federal Government, so to speak, gave certain overarching 
authority in minimum stands. Or the NARAB approach. But I'd 
almost rather that become something that is not optional.
    Mr. Scott. Okay. Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you. We can now hear from the 
gentlewoman from Illinois, Ms. Bean.
    Ms. Bean. Thank you, Mr. Chairman. And thank you for 
waiting until I could get to my questions. But it looks like 
I'm last. So if we are quick and no one else sneaks in, you 
will get out of here pretty soon.
    I have a couple of questions for Secretary Nason. First, 
the Treasury Blueprint calls for the creation of a national 
insurance office that would offer the option of uniformity and 
national regulation. What are some of the effects you think 
would develop from the additional efficiencies of that 
uniformity and also specific relative to product approval, 
speed-to-market, and portability?
    Mr. Nason. I think the benefits are many. I think that cost 
for companies doing business on a national basis would go down. 
I think that the speed-to-market concerns that the NAIC is 
working very diligently to impact with their interstate compact 
would be addressed comprehensively and with one fell swoop in 
that type of legislation. So I think products would get out to 
the marketplace faster. I think both of those things would be 
extremely important benefits to what is essentially a national 
industry.
    Ms. Bean. Do you think speed-to-market would spur greater 
innovation since there's a greater reward for being the early 
market entrants? Coming out of the high-tech industry, I know 
often that was the reward for doing R&D, to coming out with new 
products, taking it to market first as you would get the lion's 
share of that marketplace.
    Mr. Nason. Right.
    Ms. Bean. Right now there isn't that incentive in the 
insurance industry.
    Mr. Nason. Sure. Absolutely. I think that one of the 
problems that inhibits innovation in the insurance industry is 
regulatory structure. I think that is beyond debate.
    Ms. Bean. Thank you. The other question is--as the 
Blueprint outlines pretty clearly--as the marketplace has 
evolved in the capital market space, and there is a lot of 
convergence of product types, so insurers are engaged in far 
more complex financial transactions than they once were, are 
States equipped to regulate those more sophisticated global 
insurance products?
    Mr. Nason. I think that is a very good question, and I 
think these companies are getting more and more complex. One of 
the comments that we received was--I will read it and then I 
will just describe where it was from--``The current United 
States regulatory structure is not fully equipped to supervise 
the sophisticated insurance marketplace of the 21st Century. 
The need to operate within the State patchwork of regulation in 
the United States means that insurers with customers with 
worldwide operations are hindered in their efforts.''
    That was submitted to us in connection with our Blueprint 
and one of the signers was a former president of the NAIC.
    Ms. Bean. I appreciate your clarification on that, and I 
also want to thank you for addressing Congressman Scott's 
concerns about State revenues, because it would be revenue-
neutral. There wouldn't be a loss of revenues to the States. I 
don't think he heard me, but I will share that with him later. 
But I am glad that you cleared that up for the record. Thank 
you, and I will yield back.
    Chairman Kanjorski. Gentlemen, we have come to the end of 
the first panel. Thank you very much for your indulgence. The 
panel is now dismissed, and I would like to welcome the second 
panel.
    I am pleased to welcome our second panel. First we will 
have Mr. Lawrence H. Mirel, partner, Wiley Rein, LLP, on behalf 
of the Self-Insurance Institute of America to discuss retention 
group reforms. Mr. Mirel?

  STATEMENT OF LAWRENCE H. MIREL, PARTNER, WILEY REIN LLP, ON 
    BEHALF OF THE SELF-INSURANCE INSTITUTE OF AMERICA (SIIA)

    Mr. Mirel. Thank you, Mr. Chairman, and members of the 
subcommittee. My name is Lawrence Mirel, and I am with the law 
firm of Wiley Rein. I am the former commissioner of insurance 
securities and banking for the District of Columbia; I served 
in that position from 1999 to 2005.
    I am delighted that the subcommittee is taking on these 
various insurance regulatory reform proposals, and I am honored 
to be invited to participate.
    I am here today on behalf of the Self-Insurance Institute 
of America, to testify in favor of H.R. 5792, the Increasing 
Insurance Coverage Options for Consumers Act of 2008. SIIA, as 
it is known, is the country's largest nonprofit association 
that represents companies involved in the self-insurance 
alternative risk transfer marketplace. Its membership includes 
self-insured employers, captive insurance companies, risk 
retention groups, insurance entities, captive managers, third-
party administrators, and other industry service providers.
    I won't go through the history of the Liability Risk 
Retention Act because it was covered earlier by Mr. Moore, who 
is the co-sponsor of this new bill, but it goes back to the 
crisis that we had with liability insurance in the 1980's. 
Today, there is a new insurance crisis. Because of the 
devastation caused by Hurricane Katrina and the other major 
storms in 2005, commercial insurers are reevaluating their 
exposure in areas of concentrated catastrophic risk and in some 
cases are seeking to reduce their property insurance coverage 
in such areas.
    As a result, the cost of property insurance is rising 
everywhere, and in some places it is hard to obtain at any 
price. This has led to a renewed interest in the possibilities 
offered by the alternative risk market, which includes all 
kinds of self-insurance mechanisms, including risk retention 
groups.
    These non-traditional insurance entities provide options 
that are not available through the commercial insurance market. 
Risk retention groups in particular provide a way for 
businesses and nonprofit organizations that are engaged in 
similar kinds of activities and face similar risks to band 
together and collectively provide insurance coverage to their 
members.
    Currently, these risk retention groups may only offer 
liability insurance. The new bill would allow them to offer 
property insurance as well.
    I want to point out that the bill under consideration does 
not call for a government solution to the property insurance 
crisis. No new responsibilities would be undertaken by any 
agency of the Federal or State Governments, and no taxpayer 
money would be put at risk. This bill would simply provide 
consumers with another competitive option to manage their risk 
exposure in a difficult environment where capacity is limited.
    As the GAO said in its 2005 report on risk retention 
groups, risk retention groups have had an important effect on 
increasing the availability and affordability of commercial 
liability insurance for certain groups. We think it will have 
the same effect on property coverage availability as it did on 
liability coverage availability.
    A risk retention group offers a number of important 
incentives to its members. Policies can be written that more 
precisely fit the risks of the member entities. Risk retention 
groups offer their members custom-made insurance plans instead 
of the off-the-shelf plans offered by commercial writers.
    Underwriting can be geared to the actual risks of the 
member companies instead of their risks being averaged with the 
risks of other kinds of entities that may in fact be very 
different. A risk retention group allows more knowledgeable and 
professional risk management to take place.
