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

                            H.R. 5840, THE INSURANCE

                            INFORMATION ACT OF 2008

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

                                    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

                                   __________

                                 JUNE 10, 2008

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 110-118

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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
    BILL FOSTER, Illinois                KENNY MARCHANT, Texas
    ANDRE CARSON, Indiana                THADDEUS G. McCOTTER, Michigan
    JACKIE SPEIER, California            KEVIN McCARTHY, California
    DON CAZAYOUX, Louisiana              DEAN HELLER, Nevada
    TRAVIS CHILDERS, Mississippi

            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      STEVEN C. LaTOURETTE, Ohio
    BRAD MILLER, North Carolina          SHELLEY MOORE CAPITO, West
    DAVID SCOTT, Georgia                     Virginia
    NYDIA M. VELAZQUEZ, New York         ADAM PUTNAM, Florida
    MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
    GWEN MOORE, Wisconsin,               GINNY BROWN-WAITE, Florida
    LINCOLN DAVIS, Tennessee             TOM FEENEY, Florida
    PAUL W. HODES, New Hampshire         SCOTT GARRETT, New Jersey
    RON KLEIN, Florida                   JIM GERLACH, Pennsylvania
    TIM MAHONEY, Florida                 TOM PRICE, Georgia
    ED PERLMUTTER, Colorado              GEOFF DAVIS, Kentucky
    CHRISTOPHER S. MURPHY, Connecticut   JOHN CAMPBELL, California
    JOE DONNELLY, Indiana                MICHELE BACHMANN, Minnesota
    ANDRE CARSON, Indiana                PETER J. ROSKAM, Illinois
    JACKIE SPEIER, California            KENNY MARCHANT, Texas
    DON CAZAYOUX, Louisiana              THADDEUS G. McCOTTER, Michigan
    TRAVIS CHILDERS, Mississippi
                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 10, 2008................................................     1
    Appendix:
        June 10, 2008................................................    43

                                   WITNESSES
                             Tuesday, June 10, 2008

    Kennedy, Hon. Brian P., Representative, Rhode Island House of
      Representatives, and President, National Conference of
      Insurance Legislators..........................................    14
    Laws, Tracey W., Senior Vice President and General Counsel,
      Reinsurance Association of America (RAA).......................    33
    McRaith, Hon. Michael T., Illinois Division of Insurance, on
      behalf of the National Association of Insurance Commissioners..    12
    Norton, Hon. Jeremiah O., Deputy Assistant Secretary, U.S.
      Department of the Treasury.....................................    10
    Rahn, Stephen E., Vice President and Associate General Counsel,
      Lincoln Financial Group, on behalf of the American Council of
      Life Insurers..................................................    31
    Sampson, David A., President and Chief Executive Officer,
      Property Casualty Insurers Association of America..............    35
    Wolin, Neal S., President and Chief Operating Officer, Property
      and Casualty Operations, The Hartford Financial Services Group,
      on behalf of the American Insurance Association................    30

                                    APPENDIX

    Prepared statements:
        Brown-Waite, Hon. Ginny......................................    44
        Carson, Hon. Andre...........................................    45
        Hinojosa, Hon. Ruben.........................................    47
        Kennedy, Hon. Brian P........................................    49
        Laws, Tracey W...............................................    58
        McRaith, Hon. Michael T......................................    68
        Norton, Hon. Jeremiah O......................................    74
        Rahn, Stephen E..............................................    78
        Sampson, David A.............................................    86
        Wolin, Neal S................................................    93

                  Additional Material Submitted for the Record

    Kanjorski, Hon. Paul E.:
        Written statement of the American Home Ownership Protection
          Coalition..................................................   100
        Written statement of Eric D. Gerst...........................   102
        Written statement of the National Association of Mutual
          Insurance Companies........................................   110
    McRaith, Hon. Michael T.:
        ``National Association of Insurance Commissioners (NAIC)
          International Insurance Relations Committee: Action Plans''   118