    Perhaps most important of all, the appeal of the risk 
retention group is that it can operate across State lines 
without having to be licensed in multiple jurisdictions and 
subject to overlapping regulatory authority.
    Mr. Chairman, I don't want to take any more time because I 
know we're short of time, but I do want to thank in particular 
Congresswoman Pryce and Congressman Moore for their leadership 
in introducing this bill. We think it will provide an important 
new option to people who are looking for property insurance 
coverage. It will not solve the problem, but it will help.
    We thank you for listening to this testimony and for 
considering the bill.
    [The prepared statement of Mr. Mirel can be found on page 
98 of the appendix.]
    Chairman Kanjorski. Thank you, Mr. Mirel. I appreciate 
that.
    Next we have Mr. Alastair Shore, senior vice president and 
chief underwriter of CUNA Mutual Group, on behalf of the 
American Council of Life Insurers and the American Insurance 
Association, to discuss optional Federal charter.
    Mr. Shore?

 STATEMENT OF ALASTAIR SHORE, SENIOR VICE PRESIDENT AND CHIEF 
   UNDERWRITER, CUNA MUTUAL GROUP, ON BEHALF OF THE AMERICAN 
COUNCIL OF LIFE INSURERS AND THE AMERICAN INSURANCE ASSOCIATION

    Mr. Shore. Thank you. Good afternoon, Chairman Kanjorski, 
Ranking Member Pryce, and members of the subcommittee. My name 
is Alastair Shore and I am the chief underwriter of CUNA Mutual 
Group. I appreciate the opportunity to testify at today's 
hearing on insurance regulatory reforms on behalf of CUNA 
Mutual's insurance trade associations, the American Insurance 
Association, and the American Council of Life Insurers. And I 
would like to thank the subcommittee for its leadership in the 
reform debate and its commitment to finding the best solution.
    CUNA Mutual is the leading provider of insurance and other 
financial services to credit unions and their members 
worldwide, and is the parent organization of all insurance 
companies that form CUNA Mutual Group. Established by the 
pioneers of the credit union movement in 1935, CUNA Mutual has 
a long and distinguished history in the United States.
    While we work very closely with CUNA, the Credit Union 
Trade Association, we are separate entities. Comments today 
reflect the position of CUNA Mutual, the insurance company.
    Having operated in the State regulatory structure for over 
70 years, CUNA Mutual strongly supports optional Federal 
chartering for insurance companies as the best reform 
alternative for consumers, the industry, and the economy.
    And we sincerely believe that the subcommittee's 
examination of this issue will lead you to the same conclusion.
    H.R. 3200, introduced last July by Representatives Melissa 
Bean and Ed Royce, is a strong consumer protection bill, which 
focuses on a centralized system that emphasizes safety, 
soundness, and consistency of regulation. And as Representative 
Bean highlighted, these protections come without sacrificing 
State premium taxes.
    We also strongly support the Treasury's view that an 
optional Federal charter would play an important role in the 
new world of integrated financial markets, and would address 
the burdens imposed by the State system on insurers and 
consumers alike.
    Insurers, banks, and capital markets investors are now 
offering products that may be substitutes for each other, and 
there is a trend towards one-stop shopping for finance and risk 
management needs.
    Insurers must have a regulatory system that adapts to 
market realities and allows them to compete in a level playing 
field and to serve the evolving needs of the policyholders.
    Moreover, the turmoil that has riled the financial system 
highlights the interconnectedness of our financial system and 
the importance of insurance to the proper functioning of that 
system. This is precisely the time to enact regulatory reforms 
that strengthen solvency oversight and foster a more 
competitive regulatory environment for insurers at the Federal 
level. Waiting will make it more difficult to correct existing 
problems.
    The current State insurance regulatory system basically 
reflects an approach that began in the 19th Century and 
continued to expand following the passage of the McCarran-
Ferguson Act, Federal law recognizing insurance as a product of 
interstate commerce, and delegating regulatory responsibility 
to the States, subject to congressional recapture at a later 
date.
    Under McCarran, the result at the State level has been a 
regulatory scheme that lacks uniformity of efficiency, reflects 
outdated assumptions that are far from accurate today, and 
focuses on government intrusion in the market.
    Moreover, our competitiveness is further restricted as our 
international trading partners move to develop more streamlined 
insurance regulatory models that will leave the United States 
behind. One such development involved the introduction of risk-
based insurance solvency requirements across the EU, an 
initiative known as Solvency II.
    The new solvency requirements will enable better tracking 
of the real risks run by any particular insurer, while at the 
same time encouraging competition and innovation. But the 
regulatory structures in this country will not allow U.S. 
insurers to be easily integrated into Solvency II to the extent 
that they want to take advantage of it.
    In the end, U.S. insurers' competitiveness may suffer.
    For these reasons, we encourage you to take a close look at 
H.R. 3200 as the answer. Our national companies and optional 
Federal charter would displace the current multi-State 
regulatory patchwork, with a framework for uniformity, 
consistency, and clarity of regulation focused on consumer 
needs and protection. The Federal charter option would also 
displace the regulatory red tape and government price and 
product controls that characterize the current system.
    Although H.R. 3200 effectuates a fundamental shift in 
regulatory application, it also proposes to put in place an 
oversight regime as strong or stronger than any found in an 
individual State today.
    Let me close by emphasizing that insurance regulatory 
reform is a critical imperative that will determine the 
viability of one of our Nation's most vital economic sectors 
and help define how our economy manages risk in the future.
    The choice is between the existing 19th-Century State 
regulatory bureaucracy or a new approach that relies on 
individual choice, competition, and the evolution of our 
customer's needs in the 21st-Century global economy.
    Thank you for the opportunity to present our views today.
    [The prepared statement of Mr. Shore can be found on page 
114 of the appendix.]
    Chairman Kanjorski. Thank you, Mr. Shore.
    Next we have Mr. Thomas J. Minkler, president of the Clark 
Mortenson Agency, on behalf of the Independent Insurance Agents 
and Brokers of America, to discuss the National Association of 
Registered Agents and Brokers Reform Act of 2008.
    Mr. Minkler?