                          H.R. 5840, THE INSURANCE

                            INFORMATION ACT OF 2008

                                  ----------

                             Tuesday, June 10, 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 10:08 a.m., in
    room 2128, Rayburn House Office Building, Hon. Paul E.
    Kanjorski [chairman of the subcommittee] presiding.
        Members present: Representatives Kanjorski, Sherman, Moore
    of Kansas, Capuano, Hinojosa, McCarthy, Baca, Miller of North
    Carolina, Scott, Bean, Klein, Murphy, Donnelly; Pryce, Castle,
    Manzullo, Royce, Capito, Brown-Waite, Feeney, Davis of
    Kentucky, and Campbell.
        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 morning. We meet today to discuss H.R. 5840, the
    Insurance Information Act of 2008. Ranking Member Deborah
    Pryce, Congressman Dennis Moore, Congresswoman Melissa Bean,
    and Congressman Ed Royce joined me in introducing this
    legislation in mid-April. I would like to thank each of the
    original cosponsors for their support.
        H.R. 5840 promotes an idea which I have long held, and
    which I incorporated into the Financial Services Committee's
    oversight plan for the 110th Congress: that the Federal
    Government should have an in-house expert on insurance policy
    matters. To that end, the bill would create an Office of
    Insurance Information within the Treasury Department.
        At a private briefing between Members of Congress and the
    Federal financial regulators shortly after the September 11th
    terrorist attacks, it became very clear to me that the Federal
    Government lacks needed expertise on insurance policy.
    Evidenced by the recent debates on catastrophic insurance, I
    suspect that others came to a similar conclusion in the wake of
    Hurricane Katrina. Moreover, the ongoing troubles in the bond
    insurance marketplace have highlighted the fact that insurance
    is a financial product with significant implications for the
    broader national economy.
        As such, the Federal Government should have a deep
    knowledge base on the insurance industry. We need to understand
    how the industry functions. We need to ascertain its
    relationship to other sectors of the financial marketplace. We
    need to appreciate its importance in our economy. The
    establishment of an in-house information resource to address
    these issues will ultimately help us to construct better
    policies, better rules, and better laws.
        Recently, I met with a former senior official who worked at
    the Treasury Department during 2001. From this conversation, I
    learned that there were only two staffers working on insurance
    issues at that time. In a time of crisis, this lack of in-house
    expertise was troubling. Even with the passage of the Terrorism
    Risk Insurance Act, we now have less than 10 staffers dedicated
    to insurance issues, and their focus is very limited.
        The same former Treasury official thought that it made
    sense to create an Office of Insurance Information in the
    Treasury Department. Moreover, this individual believes that
    such an Office ``would have been helpful'' in the aftermath of
    September 11th. Such an internal resource would have already
    had expertise in place, information available, and
    relationships developed to assist in the consideration of
    legislation like the Terrorism Risk Insurance Act. This Office
    might have even helped us to expedite the lengthy debates on
    the original TRIA law.
        Since the addition of insurance to the Financial Services
    Committee's jurisdiction in 2001, we have held more than a
    dozen hearings on specific insurance proposals and broader
    industry issues. Because the insurance industry is a
    significant part of our economy, the Financial Services
    Committee will certainly continue to review insurance matters
    in the years ahead. The Office of Insurance Information created
    in this legislation and its independent voice will help the
    committee make better-informed decisions on future insurance
    proposals.
        Additionally, the Office of Insurance Information will
    coordinate Federal efforts and establish Federal policy on
    international insurance matters. We live in a global,
    interconnected world. Insurance issues are increasingly the
    topic of international discussions. We need to recognize this
    fact. To promote better coordination, the Office would have the
    authority to determine whether State insurance measures are
    consistent with such policy. The Office would additionally have
    very limited preemption powers, with safeguards in place, with
    regard to this determination.
        Before closing, I want to remind everyone that I have long
    discussed my desire to reach consensus on insurance reform
    measures. H.R. 5840 begins that work in earnest. In order to
    achieve broader agreement on the bill, I have worked since
    introducing the bill to make modifications, and will continue
    to refine the bill in the weeks ahead.
        To help us in this task, today's witnesses will focus their
    comments on a discussion draft of a proposed managers amendment
    circulated last week. I understand that many of our witnesses
    today have suggestions to improve the legislation as we move
    forward. As always, the subcommittee is open to ideas to
    improve a bill. We want to work with all interested parties to
    maximize the growing consensus on this legislation.
        In closing, I want to thank Ranking Member Pryce for
    joining me again in inviting the witnesses on a bipartisan
    basis. We look forward to learning their views on our bill. I
    also look forward to moving H.R. 5840 through the legislative
    process in the near future.
        I would like to recognize Ranking Member Pryce for her
    opening statement. Ms. Pryce?
        Ms. Pryce. Thank you very much, Chairman Kanjorski. Thank
    you for your continued leadership on this important issue of
    insurance reform in ushering H.R. 5840 forward today.
        I am hopeful we will see other bills considered in due
    course, both the agent licensing bill and legislation to expand
    the Risk Retention Act. I believe these should move through
    this committee with little opposition. I am hopeful that we can
    find ourselves doing some work on those as well.
        The Insurance Information Act we are discussing today will
    create a much-needed Federal voice for insurance. And above all
    else, above the political jockeying and strategizing and above
    the arguments that we are moving down the road to an optional
    Federal charter, above all that this bill is simply commonsense
    policy in action, removing a competitive disadvantage we
    currently face in insurance expertise at a Federal level, and
    filling a void at the table in global trade negotiations.
        Under the current regulatory structure, insurance
    regulators in Europe and elsewhere are forced to deal with 54
    different regulators representing different interests. While
    the NAIC attempts to serve as a conduit for the States, its
    structure as a nongovernmental body makes it impossible to
    serve as an effective voice on insurance regulation while
    serving the disparate needs of its members.
        A Federal Office of Insurance Information with the
    responsibility of investigating and reporting on insurance
    issues, coordinating Federal policy, and establishing a role in
    trade negotiations, fills a void that has become ever more
    present in our global economy.
        I know portions of this bill, in particular the scope of
    the preemption of State regulation, will be the focus of much
    of the debate here today. But I am hopeful that we will be able
    to move to a consensus bill quickly and get to mark-up.
        I want to thank the chairman again for his leadership, for
    his bipartisan way of tackling these issues always, and also
    for building consensus in everything he does in this committee.
    I look forward to the testimony of the witnesses. And once
    again, thank you, Chairman Kanjorski.
        Chairman Kanjorski. Thank you, Ms. Pryce.
        And now for an opening statement, our friend, the gentleman
    from California, Mr. Sherman.
        Mr. Sherman. I thank the chairman for holding these
    hearings. I think the Federal Government needs to have
    expertise on insurance. I see a Federal Office of Insurance as
    posing both one opportunity and one danger or concern.
        We have seen international trade agreements used to preempt
    consumer protection, to preempt environmental protection, and
    basically to put power in the hands of those in the corporate
    sector and to take it away from everyone else. If this Office
    simply takes us further down that road, that could of course be
    a concern.
        I see one opportunity, and that is that there are companies
    selling insurance around this country who are affiliated with
    European insurance companies who continue to, I would say,
    cheat the families of the victims of not only the Holocaust,
    but the Armenian genocide and all of the tragic things that
    happened during World War I and World War II.
        We have a circumstance in which these companies refuse to
    post on the Internet the names of those insureds who died in
    the World War I or World War II era, or at least who bought
    their policies long before then. They refuse to put on the
    Internet the names of those insureds who are over 80, over 90,
    or over 110 years old where they have had no contact with the
    insured or their family since 1946. Why? Because they would
    prefer not to pay anyone on the policies.
        My concern? Consumer protection. Show me a company who
    won't take every effort possible to connect with the family,
    even the distant family, of an Armenian insured who was born in
    the 1860's, and I will show you a company that I don't think is
    a good bet to invest with in 2008.
        So I look forward to this Office identifying for the
    American people those American companies affiliated with
    companies who sold insurance before World War I and before
    World War II in Europe and continue to refuse to post this
    information on the Internet. I think that is a function that is
    perhaps best handled at the Federal level. I look forward to
    seeing that as one of the functions of this new Office.
        I yield back.
        Chairman Kanjorski. I recognize the gentleman from
    Illinois, Mr. Manzullo.
        Mr. Manzullo. Mr. Chairman, thank you for holding this
    hearing to discuss the creation of the Office of Insurance
    Information. I want to extend a special welcome to one of the
    witnesses, Michael McRaith, who is the director of the Division
    of Insurance in my home State of Illinois.
        The committee is familiar with my misgivings regarding
    Federal intervention in the State insurance markets in the form
    of an OFC or through other vehicles such as the one we are
    discussing today. As I previously stated, I have yet to see any
    evidence that the insurance industry is in such dire straits
    that only an OFC can save it.
        Likewise, if the establishment of the Office of Insurance
    Information is directed towards making it easier for foreign
    insurers to deal with the United States, I would point to the
    fact that 85 percent of the reinsurance market is already
    foreign-owned, hardly indicating that foreign companies are not
    willing to do business in the United States with our current
    regulatory structure.
        In light of this, I would be interested in hearing two
    things from our witnesses today. First, I am curious whether
    they think it is a wise policy to allow foreign governments to
    request preemption in State laws when those State laws were
    presumably put in place to reflect the unique needs of the
    individual State and its consumers. I would additionally like
    to know if any of the witnesses can give me a clear picture of
    what State laws might be subject to Federal preemption.
        Second, I am interested to know why the witnesses feel that
    the OII would be a better advocate on their behalf than the
    capable advocate already available to them in the USTR and the
    Department of Commerce.
        Thank you, Mr. Chairman, for allowing me the opportunity to
    issue a statement. I look forward to hearing from the witnesses
    today.
        Chairman Kanjorski. Thank you, Mr. Manzullo.
        We will now hear from the gentleman from Georgia, Mr.
    Scott.
        Mr. Scott. Thank you very much, Mr. Chairman. I am
    delighted to have the witnesses on this important hearing. I
    certainly want to thank you, Mr. Chairman, and Ranking Member
    Pryce, for holding the hearing. And I am pleased that the
    chairman has chosen to hold numerous hearings on this subject,
    for it is indeed an important and timely discussion, as
    insurance reform has been a very hot button issue for quite
    some time now.
        Insurance regulatory reform is an issue that many involved
    agree requires action, and action soon. However, it is evident
    that the approach to the concerns involved are still somewhat
    mixed.
        As the insurance industry continues to be primarily
    regulated at the State level, with many involved wanting
    increased Federal oversight, I am interested to hear the views
    and concerns of our distinguished witnesses as we work towards
    some sort of consensus.
        I think the operative word here is a ``consensus'' on how
    to proceed forward, for I believe we all agree regulatory
    reform is indeed necessary. But with any type of reform, it
    will take more time, it will take more discussion, and it will
    take compromise on how we may move forward. The American
    consumer deserves no less.
        I am further interested to hear from the witnesses
    regarding their perspective and opinions on H.R. 5840, the
    Insurance Information Act of 2008. We want to take into account
    the actual operations of these businesses and how to ensure
    that whatever action we do take does not deter competition,
    lessen efficiency, or increase costs of operating.
        From the development of global markets, to the various and
    detailed policy rationales towards pursuing regulatory reform,
    we must take all into account. And we have to listen to both
    sides of the issue before taking any further action.
        However, I do believe that the bill that I have introduced,
    along with my good friend and colleague, Congressman Geoff
    Davis, H.R. 5611, the National Association of Registered Agents
    and Brokers Reform Act of 2008, is a good start.
        And both Geoff and I are deeply appreciative for the
    guidance and assistance from our Chairman Kanjorski on our
    bill, as well as Ranking Member Pryce, as they help us; for we
    feel that this is a good start towards reform which would
    ensure adequate agent/broker licensing as well as ensure
    increased competition for everyone, as the bill now has
    garnered 42 cosponsors, both Democrat and Republican, and many
    of them are on this committee.
        So I believe that this has strong support and interest, and
    that our bill should be a part of any insurance regulatory
    reform mark-up package. That is important. The legislation of
    myself and Congressman Davis will help reform and modernize a
    very important part of the State insurance regulation, and that
    is, agent and broker licensing. The legislation would further
    benefit consumers through the increased competition among
    agents and brokers, leading to greater consumer choice. And
    that is what we are after.
        This legislation is basically just simple and
    straightforward. Insurance agents and brokers who are licensed
    in good standing in their home States can apply for membership
    to the National Association of Registered Agents and Brokers
    or, as we affectionately call it, NARAB, which will allow them
    to operate in multiple States.
        A private and nonprofit NARAB entity consisting of State
    insurance regulators and marketplace representatives will serve
    as a portal for agents and brokers to obtain nonresident
    licenses in additional States. This is very much needed.
        And of course, that is provided that they pay the required
    State nonresident licensing fee and that they meet the NARAB
    standard for membership. Membership in NARAB would be voluntary
    and would not affect the rights of a nonmember producer under
    any State license. This is a very, very well thought out and
    very much needed piece of legislation.
        The bill would also establish membership criteria, which
    could include standards for personal qualifications, education,
    training, and experience. And further, member applicants would
    be required to undergo a national criminal background check.
    And, to be very clear, NARAB would not--I repeat, would not--be
    a part of nor report to any Federal agency and would not have
    any Federal regulatory power.
        Federal legislation is needed to ensure a reciprocal
    licensing process for insurance agents and brokers, and
    Congress has already endorsed this concept when we passed the
    Gramm-Leach-Bliley Act in 1999. It would have created NARAB if
    a number of States did not reach a certain level of licensing
    reciprocity.
        And although enough reciprocity was provided to avoid the
    creation of NARAB, it has been brought to my attention and
    others on this committee by agents, and agents in my own home
    State of Georgia and from those in other parts of the country,
    that there is a frustration over incomplete insurance licensing
    reciprocity. It is apparently clear that the bar was not set
    high enough in Gramm-Leach-Bliley, thus the reasoning behind
    this important litigation.
        I am simply working to ensure an updated version of NARAB.
    I believe the increased competition among agents and brokers
    this bill would create would be beneficial to all, and on all
    accounts be more fair; in addition, and of most importance,
    greater consumer choice.
        As more and more agents operate across State lines, this
    problem of reciprocity has become worse, and it has become
    apparent to me and others on this committee that true
    nonresident licensing reform for insurance agents could only
    really be achieved through legislation on a thorough level.
        Again, this litigation would simply narrowly target only
    the area where there is a problem. And again, it has garnered
    support from both sides of the aisle. I look forward to working
    with my colleagues in garnering further support on this bill.
    And as my colleagues begin to fully understand this problem, I
    believe everyone will be aware of the need for adequate agent
    licensing reform.
        Thank you very much, Mr. Chairman, and I look forward to
    the testimony of the witnesses.
        Chairman Kanjorski. Thank you, Mr. Scott.
        We will now hear from the gentleman from California, Mr.
    Royce.
        Mr. Royce. Mr. Chairman, thank you very much. I thank you
    for your continued leadership on this issue. The last three
    hearings that we have had on insurance regulation, I think,
    have been particularly insightful, and I look forward to this
    hearing today.
        I would also like to welcome Deputy Assistant Secretary
    Norton. This hearing is a testament to valuable insight
    provided by the Treasury Department in the ``Blueprint for a
    Modernized Regulatory Structure.'' And I believe the concept,
    your concept, Mr. Chairman, of an Office of Insurance
    Information, is one worth pursuing.
        And I think as well that the past three hearings that we
    have sat through, where we have heard the information come
    forward about the depth of the problems currently experienced
    in the insurance sector, these are problems that have to be
    confronted.
        One of the major problems, of course, is the current lack
    of expertise on insurance matters within the Federal
    Government. An OII would go a very long way toward filling this
    void by providing, within the Department of the Treasury, an
    expert able to provide Congress with the necessary insight when
    we are dealing with information like a financial shock or a
    national crisis, or when we are in the process of formulating
    tax policy. It would be good to have somebody have a seat at
    the table who understands insurance on a full-time basis from
    within the Treasury Department.
        Giving that Office, as you are doing here, the authority to
    reach agreements with our trading partners is equally important