STATEMENT OF THOMAS J. MINKLER, CIC, PRESIDENT, CLARK-MORTENSON 
AGENCY, INC., ON BEHALF OF THE INDEPENDENT INSURANCE AGENTS AND 
                       BROKERS OF AMERICA

    Mr. Minkler. Thank you, and good afternoon, Chairman 
Kanjorski, Ranking Member Pryce, and members of the 
subcommittee. My name is Tom Minkler, and I'm pleased to be 
here today on behalf of the Independent Insurance Agents & 
Brokers of America and our 300,000 individuals to provide our 
perspective on H.R. 5611, the NARAB Reform Act.
    I am the president of the Clark Mortenson Agency, a New 
Hampshire-based agency with 51 employees, that offers a broad 
array of insurance products to consumers and commercial 
clients, and specifically I'm licensed to do business in nine 
States.
    The most serious regulatory challenges facing insurance 
agents today are the redundant, costly, and sometimes 
contradictory requirements that arise when seeking licenses on 
a multi-State basis. The root cause of these problems is the 
failure of many States to issue licenses on a truly reciprocal 
basis.
    To rectify this problem, we strongly support the NARAB 
Reform Act, or NARAB II. Introduced by Representatives David 
Scott and Geoff Davis, this legislation would streamline non-
resident insurance agent licensing, but is deferential to 
States' rights as the day-to-day State insurance laws and 
regulations would not be affected by this legislation.
    Given the strong bipartisan support of NARAB II--there are 
already over 30 co-sponsors--we are excited about the prospects 
for this bill. I personally would like to thank Representative 
Scott, Representative Davis, and the members of the 
subcommittee who co-sponsored the bill for their support.
    Today, State law requires insurance agents and brokers to 
be licensed in every State in which they operate. Therefore, 
agents are forced to comply with varying and inconsistent 
standards and duplicative licensing requirements. These 
requirements are costly and burdensome, and they hinder the 
ability of insurance agents to effectively address the needs of 
consumers. In fact, the current licensing system is so complex 
and confusing that many have retained expensive consultants in 
order to comply with the requirements of every State in which 
they operate.
    In my office, I have two individuals that I have to ask to 
take time away from their primary job functions just to manage 
and track licensing requirements in the States where I do 
business. This is not only very time-consuming, but it's 
counterproductive to serving my clients.
    Some observers mistakenly believe that most insurance 
agents operate only within their home State, and that the 
problems associated with licensing only affect the Nation's 
largest insurance providers. The reality is that the average 
independent insurance agency today operates in more than eight 
States, and it's increasingly common for small and mid-size 
agencies to be licensed in 25 to 50 States.
    Congress recognized the need to reform the industry's 
multi-State licensing system back in 1999, when it incorporated 
a NARAB subtitle into the Gramm-Leach-Bliley Act. However, true 
reciprocity remains elusive. Our diverse membership of small 
and large agents hope meaningful reform is imminent, but we are 
still waiting for the promised benefits.
    Our members are frustrated by the many challenges and 
burdens they continue to face, and are increasingly impatient 
with the lack of actual progress.
    Let me briefly mention some of the most prominent problems. 
Despite claims to the contrary, many States have not 
implemented licensing reciprocity. States continue to impose 
additional conditions and requirements. These extra 
requirements make it impossible for agents to quickly and 
effectively obtain and maintain the necessary license and 
violate the reciprocity standards established in Federal and 
State law.
    The NAIC maintains that approximately 43 States have met 
this reciprocity standard established in GLBA, but the 
suggestion that so many States license non-residents on a truly 
reciprocal basis would come as a surprise to the real-world 
practitioners.
    Many of you probably do not realize that non-resident 
agents typically confront three layers of licensing 
requirements, as many insurance departments require non-
residents to obtain individual license, to obtain similar 
agency licenses, and to provide proof that the agency is 
registered as a foreign corporation.
    Agents have long identified the development of a one-stop, 
non-resident licensing facility as a priority. The National 
Insurance Producer Registry has been working for more than 10 
years to achieve that goal. While NIPR has made some progress 
and brought certain efficiencies to the marketplace, its 
accomplishments have been overstated by some and its objectives 
remain unfulfilled.
    The primary challenge facing NIPR is that its licensing 
system must accommodate the requirements that are imposed by 
the States, and NIPR cannot realize its vision until States are 
truly reciprocal and that duplicative licensing problems have 
been addressed. NARAB II would address these barriers to 
reform.
    NARAB II employs the framework first developed by Congress 
in 1999, and utilizes the experience and insights obtained over 
the recent years to improve on the concept. It eliminates 
barriers faced by agents who operate in multiple States, 
establishes licensing reciprocity, and creates a one-stop, non-
resident facility.
    The bipartisan proposal benefits policyholders by 
increasing marketplace competition, and consumer choice, and by 
enabling insurance agents to more quickly and responsively 
serve the needs of the consumers.
    Once duly licensed in their home State, an agent would 
apply to NARAB and would have to satisfy NARAB criteria for 
membership. NARAB would not be a part of, or report to, any 
Federal agency and would not have any Federal regulatory power.
    H.R. 5611 merely addresses marketplace entry. State 
regulators would continue to supervise and discipline agents, 
and would continue to enforce State consumer protection laws.
    The bill also does not affect resident licensing 
requirements for agents who are satisfied with the current 
system. In short, NARAB II would provide a more efficient, 
modernized, and workable system of insurance agency licensing 
for all stakeholders.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Minkler can be found on page 
86 of the appendix.]
    Chairman Kanjorski. Thank you, Mr. Minkler.
    Next we have Ms. Frances Arricale, executive director of 
the Interstate Insurance Product Regulation Commission, to 
discuss the Compact.

 STATEMENT OF FRANCES ARRICALE, EXECUTIVE DIRECTOR, INTERSTATE 
            INSURANCE PRODUCT REGULATION COMMISSION

    Ms. Arricale. Thank you, Chairman Kanjorski, Ranking Member 
Pryce, and members of the subcommittee. I greatly appreciate 
the opportunity to be here with you and to provide an update on 
the start-up success of the Interstate Insurance Compact. My 
name is Frances Arricale, and I am the executive director of 
the Interstate Insurance Product Regulation Commission.
    The Commission is the actual public agency that manages the 
day-to-day affairs of the Compact. As you heard in prior 
testimony, the Compact does have 31 members to date, which 
encompasses 50 percent of the premium volume nationwide in our 
authorized product lines. We are an asset-based interstate 
compact, and that would be life insurance, annuities, long-term 
care, and disability income.
    And we have had a great start-up success in meeting the 
goal of speed-to-market for those products, and doing that 
while ensuring continued consumer protection in the 
marketplace. We leverage the State-based system, the experience 
of the State-based system, to meet the demands of the global 
marketplace, allowing insurers to get their products to market 
quickly, without sacrificing consumer protection.
    As you know, insurance is a unique product. It is a promise 
for future protection, for which current premiums are 
collected, and there is a very important concern that our 
regulators be able to respond locally to consumers.
    We are able to provide a national platform while continuing 
to ensure that State insurance regulators are able to respond 
to consumers locally.
    We have had great start-up success. We initiated our actual 
filing operations last year, where insurance companies can make 
one filing under one set of standards for one approval that is 
valid in all of our member States, and we do that with a speed-
to-market commitment of under 60 days, so that actually 
insurers can get a product to market in under 60 days.
    We have achieved a great deal of consensus with our member 
States, working with our regulators, our State legislators, 
working with the industry and consumer representatives to 
promulgate national standards. We already have a portfolio of 
standards in the life area, and we are currently working on 
standards in the annuities area. We expect to fulfill the 
portfolio of the four lines and asset-based products by next 
year, and we do this by utilizing technology. These are 
electronic filings that are made and we continue to work with 
our member State insurance departments to provide them with the 
most up-to-date information they need to respond to their 
constituents locally.
    I will note that our standards are truly a race to the top. 
We are not looking for the lowest common denominator among the 
States. We are looking to raise consumer protections. Our 
member States are committed to that.
    One example is currently right now we are working on 
annuity standards. As you know, there are some concerns raised, 
particularly for seniors on annuity standards, and we are 
looking to raise the consumer protections, particularly on 
surrender charges. And that will be accepted in all 31 of our 
member States, and growing.
    We also make sure that the policy forms themselves are 
readable. We have raised the national standards on readability 
of policies, and we make sure that the policies themselves have 
our insurance commissioner's numbers right on the policy, so if 
they have a concern, that they are able to directly contact 
their insurance departments, thus, having a national standard 
but having consumers be able to reach out to their regulators.
    Also, while we have 31 States, we have 10 States currently 
with legislation pending. In order to join the Compact, you 
need to pass the Compact model statute in your State 
legislature. We have 10 States currently, and as you heard, New 
York is one of those States. We have a number of other States, 
including California, New Jersey, and Illinois pending in their 
legislatures, and we look forward to welcoming more States into 
the Compact.
    While we have achieved initial success, we are certainly 
looking for more achievements, going forward. We have approved 
over 50 products already through the Compact. Those are in the 
marketplace and they were approved within the speed-to-market 
60-day turnaround time. We certainly recognize that the 
industry is looking to put out innovative products to really 
meet the ASA protection demands of the public, and we are 
working towards standards in all of those lines also to 
encompass innovative products. We will also be expanding our 
operations and encouraging additional States to join us.
    I would like to leave you with this--the regulators, the 
State legislators have heard the call that reform is necessary. 
They have spoken about it through the NAIC, but we have 
actually delivered on an operational reality that we are ready, 
we are here, we are approving products, and we're only going to 
expand and build a state-of-the-art operation in order for the 
insurance sector to be able to compete in the global economy.
    We have built the frameworks of uniformity, and we are now 
utilizing those, and I look forward to answering any of the 
questions of the subcommittee.
    Thank you.
    [The prepared statement of Ms. Arricale can be found on 
page 50 of the appendix.]
    Chairman Kanjorski. Thank you very much, Ms. Arricale.
    Finally, we will hear from Ms. Donna Pile, managing partner 
of A.G. Perry Insurance Agency, on behalf of the National 
Association of Professional Insurance Agents, to discuss the 
National Insurance Producer Registry.
    Ms. Pile?

  STATEMENT OF DONNA PILE, CIC, CPIW, CPIA, MANAGING PARTNER, 
    A.G. PERRY INSURANCE AGENCY, ON BEHALF OF THE NATIONAL 
       ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS (PIA)

    Ms. Pile. Chairman Kanjorski, Ranking Member Pryce, and 
members of the subcommittee, thank you for the opportunity to 
participate on this panel. We appreciate the thoughtful, 
deliberative manner in which you are discussing the complex 
issue of insurance modernization and reform.
    My name is Donna Pile, and I am a main street agent in 
Lexington, Kentucky. Last year, I had the honor of serving as 
president of the National Association of Professional Insurance 
Agents, and I am proud to represent PIA's over 10,000 main 
street agents, their employees, and their customers. All PIA 
members are licensed insurance producers in their State of 
residence, and most agencies for PIA operate in three or more 
States. Accordingly, insurance regulatory modernization then is 
a vital issue for all of our PIA members for many, many 
reasons.
    The first and foremost fundamental is the State insurance 
producer licensing system. Our licensing system is comprised of 
resident license, non-resident license, and the multi-State 
licensing system, across which all of these occur. PIA was one 
of the original trade associations working with the National 
Association of Insurance Commissioners and the National 
Conference of Insurance Legislators to set up and fund an 
electronic licensing system for producers.
    We realized early in the 1980's that an electronic 
systematic was the wave of the future, and testified as early 
as 1988 on the producer licensing reform before the House 
Commerce Committee.
    The committee today has requested that PIA National 
concentrate our comments on the NIPR, or the National Insurance 
Producer Registry System. The producer licensing mechanism has 
been modernized and work is ongoing. It is a nationwide, State-
based electronic system, similar to the State security system, 
CRD, or Central Registration Depository, a licensing system 
too. Just like the securities licensing system, the insurance 
producer licensing system was built by the States for the 
States and should remain under State control.
    The mission of the NIPR is to be a premier public/private 
partnership supporting the work of the States and the NIIC for 
re-engineering, streamlining, and making uniform the producer 
licensing process for the benefit of regulators, for the 
insurance industry, and for consumers.
    The NIPR has brought us to the future through electronic 
licensing. Through NIPR's non-resident licensing service, 
producers and insurers can apply for non-resident licensing now 
in 47 jurisdictions and receive confirmation within a few 
business days. Obtaining a non-resident license in California, 
for example, some years ago, used to take up to 3 months. Now 
California, beginning to utilize more of the NIPR's 
capabilities, can process in less than 3 weeks.
    The important thing about the producer licensing under NIPR 
is that this system is up and running in almost all 
jurisdictions and can be completed in probably the last five, 
in a very relatively short time.
    The substantial portion of the investment of the system has 
already been made by the States. We are now in the process of 
putting the last segments to achieve our goal of a one-stop 
licensing system in the next 2 to 3 years.