    because considering the global nature of the insurance sector,
    this authority is long overdue.
        We have all heard the stories from some of our most
    reliable trading partners expressing the frustration--and we
    have seen it, frankly, in the numbers in the balance of trade
    and everything else--but expressing the frustration that our
    industry has with the fact that Europe now is moving to one
    national market for all Europe for insurance, and here in the
    United States we have 50-plus separate markets, effectively,
    for insurance, and all of the problems that that creates.
        So I believe the greatest attribute of an Office of
    Insurance Information is that it moves us one step closer to
    what I believe would solve these problems, which is an optional
    Federal charter for insurance. Insurance consumers and
    providers have suffered under the current mandatory State-based
    regulatory structure for far, far too long with far too many
    costs for the consumers, $13.7 billion in additional costs.
        With the exception of Mr. McRaith's State of Illinois,
    every State now subjects property and casualty insurance
    products to various degrees of price controls. And the
    consequences of that, from all the studies we have seen from
    economists, is that this form of rate regulation is what
    produces the $13.7 billion in additional premium costs to the
    consumers. It prevents companies from setting actuarially sound
    rates in the meantime.
        And, frankly, under the current structure, if the industry
    is going to try to introduce a new insurance product on a
    national scale, that is going to take at least many months--it
    is probably going to take years--because of the delay
    experienced by going to every single State.
        And every time you have a new legislator elected in some
    State body, they will run through a bill. For instance, in a
    new Connecticut bill on surplus lines, insurers must have the
    cover of their policies printed in at least 12 point bold type
    instead of the previous 10 point bold type that the neighboring
    States use.
        Arbitrary mandates like this are so common at the State
    level and they cost consumers, as I say, $13.7 billion. The
    inherent nature of the State-based system means that you have
    99 legislative bodies and 54 regulators who all have a say in
    how the insurance sector is regulated, and most of them manage
    to stay out of step.
        So an alternative to this system is long overdue. And as
    the Treasury Blueprint notes, any modern and comprehensive
    insurance regulatory structure should do several things. It
    should enhance competition among insurers in national and
    international markets. It should increase efficiency, promote
    more rapid technological change, encourage product innovation,
    reduce the regulatory costs, and above all, provide the highest
    quality of consumer protection. And that is another concept of
    bringing a world-class regulator on the front of consumer
    protection into this.
        So I share this sentiment. I believe an optional Federal
    charter created through an Office of Insurance Information is
    the best way to achieve this model. And I look forward to
    moving this process along.
        But I wanted to thank you again, Mr. Chairman, for the
    hearings that you have held on this challenging subject, and I
    look forward to hearing the two panels of witnesses here. I
    yield back the balance of my time.
        Chairman Kanjorski. Thank you very much, Mr. Royce.
        Now we will hear from the gentleman from Florida, Mr.
    Feeney.
        Mr. Feeney. Thank you, Mr. Chairman. I am encouraged that
    the committee is looking at insurance regulatory reform
    proposals today. In my home State of Florida, as is well known,
    we are currently facing many insurance-related issues, not the
    least of which is the availability of affordable reinsurance.
        Last week, I introduced the Reinsurance International
    Solvency Standards Evaluation Board Act of 2008. This
    legislation would help to reduce the cost of reinsurance and
    hopefully ultimately lower the cost of insurance to homeowners
    through encouraging competition in the market.
        The RISSEB Act would significantly increase availability of
    reinsurance by eliminating the discriminatory reinsurance
    regulations such as collateralizing requirements for certified
    entities. The nonprofit board would certify, upon request,
    whether insurance regulatory jurisdictions have adequate
    reinsurance capital and risk management standards and
    supervision.
        The Act would create a system where reinsurers, supervised
    by certified jurisdictions, would not be discriminated against
    versus domestic reinsurers with respect to requirements for
    credit for reinsurance. These certifications could be
    recognized for equivalence determinations by foreign countries
    to protect compliance by U.S. insurers under the proposed EW
    Solvency II directive.
        By increasing the competitiveness of the reinsurance market
    and creating uniformity, we would give their customers more
    choice. The provisions of the bill are completely voluntary but
    allow domestic and foreign reinsurers to do business nationwide
    if the proper standards and safeguards are in place.
        Mr. Royce is an eloquent advocate for an optional Federal
    charter. I don't know that all of those issues have been fully
    worked out, but I will say that there is no insurance industry
    or market more suitable for multi-jurisdictional performance
    than the reinsurance market. And that would be a great place to
    start as we try to deal with what is increasingly not just a
    national but a global issue when we talk about reinsurance
    especially.
        While the RISSEB Act is not in the legislation we are
    addressing today, I am pleased that the chairman is opening the
    debate for reinsurance reform, and I yield back the balance of
    my time.
        Chairman Kanjorski. Thank you, Mr. Feeney.
        The gentlelady from Florida, Ms. Brown-Waite.
        Ms. Brown-Waite. I thank the gentleman. I also am glad that
    you are holding this hearing today, and I look forward to
    hearing from the witnesses.
        As you know, insurance, specifically property and casualty
    insurance, is one of the biggest issues facing Florida today.
    Our State has grappled with affordability and availability
    issues throughout the past decade-and-a-half, and we still
    don't see any end in sight. Therefore, any legislation that
    would affect a State's role in insurance regulation has to be
    important to Floridians and those of us fortunate enough to be
    elected to represent them.
        I recognize that insurance markets in the United States are
    fragmented. And while I was not here during the 9/11 attacks, I
    can imagine how difficult gathering information from 50 States
    would have been. I agree that a centralized Office providing
    insurance expertise may be something that Congress needs.
        However, we need to be leery of an Office that supersedes
    State laws, particularly when it comes to insurance. I
    appreciate the efforts that Mr. Kanjorski has made to tailor
    this bill specifically to address issues relating to foreign
    insurers. But we need to tread very lightly here.
        I am interested in what the witnesses have to say about
    this important legislation, and I certainly look forward to
    hearing from them. Again, thank you, Mr. Chairman, and I yield
    back the balance of my time.
        Chairman Kanjorski. Thank you very much, Ms. Brown-Waite.
        And finally, we will hear from Mr. Davis of Kentucky.
        Mr. Davis of Kentucky. Thank you, Chairman Kanjorski and
    Ranking Member Pryce, for holding this hearing today on the
    proposed legislation to establish an Office of Insurance
    Information.
        As we consider another proposal for insurance reform, I
    want to make mention of the bill that my good friend,
    Congressman David Scott, and I introduced earlier this year and
    was commented on earlier by David, H.R. 5611, the National
    Association of Registered Agents and Brokers Reform Act.
        We now have 42 bipartisan cosponsors, with more joining
    every week, including 25 members of the Financial Services
    Committee. This is a good indication of the support for the
    bill among committee members and interest in moving this
    measure forward.
        As you all know, the NARAB concept was originally part of
    Gramm-Leach-Bliley, but unfortunately never went into effect.
    Nearly 10 years later, we are still in need of progress on the
    issue of licensing reciprocity for agents and brokers. NARAB II
    would maintain the State-based regulatory system and all the
    revenue associated with it, while simplifying the licensing
    process and making life easier for small business owners who
    attempt to do business and insure across State lines. I have
    personally experienced this myself as a small business owner
    seeking insurance in the 1990's and in the time prior to coming
    to Congress.
        As is the case with Chairman Kanjorski's Office of
    Insurance Information proposal, I believe NARAB II is a
    meaningful contribution that has breathed new life into a
    debate we have continued for a number of years now. There are a
    number of insurance reform proposals out there, both big and
    small. Regardless of any of our positions on the various
    insurance reform bills, I think we can all agree that there is
    always room for improvement in the area of regulation.
        I would respectfully ask the chairman to include NARAB II
    in any mark-up of insurance legislation this year, and I look
    forward to hearing the witnesses' testimony.
        I yield back. Thank you.
        Chairman Kanjorski. Thank you very much, Mr. Davis.
        Are there any other members of the committee who wish to
    make an opening statement?
        [No response]
        Chairman Kanjorski. There being none, we will move on to
    our panel.
        First and foremost, I welcome the members of the panel
    today. 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.
        The first witness we have is Mr. Jeremiah O. Norton, Deputy
    Assistant Secretary of the United States Department of the
    Treasury. Mr. Norton?

    STATEMENT OF THE HONORABLE JEREMIAH O. NORTON, DEPUTY ASSISTANT
               SECRETARY, U.S. DEPARTMENT OF THE TREASURY

        Mr. Norton. Thank you, Chairman Kanjorski, Ranking Member
    Pryce, and members of the subcommittee for inviting me to
    appear before you today to discuss H.R. 5840.
        Insurance performs an essential function in our domestic
    and global economies by providing a mechanism for businesses
    and individuals to safeguard their assets from a wide variety
    of risks. Insurance is similar to other financial services in
    that its cost, safety, and ability to innovative and compete is
    heavily affected by the substance and structure of its
    regulation.
        On March 31st, the Treasury Department released a report on
    financial services regulation entitled, ``Blueprint for a
    Modernized Financial Services Regulatory Structure.'' In
    addition to making recommendations for a long-term optimal
    regulatory structure, the Blueprint also presents a series of
    short-term and intermediate-term recommendations that could, in
    Treasury's view, improve and reform the U.S. financial services
    regulatory structure, including the current State-based
    regulation of insurance.
        In the intermediate term, Treasury recommends the
    establishment of an optional Federal charter. An OFC structure
    would provide insurance market participants with the choice of
    being regulated at the national level or of continuing to be
    regulated by a State.
        While an OFC offers the best opportunity to develop a
    modern and comprehensive system of insurance regulation,
    Treasury acknowledges that the OFC debate in the Congress is
    ongoing. At the same time, however, Treasury believes that some
    aspects of the insurance regulatory regime require immediate
    attention.
        In particular, Treasury recommends that the Congress
    establish an Office of Insurance Oversight within Treasury.
    This newly established Office would be able to focus
    immediately on key areas of Federal interest in the insurance
    sector, including international insurance issues.
        The insurance marketplace operates globally, with many
    significant foreign participants. There is increasing tension
    among current regulatory systems due to an absence of a clear
    and settled means for governments to recognize the equivalency
    of prudential regulation of insurance and reinsurance
    industries seeking to provide services in other countries. This
    impairs the ability of U.S.-based firms to compete abroad, and
    the allowance of greater participation of foreign firms in U.S.
    markets.
        In particular, foreign government officials have continued
    to raise issues associated with the United States having at
    least 50 different insurance regulators, which makes
    coordination on international issues difficult. The NAIC has
    attempted to fill this void by working closely with
    international regulators in various areas. NAIC itself is not a
    regulator, but facilitates communications among the States on
    many issues, including international insurance regulation.
        Nevertheless, it is becoming increasingly difficult for the
    United States to speak consistently and effectively with one
    voice. It has become clear to Treasury that there is an
    immediate need to establish an insurance sector advisor at the
    Federal level, as well as to create a framework to address
    emerging international issues. Two examples of such a need
    include reinsurance collateral and the European Union's
    Solvency II directive.
        As called for by the Blueprint, the Office of Insurance
    Oversight would focus immediately on key areas of Federal
    interest in the insurance sector. It would advise the Secretary
    of the Treasury on major domestic and international policy
    issues, provide true national regulatory expertise and guidance
    on the insurance industry and how it relates to the overall
    economy, and provide such expertise and guidance on legislative
    issues pending before the Congress.
        The Office should be empowered to address international
    regulatory issues with foreign regulators. In this role, the
    Office should be the lead in working with the NAIC and State
    insurance regulators, who would still be primarily responsible
    for implementing insurance regulatory policies. Its focus would
    be on regulatory matters that are not presently addressed at
    the Federal level.
        It would not supplant the Commerce Department, the USTR, or
    other Executive Branch agencies, but would work closely with
    them. For example, the Office could lead in discussions with
    international regulators on international regulatory issues to
    develop agreements that provide for the recognition of
    substantially equivalent prudential measures and regulatory
    systems with respect to insurance and reinsurance services.
        Treasury welcomes the introduction of H.R. 5840 by
    Subcommittee Chairman Kanjorski and Ranking Member Pryce. This
    bill would create an Office within Treasury very similar to
    that recommended in the Blueprint. Overall, Treasury supports
    the bill's creation of the Office. We appreciate the efforts of
    the chairman and the members of this committee. Treasury has
    some concerns. However, we are confident that we can continue
    to work together to address these issues as this legislation
    moves through the process. Thank you.
        [The prepared statement of Deputy Assistant Secretary
    Norton can be found on page 74 of the appendix.]
        Chairman Kanjorski. Thank you very much, Mr. Norton.
        And now we will hear from the Honorable Michael T. McRaith,
    director of the Illinois Division of Insurance, on behalf of
    the National Association of Insurance Commissioners.
        Mr. McRaith.

        STATEMENT OF THE HONORABLE MICHAEL T. McRAITH, ILLINOIS
    DIVISION OF INSURANCE, ON BEHALF OF THE NATIONAL ASSOCIATION OF
                        INSURANCE COMMISSIONERS