    As with all licensing matters, achieving a one-stop 
licensing system for insurance producers among the States 
requires a great deal of effort. In order to get the few 
remaining States to participate in the NIPR, PIA is committed 
to our State legislators and our regulators to keep this 
process ongoing.
    We offer, on behalf of the NIPR, a PowerPoint presentation 
that we respectfully request to be included in the hearing 
record. This presentation will highlight for you the work that 
has been done and how close we are to accomplishing this 
modernized system.
    Also, States fully utilizing all of NIPR's services will 
help producers understand and know the States' laws and 
practices that are properly aligned, so that all of us who 
operate in several jurisdictions have a better understanding 
and a certainty of our compliance of our compliance 
obligations.
    Whatever the path one might choose to reform insurance 
producer licensing, the steps that we are undertaking with the 
States currently still must be done. The path to reform is 
almost complete with producer licensing through the utilization 
of the NIPR.
    PIA National believes that the fundamental public purpose 
and obligation of all regulation is the safety and the 
protection of the consumer.
    This includes supporting a sound and competitive 
marketplace, but it also requires oversight and enforcement of 
the sector's participants so that they are in compliance with 
the law, again for the benefit of the people.
    The NIPR electronic system assists regulators with their 
mandate to protect consumers by allowing them to police the 
marketplace in a more effective manner. PIA National has been 
charged by our members to facilitate a modernized licensing 
system. The action plan we've presented through the NIPR 
delivers an immediate result.
    Specifically in licensing, it is a constitutional and very 
well designed to be compatible with the overall, long-term 
modernization of the State oversight system.
    PIA members need a system that aligns all authorities to 
create a harmonized system.
    We thank you for the opportunity to share PIA's perspective 
on this important issue. PIA members are local agents serving 
main street America, and we appreciate your efforts to hold 
States accountable to the modernization goals.
    [The prepared statement of Ms. Pile can be found on page 
110 of the appendix.]
    Chairman Kanjorski. Thank you very much, Ms. Pile. I 
appreciate it. Now, before I go into my questions and thanking 
the panel for their testimony, I know we have gone much later 
than everybody anticipated. Does anybody have a flight that we 
are putting you at risk of missing? And if so, what do we have 
to do to accommodate you?
    Mr. Minkler. Mr. Chairman, it may be too late. So, I'm here 
for the duration.
    Chairman Kanjorski. Oh, I am sorry. Anyone else?
    Well, then I thought we would go until midnight, if that is 
all right with everyone here.
    Mr. Shore. I also have that challenge. So we'll see how we 
get on.
    Chairman Kanjorski. Okay. Well, let me just waive my 
questions initially. If I have some that are so burning that I 
have to go back to them, I will. Let me go to Ms. Pryce for her 
questions.
    Ms. Pryce. Thank you very much, Mr. Chairman. Obviously I 
am very grateful to the subcommittee for staying here all day. 
Those of us who are used to this type of thing, having our 
lives ruled by the votes schedule, or lack of schedule, as it 
were, it's sort of a way of life that you warrant, and so I 
appreciate your flexibility.
    I'm also interested because of the bill just introduced by 
myself and Mr. Moore and talking a little bit to you, Mr. 
Mirel, and any of you who would like to comment on risk 
retention. And perhaps you could comment on the impact that 
this bill, or one like it, might have on easing the insurance 
of affordability and availability, which is at crisis levels in 
some places, prone to catastrophic risk. I think I know the 
answer, but I would like to hear you perhaps edify me on the 
response that I think you will give.
    Mr. Mirel. Thank you, Ms. Pryce. I appreciate the question. 
As I said earlier, it is not going to solve the problem all by 
itself. But it will provide another option to people who have 
commercial property risks in dangerous places like the Gulf 
Coast or the Atlantic Coast or earthquake zones or terrorist 
zones for that matter. They will have the option to come 
together to form a risk retention group, or if they already 
have a risk retention group in place that's offering liability 
insurance, they will now have a new opportunity to be able to 
get property coverage through this self-insurance mechanism.
    It will be, I think, an important benefit to a small but 
important group of people and businesses that otherwise will 
not have good options or realistic options.
    Ms. Pryce. And there is, you know, a list of supporters 
that is very, very long to this bipartisan bill, and we have 
distributed it, of course, as far and wide as we can. But they 
range from hospitals to universities, public housing, consumer 
groups, and many in the industry.
    But there are some that haven't been able to give it its 
full support, and I'm not sure why. I assume it's just 
competitiveness and market share, that type of thing. Would 
that be your impression? Any of you who want to respond, please 
do.
    Mr. Mirel. Yes. I think that this is a pro-competitive 
bill. This does not cut anybody out; it simply gives more 
options to consumers. It will, of course, threaten people who 
now have the opportunity to have market shares that they might 
lose some of if this went forward. But even there, I think this 
is a minor problem, because in many of the areas where this 
will be used, insurers who now have the market are leaving; 
they are cutting back; they don't want the exposure. So even 
there, it is not a large problem, in my view.
    Ms. Pryce. Well, I appreciate that. I see Mr. Moore is here 
and I appreciate his cooperation. We have worked on many things 
in the past, and this is just another example of a good 
bipartisan piece of legislation. In the interest of everybody's 
time, I will yield back. Thank you so much.
    Chairman Kanjorski. Thank you very much, Ms. Pryce.
    The gentleman from Kansas, Mr. Moore?
    Mr. Moore of Kansas. Thank you, Mr. Chairman. Mr. Mirel, in 
your testimony, you referred to some of the problems the GAO 
identified with corporate government standards for risk 
retention groups. And in the legislation that Mrs. Pryce and I 
filed, we tried to address these concerns by implementing the 
National Association of Insurance Commissioners' proposed 
government standards for risk retention groups. As a former 
insurance commissioner yourself, perhaps you know our former 
insurance commissioner, and now Governor, Kathleen Sibelius.
    Mr. Mirel. Very well.
    Mr. Moore of Kansas. Can you explain how the legislation 
would help fix the problems addressed in the GAO report, sir?
    Mr. Mirel. I think that the inclusion of those standards, 
Representative Moore, is very important to the success of this 
legislation. The whole idea behind the risk retention group is 
that it is run by its members for its members, and there have 
been some questions raised, some problems raised--the GAO noted 
these in its report--that sometimes the risk retention group is 
managed by outside interests and not always necessarily in the 
best interest of the members.
    The provisions of the bill that adopt the NAIC standards, I 
think, will go a long way toward preventing that kind of abuse.