        Mr. McRaith. Chairman Kanjorski, Ranking Member Pryce, and
    members of the committee, thank you for inviting me to testify
    today. I am Michael McRaith, director of insurance for the
    State of Illinois, and I speak on behalf of the National
    Association of Insurance Commissioners.
        I congratulate you on your continuing evaluation of
    insurance regulatory modernization. While we may disagree on
    solutions, I expect we do agree that insurance regulation not
    only serves our domestic industry but must also prioritize U.S.
    consumers. And while some may take the opportunity presented by
    H.R. 5840 to clamor for the so-called optional Federal charter,
    I will ignore the rhetoric and focus on the merits of the
    current draft.
        To be sure, as with any dynamic industry, insurance
    regulation must modernize. States have been working with the
    sponsors and with leaders of producer groups to improve
    licensing uniformity and reciprocity through H.R. 5611, and
    this mutually constructive good faith effort has made great
    strides.
        Through a public hearing and comment process, the States
    are near conclusion of a proposal for comprehensive reinsurance
    reform. The uniform certificate of authority application has
    been adopted by all States. The interstate compact now has 31
    members, with more coming as early as today.
        In these and other areas, individually and through the
    NAIC, thousands of State regulators work every day for
    consumers and for industry members. We supervise 36 percent of
    the world's insurance market, and 26 of our members rank among
    the top 50 markets in the world. We have the world's largest
    and most competitive insurance market, and we, not any other
    country, provide the gold standard for regulation in developing
    countries.
        H.R. 5840 would create the Office of Insurance Information
    to provide a focal point for international insurance agreements
    and Federal data analysis. State regulators look forward to
    partnering with the OII for these narrow purposes.
        The NAIC maintains the world's largest insurance financial
    database, the Consumer Information Resource, licensing
    information for more than 4 million producers, and other
    subject matter data. Our vast archive kept current on
    customized software and hardware platforms can be manipulated
    to generate thousands of reports. States receive confidential
    information each day, and will work with the OII to preserve
    the same confidentiality constraints under which we operate.
        The OII would also coordinate Federal policy on
    international matters. Contrary to mischaracterizations in
    others' testimony, the NAIC has been active internationally,
    collaborates regularly with our foreign counterparts, serves as
    technical advisor to the USTR, and works with the OECD, the
    Joint Forum, and others.
        But accepting the limits of Article I, Section 10 of the
    Constitution, we thank this committee and your talented staff
    for our important dialogue on the scope of the OII's preemptive
    authority. Some additional work must be done. Among others, the
    term ``agreements'' should be defined, and clarity should be
    added so that subsection 313(j) excludes the business of
    insurance.
        For these and other improvements, we pledge our continued
    good faith interaction. We must be ever vigilant, though, that
    the OII not gain authority to preempt the consumer protections
    and solvency standards adopted by the States and that serve the
    public so well.
        While conversation most often centers on industry
    initiatives, in 2007, State regulators replied to over 3
    million consumer inquiries and complaints. Like you, we know
    that a single mother in a car wreck, racing between jobs, needs
    local and prompt assistance. We know that an elderly gentleman
    on a fixed income sold an indexed annuity cannot wend his way
    through a Federal bureaucratic morass. After every incident,
    our consumers, your constituents, need to know that the company
    that collected their premiums, often for years, has the
    wherewithal to pay the claim.
        And for these reasons, while we actively support efforts to
    aid U.S. insurers globally, we oppose any legislation with a
    broadly preemptive approach.
        To conclude, we express extreme caution against preemption,
    support the objectives of H.R. 5840, and renew our commitment
    to engage constructively with this committee. Thank you for
    your attention, and I look forward to your questions.
        [The prepared statement of Mr. McRaith can be found on page
    68 of the appendix.]
        Chairman Kanjorski. Thank you very much, Mr. McRaith.
        We will next hear from the gentleman from Rhode Island, a
    member of the Rhode Island House of Representatives, and the
    president of the National Conference of Insurance Legislatures,
    Mr. Brian Kennedy. Mr. Kennedy?

     STATEMENT OF THE HONORABLE BRIAN P. KENNEDY, REPRESENTATIVE,
    RHODE ISLAND HOUSE OF REPRESENTATIVES, AND PRESIDENT, NATIONAL
                  CONFERENCE OF INSURANCE LEGISLATORS

        Mr. Kennedy. Thank you very much. Good morning, Chairman
    Kanjorski, Ranking Member Pryce, and members of the
    subcommittee. Thank you for inviting me to testify on insurance
    regulatory reform and H.R. 5840.
        I am Rhode Island State Representative Brian Patrick
    Kennedy, and I am the chairman of the House Committee on
    Corporations in Rhode Island, with jurisdiction over insurance
    and financial service issues. I also serve as the president of
    the National Conference of Insurance Legislatures, better known
    as NCOIL.
        When commenting on H.R. 5840, NCOIL finds it hard to close
    its eyes and ignore the lack of any State legislative presence
    because it is the State legislators that have shaped, by
    statute, the robust insurance market that exists today. It is
    ironic that States should bear the burden of proof to half
    preemption of the very laws that successfully steered the
    insurance sector through the pitfalls that have faced similar
    industries.
        State solvency laws have helped make the insurance market
    stable while the banking market, under Federal regulation, was
    rocked by the savings and loan scandals of the 1990's, and by
    the subprime lending crisis of today. And even Federal
    initiatives, including ERISA, FEMA, and the NFIP have often
    fallen short of their goals.
        Regarding the NAIC role in this proposal, NCOIL believes
    that giving the NAIC a primary role in the Office of Insurance
    Information allows the tail to wag the dog. State regulators,
    four-fifths of which are gubernatorial appointees, are
    authorized by legislators to interpret and enforce the statutes
    that we develop. H.R. 5840 would dramatically enhance the
    authority of the NAIC at the expense of the State officials to
    whom they, as insurance regulators, are accountable.
        It is unprecedented that the Federal Government would give
    such power to a private trade association--I repeat, a private
    trade association--or to what NAIC immediate past resident
    Walter Bell of Alabama in an April 9, 2007, letter called: ``a
    501(c)(3) nonprofit corporation with voluntary membership and
    not a State government entity.'' This NAIC president went on to
    say that: ``When individual insurance commissioners gather as
    members of the NAIC, they are not considered a governmental
    entity or a public body as defined by the various open meeting
    laws, but rather are a private group. As an organization, the
    NAIC does not have any regulatory authority.''
        We have noticed that Congress, like us, does not take
    lightly the ceding of authority to an Executive Branch. This
    was evidenced by your reaction to the Bush Administration's
    August 2000 SCHIP enrollment directive. Now Congress is asking
    State legislators to cede authority to a private trade group.
        NCOIL questions the scope of public policy meant to be
    considered by the Office of Insurance Information. H.R. 5840
    would authorize the Office to collect, analyze, and advise on
    major domestic and international insurance policy issues. The
    word ``advise'' means to recommend, and indicates that the OII
    duties could be interpreted to be broader than simply offering
    insurance-related data.
        We are also concerned with what the term ``international
    insurance matters'' could come to mean since such matters,
    which are painted with a broad brush in the discussion draft,
    could be interpreted to also include accounting, life
    insurance, or property issues that generally are regarded as
    domestic policy. This could have dramatic, unfortunate outcomes
    for consumers and our constituents. The bill should clearly
    limit the OII's domestic role to that of an informational
    clearinghouse.
        In previous statements, certain Members of Congress have
    questioned the practicality of an optional Federal charter for
    all lines of insurance. But an OII would establish a framework
    that a future Congress could build upon to create a Federal
    insurance regulator, such as an OFC or an Office of National
    Insurance. Creating an OII and not expecting an OFC is like
    building a baseball diamond and asking people not to play. As
    in the movie ``Field of Dreams,'' if you build it, they will
    come. And that is not our dream.
        OFC or ONI proposals would potentially jeopardize State
    consumer protections, existing regulation, and ongoing
    modernization efforts and State revenues. NCOIL feels that H.R.
    5840 also leaves open many questions, including would States be
    left holding the bag and responsibility regarding consumer
    protection as well as enforcement of Federal policy, and would
    States realistically have the power under the proposed notice
    and comment process to fight off inappropriate State
    preemptions?
        We believe that experienced State officials who are closer
    to consumers can more effectively regulate and can better serve
    our mutual constituent base. And like you, we recognize that
    insurance regulation must be modernized in certain targeted
    areas, and we believe States should be allowed to continue to
    do so.
        The success of the Interstate Insurance Compact proves that
    States can speedily enact reform, and as Director McRaith
    pointed out, the compact is now an independent mechanism of the
    States and it is responsible to its now 31 member
    jurisdictions, offering one central filing point for life,
    annuity, disability, and long-term care insurance products.
        State legislators sit on a special committee that helps
    guide and advise the compact efforts. As with the compact and
    to reach consensus, we believe legislators should also have a
    role in any insurance regulatory advisory group.
        In concluding, there is no crisis in the insurance
    industry, and not one of my constituents has ever called me
    requesting support for Congress's effort to set up a new Office
    of Insurance Information or an optional Federal charter because
    of problems at the State level.
        While I feel somewhat like that lonely Maytag repairman
    this morning, I want to say that I appreciate the work of the
    subcommittee and the opportunity to comment on H.R. 5840. Thank
    you.
        [The prepared statement of Mr. Kennedy can be found on page
    49 of the appendix.]
        Chairman Kanjorski. Thank you, Mr. Kennedy. Thank you for
    your testimony. I have certain questions, and I am sure my
    colleagues do as well.
        First of all, I suspect you could not support the
    legislation any more than you already have. Is that correct,
    Mr. Kennedy?
        Mr. Kennedy. I will say, Mr. Chairman, that I don't think
    we are officially against the proposal. But I think our concern
    at this point in time is that it is very top-heavy in the
    creation of the advisory role, specifically with the number of
    members being expanded out to 13 members without any
    legislative presence whatsoever. And legislators do have a
    background and a role currently within insurance jurisdiction
    and regulation.
        Chairman Kanjorski. Well, you would think differently if we
    included legislators on that advisory committee. Is that
    correct?
        Mr. Kennedy. I think that would probably help us a little
    bit more to understand the role and be able to play that role,
    much as we do with the insurance compact.
        Chairman Kanjorski. Well, we are nudging there slowly. We
    may get ourselves to some role that we can both agree upon.
        I guess we have a good division on the panel. Mr. Norton,
    other than being generally supportive, you said that Treasury
    has some reservations. But in your testimony, you did not
    indicate what they are. Would you like to indicate that now?
        Mr. Norton. Sure, Congressman. First, I would just
    emphasize that Treasury welcomes the introduction of your
    legislation and supports the creation of an Office. And we have
    appreciated the collaboration with your staff to date.
        In terms of concerns, we think there may need to be more
    clarity on the term ``agreement'' and on the authority to enter
    into agreements. And we would hope that we could continue
    collaborating with your staff to work out some of those details
    should you have similar concerns.
        A second concern that we have is with the independent
    congressional testimony that is in your bill and that is
    provided to the Office, we feel as though it is not necessary,
    as this Office is supposed to advise the Secretary of the
    Treasury on how to exercise his or her power. And other offices
    in the Executive Branch that have such independence are usually
    led by individuals who are nominated by the President,
    confirmed by the Senate, and operate as financial services
    regulators, for example.
        So those are the highlights. But we think that they are
    very bridgeable. And we again appreciate the collaboration and
    hope that we can continue that.
        Chairman Kanjorski. We have to work on that. We have gone
    several ways on that as the legislation has been proceeding, as
    you know. But it is my general and personal view that we have
    to be very careful to keep this Office out of the political
    realm and out of political control. That is why a measure of
    independence, I think, is essential. Without that, the Office
    would fall into significant control of the party who exercises
    control in the Executive Branch. That could be unfortunate--not
    that it would be, but it could be.
        Mr. Norton. Again, I certainly understand those concerns. I
    think at this point we have a bit of a different perspective.
    But hopefully we can continue talking about this.
        Chairman Kanjorski. Well, I hope we can work on that in the
    next several weeks, not months, so that we can move this along.
        Mr. Norton. Absolutely. We are focused on this, Mr.
    Chairman.
        Chairman Kanjorski. Very good. The gentleman sitting next
    to you from Illinois operates the most important insurance
    division in the United States. Every time I meet with the
    insurance industry, they tell me that Illinois is just the
    cat's meow when it comes to insurance.
        Do you think we need this legislation at all, Mr. McRaith?
        Mr. McRaith. Mr. Chairman, first of all, I am very proud of
    the insurance marketplace that we have in Illinois and the
    regulatory structure. It is somewhat disconcerting to be the
    object of so many industry fantasies, but I think that we will
    continue our efforts in Illinois in a professional manner.
        The legislation as proposed is legislation that is on its
    way to being narrowly crafted enough that the regulatory
    community could stand behind it. As you understand, of course,
    our primary concern is that through a trade or international
    commercial agreement, that the protections that have worked so
    well for the States and the industries, for your constituents,
    that those not be threatened, that they be considered and
    integrated.