    Mr. Moore of Kansas. Thank you, Mr. Mirel. One more 
question, the other part of our legislation would allow risk 
retention groups and risk purchasing to expand their coverage 
options beyond just liability coverage to include commercial 
property coverage. Can you explain who might need access to 
this new type of coverage, and why now might be the best time 
to enact these provisions into law, sir?
    Mr. Mirel. Yes, sir. I think that the ability to be able to 
come together to provide self-insurance through this mechanism 
of a risk retention group will mostly benefit those who are 
currently experiencing difficulty in finding coverage, or 
finding affordable coverage. And that primarily, right now I 
think, affects the Gulf Coast and Atlantic Coast up as far as 
Massachusetts. Commercial property is difficult to insure in 
some of those areas, because commercial insurers are pulling 
back. And this provides these kinds of groups with another 
option, an important option.
    Mr. Moore of Kansas. Thank you very much, Mr. Mirel. Mr. 
Chairman, I yield back.
    Chairman Kanjorski. Thank you very much, Mr. Moore. And now 
the gentleman from California, Mr. Royce?
    Mr. Royce. Thank you, Mr. Chairman, very much.
    I was going to ask you, Mr. Shore, well, first one of the 
things that strikes me, we have a situation where because of 
the way State regulation works today, it doesn't work well for 
a lot of agents. And I have talked to agents who find it 
difficult to try to handle all the bureaucratic hurdles and 
take the exam in every State, or whatever.
    So agents would like to see the process streamlined, and we 
have many agents who support the optional Federal charter, and 
actually for the same reason. But they are looking at it from 
the perspective also of the consumer, the customer. And they 
will say, you know, we have a situation where if you have a 
banking product and you move, you can take the banking product 
with you. But if you move, if the client moves, then his 
insurance starts all over again.
    And so from the standpoint of streamlining a process, these 
agents tell me it actually makes sense to move to an optional 
Federal charter, so that the consumer as well as the agent is 
advantaged really in that sense.
    Now when you start the discussion over the OFC, some have 
said that would benefit a lot of insurance companies. But what 
about the smaller and medium-sized companies? Well, CUNA Mutual 
is a medium-size operation, and I just would ask you if you 
believe that is the case. Would an optional Federal charter 
hinder your ability, Mr. Shore, to compete?
    Mr. Shore. No. I think it would enhance our ability to 
compete.
    Mr. Royce. We heard Superintendent Dinallo testify. He 
expressed great displeasure with the effort to move to a dual-
charter regulatory system for insurance in the name of 
protecting the consumers, or constituents, from his 
perspective. Do you believe the current State-based system 
benefits consumers? And do you believe they would be harmed 
under an optional Federal charter?
    Mr. Shore. No. I see, you know, within the credit union 
space we see--you know, credit unions that are State-chartered 
and credit unions that are federally chartered, and that the 
two systems work very well together to the protection of the 
consumers within that space.
    Mr. Royce. So we have a system for banking, for thrifts, 
for credit unions, that works well now, but also allows for a 
national market so that people can--and certainly you find, for 
your credit union, that it is very beneficial to have this dual 
system.
    Product approval has been a major issue raised when 
discussing the shortfalls of the current State-based system. 
Can you estimate for the committee the time it takes your 
company to bring a new insurance product to market when you are 
trying to deal with all of these various States?
    Mr. Shore. Yes, I can. You know, we will typically get 
approval in some States very quickly. Some of the States we 
have heard about today--South Carolina and Illinois for 
example, are very responsive. But it can take us up to 2 years 
to get approval for a product from all 50 States.
    Mr. Royce. The last question I would ask you is if you 
believe that this type of bureaucratic delay is discouraging 
product innovation within the industry. Because one of the 
things I noticed, you know, when you look at our 
competitiveness internationally as well, we see that our 
balance of trade with respect to banking and other financial 
services, we have this very positive position. But where we're 
really in the tank is with respect to trying to get our 
insurance products overseas. And it seems as though the 
bureaucratic morass we have created--at least this is what the 
think tanks that have looked at this, left, right, and center, 
that have commented in favor of an OFC, have said to us--that 
it just does not make sense. This puts us at a competitive 
disadvantage, just in terms of our consumers, cost them an 
additional $13 billion additional in money because of the 
inefficiencies of this kind of system.
    So is it discouraging product innovation within the 
industry, and therefore also putting it, in your opinion, at a 
competitive disadvantage?
    Mr. Shore. I think it certainly discourages innovation, 
because it does take so long to get to market and it is very 
costly. And we are concerned about the developments in Europe 
and putting the European insurers in a much stronger position 
than we are.
    Mr. Royce. One market for all of Europe. You really don't 
have a situation in Europe, or for example, in Switzerland they 
say for every canton in Switzerland we should have a separate 
insurance commissioner, or you don't have a situation in India 
where they say for every state in India we should have a 
separate state insurance commissioner, and elect them at that, 
let's say. Or we don't have that in China, where they say for 
every province in China we should have a separate--they have 
one national market, and frankly for Europe it's more than a 
national market; it's one European market, with the resulting 
lower prices and more convenience. And if you move in Europe, 
you don't have to start all over with you insurance; you take 
it with you.
    Mr. Shore. Correct.
    Mr. Royce. Yes. Thank you, Mr. Shore.
    Chairman Kanjorski. The gentleman from Georgia, Mr. Scott?
    Mr. Scott. Yes. Thank you, Mr. Chairman.
    Mr. Minkler, let me ask you about this issue of how do we 
arrive at complete reciprocity? Because I think that is really 
at the core of this. Back in 1999, the Gramm-Leach-Bliley Act 
recognized this issue, and moved forward with it. Could you 
share with us what happened then and why it was not complete, 
and how our legislation that we are putting forward addresses 
that? And then if you could give us some history as to what are 
some of the burdensome issues that, let's say for example, just 
you in your business, your firm faced with the current State-
by-State issue? But I think it's very important for the 
committee to understand that we're not reinventing the wheel 
here, but this has already been laid out. This need has been 
established for almost 10 years, and how it has gotten worse.
    And give us some in-depth understanding of reciprocity, and 
why it is so critical and important that we pass this measure 
that Congressman Davis and I are putting forward.
    Mr. Minkler. Thank you, Congressman, I'd be happy to answer 
those questions. As you state, we're gaining on 10 years since 
the original NARAB bill. It's our belief that at the time, 
while well-intentioned, the bar was probably set too low. We 
were looking for 29 States to be compliant to avoid NARAB, but 
that has not happened. Compliance has waned. The reciprocity 
issue continues.
    With NARAB II, we will be addressing all States in all the 
issues that are involved. There is in my day-to-day life--as I 
said, I do business in about nine other States--I spend an 
inordinate amount of time wrestling with reciprocity issues 
that are not there today. While we may have heard from the NIAC 
that reciprocity exists, truly there are a number of States 
that let us go online to obtain insurance licenses, but that 
add a burdensome layer on top of that by going beyond what the 
standards were set in the original NARAB, which makes it very 
difficult, and in many two or three steps to go through.
    With a NARAB model, those efficiencies would be realized. I 
would spend a lot more time with my clients rather than with a 
bureaucrat eight States away. That's my aim and the aim of our 
300,000 members is to be able to service our clients.
    This would give us uniformity and reciprocity in a way that 
the original NARAB never delivered on.
    Mr. Scott. And would this benefit the consumer?
    Mr. Minkler. When I'm able to spend more time with my 
consumer rather than in just licensing issues, they benefit. It 
also brings additional products to the marketplace, additional 
competition to the marketplace, because now we opened and 
leveled the playing field for anyone who wants to participate 
in that by giving each and every agent the ability to transact 
business in the States they wish to transact, and would address 
issues like portability, that we heard earlier is a problem.
    Now we would be able to have licensing in the States that 
we would need to; so if we had a client who moved from State to 
State, it would not be burdensome the way it is today.
    Mr. Scott. And let me ask you, what would you say would be 
the average number of States or jurisdictions that an agent 
would do business in now?
    Mr. Minkler. Our research indicates that the average is 
about 8 States for our agents. Now we have many agencies of 
mid- and larger size that do business in as many as 50 States, 
but on average, I would say it is about 8 States.
    Mr. Scott. And as insurers who operate in multiple States 
must comply with the different States' laws, as States continue 
to have the primary authority to regulate their insurance, let 
me just ask you--I would appreciate just having your thoughts 
and views on how the insurance industry would evolve to include 
a mix of Federal and State regulation instead of completely 
reforming the industry with an optional charter.
    As I'm looking at this, it seems to me that there is a need 
for a diverse mix here, that there is something here that I 
mean I think we can come out from this that has a variety of 
different points of view. I just see that there is a mix here, 
and I wonder if you might be kind enough to address that, how 
we could do that away from the Federal charter. And I'm not in 
any way kicking the optional approach; I'm just saying that I 
think that if we are allowed to put this in place, that it 
might do the trick and we wouldn't need to go the extent of 
that. I would like to have your comments on that.
    Mr. Minkler. Certainly. The NARAB II concept would 
initially address agent licensing and reciprocity. But the 
model could work across-the-board for the issues that are being 
talked about in OFC: The speed-to-market issues; the model that 
can be developed through NARAB can be applied there. It can be 
applied to the re-insurance and excess lines market bill that 
passed this chamber unanimously 2 years ago.
    The model itself is transportable to address many of the 
issues that have been brought forward in OFC without creating a 
Federal bureaucracy and without adding to the 16,000 
individuals who are already proficient and licensed regulators 
across the Nation.
    It is our belief in the IIBA that targeted Federal tools as 
opposed to a Federal regulator can gain all the efficiencies 
that we are looking for amongst all the witnesses you have had 
today, but in a way where we do not create some large entity 
that would just be another bureaucratic step for agents and 
companies.
    Mr. Scott. Mr. Chairman, if I may--I know my time is up--
but just one quick question, because we do have a former 
insurance commissioner here, Mr. Mirel, I'd like to get your 
thoughts on it, and particularly just simply, do you think that 
non-resident agent licensing is an area that is ripe for reform 
with Federal legislation, as we are proposing?
    Mr. Mirel. I certainly agree with what Mr. Minkler has 
said. The problem with insurance regulation--and I say this as 
a former regulator--is the overlapping and duplicative 
regulatory problems. And they can be solved through a Federal 
regulator, they can be solved through other kinds of mechanisms 
within the State system, and Mr. Minkler has talked about them. 
The Liability Risk Retention Act, the new bill that was 
introduced, H.R. 5792, is another example of how that could 
work.
    The organization I'm testifying on behalf of, the Self-
Insurance Institute of America, does not take a position on 
which is the preferable route to go, but certainly agrees that 
overlapping and duplicative regulation is holding up the 
system, and should be fixed.
    Mr. Scott. Thank you very much. Thank you, Mr. Chairman. I 
appreciate the time.
    Chairman Kanjorski. Very good.
    And finally, the gentlewoman from Illinois, Ms. Bean?
    Ms. Bean. Thank you, Mr. Chairman. And thank you all for 
your patience with all of our questions. I do want to 
specifically also thank Mr. Shore for supporting our bill and 
for giving some concrete examples of how you think it would 
benefit not only your own competitiveness, but consumers as 
well.
    My question is for Frances, is it Arricale? Okay. You had 
talked about the Compact trying to improve speed to market, and 
you talked about a 60-day target and that you have had some 
success within that, but that it isn't mandated that States 
participate. You have 31 States that are participating. So you 
really don't have an ability to guarantee that speed to market 
nationally, just to those States who have chosen to 
participate.
    So can you speak to--you talked about being able to get 
things to market quickly, so it's only within those 31 States--
how long does it take someone who wants to truly go national, 
working with the assistance of your Compact, to do some of the 
States quicker before they can really get to market nationally?
    Ms. Arricale. The national standards that we have 
developed, we do that in cooperation with all of the regulators 
throughout the country at the NAIC level, in working through 
those standards. It is true that we have 31 members to date, 
and that we are outreaching to the remaining members to join 
us. And we are hopeful that we will have more than 31 States 
even this year, and that the speed to market really is being 
able to file just once one form with us and getting that one 
approval for the 31 States.
    If you did want to then roll it out to the remaining 20-
some-odd States and jurisdictions, you would have to go 
directly to those States to get those approvals. But we are 
very hopeful that we will have more members join us so that you 
will have more approvals valid within the Compact approval 
process, and that it truly is speed to market.
    We think having 31 States out of 50 is good; it relieves a 
little bit more there than half of the approvals you would need 
to get on a State-by-State basis. But we are looking forward to 
having the remaining States join us.
    Ms. Bean. Okay. I just wanted to get clarification. So you 
are really going from maybe 51 regulatory bodies, or filings, 
to 22 to actually hit the market.
    Ms. Arricale. [Nods head up and down]
    Ms. Bean. Okay.
    And you talked about within those 31 member States that are 
participating in the 60 days. What percentage of things have 
you been able to do in 60 days, and what is outstanding that 
doesn't get done in 60 days?
    Ms. Arricale. Under the Compact's speed-to-market 
commitment, actually in our rules, is that we have to from the 
date of filing to date of disposition, all has to incur within 
that 60-day timeframe. So once an insurer files and we have 
insurers, large, medium, and small insurers filing with us, 
that we actually have to turn around the regulatory decision by 
the 60-day timeframe. That really is the speed to market that 
we are offering; we have regulatory professionals who formerly 
had worked in insurance departments and now work with us. A 
great deal of experience on these matters, reviewing as well as 
with a credentialed actuary, and that all of that review 
process so that the policy conforms to the uniform standards is 
done within that 60-day timeframe.
    Ms. Bean. Thank you. I have nothing further.
    Chairman Kanjorski. Thank you very much, Ms. Bean.
    Now, I am going to reserve just a few minutes of my time. 
Ms. Arricale, I am rather intrigued with the success of the 
Compact thus far, but it is not thorough. What would inhibit us 
from including an additional power in the Office of Insurance 
Information that the Compact members be considered an SRO, a 
Self-Regulatory Organization? That organization could make a 
recommendation or act on certain activities, whether it be 
uniformity or even a product, and recommend to the Federal 
officer that it now be considered on a Federal or national 
scale, and the rule would be enhanced. That way, you do not 
have to go back to the 19 or 20 missing States, and it would be 
an incentive for them to get their tail in gear and join the 
Compact.
    It sort of creates a national mechanism to see whether or 
not it would work. It would seem to me, since we could do all 
kinds of combinations here, including bringing in NARAB II, 
suggestions could be accomplished that way, at a total 50-State 
level. Have you given any thought to that proposition, or do 
you want to give it some thought and maybe some response to it?
    Ms. Arricale. Certainly there has been discussion, and I 
think you heard in the prior panel in terms of having some 
Federal action happen in relation to the State initiatives. I 
do want to note that the States have worked very proactively 
and inclusively with the interested parties to develop this 
framework. I would call it the chassis that we have built with 
the Interstate Compact, and that the actual standards are there 
and ready, the operation is there, the expertise is there. We 
certainly are encouraging the other States to join, but to 
have, of course, all of the States with us would truly make it 
a national platform.
    So I would leave this subcommittee with that we have built 
that framework, and we do it as a public agency. We serve the 
member States directly. So we do that in the public interest, 
and we are accountable to the public for that.
    Chairman Kanjorski. Well, what I am suggesting is, you 
know, we may be on to something here that you already have a 
comfortable organization that really represents sort of a self-
regulatory organization under the Compact. But when you get to 
implementation at the 50-State level, you are inhibited because 
some States, particularly some large States, just do not want 
to join.
    But if we were empowering the Federal officer to get a 
request from your organization, notify the States that are not 
joining that it is going to be considered by the Federal office 
for mandatory action of some sort, then it puts them between a 
rock and a hard place. Either get on board or get out of the 
way, because we are coming down the line. Then we could very 
easily do licensing, brokering. That could done rather quickly, 
and eventually the Office can even look at products.
    Maybe ultimately we have a need, it seems to me, on 
international global markets, for an insurance commissioner on 
a Federal level to speak for the insurance industry of the 
United States and negotiate. We can delay it; we can say we do 
not need it, but in reality all the reports I am getting back 
indicate that we are suffering from not having that. When we 
have these crucial meetings, we really do not have anyone there 
who is being the best advocate for the entire insurance 
industry.
    That affects everybody from the consumer to the companies 
to the agents. Everybody suffers a little bit when we do not 
have our best and brightest talent out there, with the ability 
to act. If we can structure something to accomplish that, that 
is a potentially growing mechanism, but is a heavy hand of 
federalizing something just immediately--I mean it seems--I 
think we could design a Federal insurance license that really 
meets the needs of all these things. I see a lot of need for 
growth, but I also see a need for a Federal charter or the 
benefits of a Federal charter in some way, for some companies, 
but not all companies. And it would be to have an election.
    But if we find a self-regulatory organization mechanism 
that takes out a bureaucracy--I think we have heard that 
mentioned a few times--none of us want to build a big 
bureaucracy or a new bureaucracy. And we may have struck 
something here.
    So if you could give that some thought, I would appreciate 
it. And anyone else on the panel should certainly feel free to 
do so as well. But we are going to be moving on this piece of 
legislation soon, and we do not want to cause problems that 
would delay its passage. It already has, I think, some good 
intentions and good reasons to be enacted as soon as possible.
    But if everybody could sort of see it as a vehicle that can 
be examined over a period of several years as to how to solve 
some of these short delays of 10 years that you addressed, I do 
not think we can afford to wait 10 more years. We have to do 
something now. It seems that we know what the questions are; 
let us create the vehicle to do it. That is what we are 
interested in.
    Now with that, let me say the fact that we held you here 
this long is not a record, but it is getting close to one. This 
is important to this subcommittee, and it is important to the 
Financial Services Committee as a whole. We are running out of 
time, but we really want to do something.
    I think you can see from the nature of the hearing that we 
have had that we really have tremendous cooperation both in the 
majority and minority side of the committee, in the selection 
of witnesses and topics, and moving on in the commitment of the 
Members during the day.
    I want to thank you all for taking time and being so 
respectful of the subcommittee and putting up with your time 
constraints, particularly you, sir, having missed your flight. 
We cannot offer you any great things in Washington, but we can 
recommend things not to do in Washington. Okay?
    [Laughter]
    Chairman Kanjorski. And I will not go off on that.
    I think it is at this point that I really want to close the 
hearing, so let me say that the Chair notes that some Members 
may have additional questions for the panel which they may wish 
to submit in writing. Without objection, the hearing record 
will remain open for 30 days for Members to submit written 
questions to these witnesses and to place their responses in 
the record.
    Before we adjourn, the following written statements will be 
made part of the record of this hearing: The National 
Association of Mutual Insurance Companies; Mr. Eric Gerst; and 
the NIPR PowerPoint presentation for PIA. Without objection, it 
is so ordered.
    And now the panel is dismissed and this hearing is 
adjourned. Thank you.
    [Whereupon, at 7:05 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             April 16, 2008

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