        And to the extent that there is the possibility of a
    discriminatory impact on a non-U.S. insurer, which is one of
    the essential grounds for preemption, that the State regulatory
    perspective on the reasons for that discriminatory or less
    favorable treatment of that company are recognized.
        But to be clear, we do remain committed to working with
    you, your staff, and the other sponsors of this bill to improve
    it, to narrow the possibility of that inadvertent preemption
    that I think we all agree we don't want to happen.
        Chairman Kanjorski. Well, we appreciate that. We hope you
    will keep that attitude. And we are hoping to work with you.
        I know that my time has expired, and I will just take one
    second to say, Mr. Kennedy, I want to assure you that the
    subcommittee is not in search of a problem. We really have been
    meeting with the insurance industry over a long period of time
    now, and seldom do we meet with members of the industry that
    they do not call some major, significant attention of ours to
    changes that could be made to facilitate better service, less
    expense, greater competition, etc.
        So I want to assure you on behalf of myself and the
    committee that we are not looking for a problem to solve. I
    think we have a few in Washington that need solving, so we
    really do not have to seek them out. This is a problem that
    sort of presented itself to us. But thank you, and we will take
    into consideration your thoughts.
        Now, the gentlelady from Illinois, Ms. Pryce--Ohio. I am
    sorry.
        Ms. Pryce. O-H-I-O, we say proudly in Ohio. Thank you, Mr.
    Chairman.
        First of all, I want to give my personal thanks to Treasury
    for the good start to so many of our problems in the Blueprint
    that you put forward. And this, I know, is just one part of it.
    As this committee does our due diligence in examining many
    other parts, I just want to say that I think that we are off to
    a good start, perhaps overdue, but there is no time like the
    present to get moving.
        Let me talk a little or let me ask a little bit about, you
    know, as we examine our balance of trade issues and consider
    trade in services, is there any measurement of loss on the part
    of U.S. interests, whether it is anecdotal or industry
    estimates or otherwise, that we can really point to to get a
    feel for what kind of disadvantage we may be in without a
    Federal component to insurance, at least as an element of
    trade.
        Do we have any estimates? Do any of you know of any of
    those kind of numbers that might be floating out there? I am
    sorry it is very hard to pinpoint with any exactness what they
    are, but is there anything like that available? Treasury
    doesn't have anything that--
        Mr. Norton. Congresswoman, that is one of the reasons why
    we think it is important to create an Office, so that we have a
    place to collect and analyze such information.
        Ms. Pryce. And perhaps these questions might be better
    saved for our industry witnesses in the next panel. But I think
    it is important that we know what we are dealing with and why
    we are trying to go in this direction.
        Well, then, let me ask Mr. McRaith, or any of you: There
    seems to be consensus as to what NAIC might be very against and
    not want to support. Can you offer to this committee thoughts
    about what you would be willing to support in this legislation?
    And if you have any thoughts in particular about reinvestment
    collateral issues or reinvestment insurance and Solvency II
    standards.
        Mr. McRaith. Absolutely. Congresswoman Pryce, thank you for
    the question. I think you have asked an excellent question. I
    would like to, first of all, answer the first part.
        The NAIC supports the idea that the Federal Government, in
    Treasury or somewhere else, should have insurance information
    and resources which it can call upon when needed in times of
    national crisis, whether it is 9/11 or the natural catastrophes
    in the Gulf. We also recognize, as I said in my testimony, that
    Article I, Section 10 of the Constitution limits the authority
    of the States to enter into treaties or commercial arrangements
    with foreign governments.
        Having said that, we also stand today, Congresswoman, able
    and ready and actively participating in discussions with the
    sponsors of H.R. 5611 and the industry groups in support of
    that bill that will help us move forward significantly with
    uniformity and reciprocity in producer licensing.
        Reinsurance collateral is another important issue.
    Congressman Feeney introduced a bill a couple of days ago. The
    NAIC is nearing the conclusion of a comprehensive reinsurance
    reform proposal, not just focused on reinsurance collateral but
    comprehensive reform.
        And finally, you asked about Solvency II. Let's be clear
    what we are talking about. This is alluded to in the written
    testimony of several of the industry participants and in
    Treasury's written testimony as well. Solvency II has not been
    adopted in any final form by the E.U. In fact, the Financial
    Times reported today that several of the smaller E.U. countries
    are very concerned and feel very threatened by the possibility
    of Solvency II and that form of regulation.
        If it were to pass this year, assuming they adopt a final
    high-level framework in 2008, implementation is not until 2012
    at the earliest. So as we talk about Solvency II as if it is
    some impending, near-term prospect, let's be clear about what
    we are talking about. It is not happening tomorrow. It hasn't
    even been adopted in final form by the E.U. at this point.
        I think it is also clear--your prior question about the
    trade imbalance--the industry can talk about that, and I expect
    that they will. But as we talk about alternative regulatory
    schemes, let's accept that we have a more mature regulatory
    system in the United States than the E.U. does. Let's accept
    that our insurance market is now more robust than any other
    country in the world.
        And understand, the E.U. has 27 different jurisdictions
    still, 27 different forms if you want to participate in those
    jurisdictions, 23 different languages. So as we talk about
    these issues--and again, I appreciate the substance of your
    question--we need to acknowledge that there are some facts that
    are really important to those discussions as well. Thank you.
        Ms. Pryce. Well, thank you for your very good answer. And
    let me just say, because my time has expired, that maturity is
    important but that doesn't necessarily translate to what we
    need in this global market.
        Our robust industry needs somewhere to go. We are a robust
    industry. With the job losses in the United States, and the way
    our economy is, we really need to foster trade in the E.U., and
    we just want to do it right.
        And so thank you very much, all the witnesses. Thank you,
    Mr. Chairman.
        Chairman Kanjorski. Thank you, Ms. Pryce.
        Now the gentleman from California, Mr. Sherman.
        Mr. Sherman. Thank you, Mr. Chairman.
        Mr. Norton, one of the main purposes of this bill is to let
    Treasury deal with circumstances where State regulation runs
    afoul of our international treaties. Can you identify any
    practice of any State now that violates or comes close to
    violating our international treaties?
        Mr. Norton. Congressman, thank you for that question. I
    think it is an important issue to address. When Treasury
    released its Blueprint, we put forth recommendations. If I
    could just--
        Mr. Sherman. If I can interrupt, can you just give me a
    specific example of a specific practice?
        Mr. Norton. Well, the point of our recommending the
    creation of this Office was not to address a specific example
    or a specific issue. What we saw was that in the banking world
    and the securities world, those financial services sectors had
    regulatory authorities that could go overseas and enter into
    regulatory equivalence agreements, and the insurance sector
    does not have that.
        Mr. Sherman. Mr. Norton, I have such limited time.
        Mr. Norton. I understand.
        Mr. Sherman. Do you have a specific example?
        Mr. Norton. Congressman, there are two that we highlight in
    our testimony that we believe are important, and those are
    reinsurance collateral and Solvency II. But again, our
    recommendation was not to address a specific past practice, but
    to give the insurance sector similar powers that banking and
    securities regulators have.
        Mr. Sherman. Ms. Pryce identifies insurance as important to
    our trade balance. Of course, service is important to our trade
    balance. But of course, we generate funds from abroad by
    providing legal services, accounting services. Radiological
    services can be traded internationally.
        You are not suggesting that we establish a separate
    Treasury office for every service industry that could affect
    our trade balance, are you?
        Mr. Norton. No, sir. Our recommendations were focused on
    financial services and the regulatory structure regarding
    financial services. And we highlighted three areas: banking;
    insurance; and securities and futures.
        Mr. Sherman. So your focus is not just on any industry that
    could affect our trade balance. Your focus is on financial
    services. In my State, they voted overwhelmingly to have rate
    regulation of insurance, particularly automobile insurance. Is
    there anything in our international agreements that could allow
    anyone to claim that such rate regulation violated--and anti-
    redlining provisions--violated our treaties?
        Mr. Norton. Well, regarding this bill that the chairman has
    introduced--
        Mr. Sherman. I will ask you to answer my question. Is there
    anything in our international trade agreements that could serve
    as a basis for arguing that rate regulation and anti-redlining
    provisions violate those international agreements?
        Mr. Norton. I think it is important to define the type of
    agreements. If they are trade agreements, they still fall under
    the purview of the USTR as the chief negotiator and lead for
    the Administration and the Government. What we are trying to
    discuss in our testimony would be regulatory equivalence
    agreements in financial services specific to insurance.
        Mr. Sherman. So you refuse to answer my question on the
    theory that is not germane to the bill. Okay. Let me move on
    to--
        Mr. Norton. Congressman, I am happy to talk to our
    colleagues at USTR and circle back with you, if you would like.
        Mr. Sherman. Okay. I would ask you to get the information
    from other folks in the Administration and answer that question
    for the record. Because you are here proposing an Office that
    would more effectively enforce the trade provisions, I would
    sure like to know what those trade provisions are. And I know
    you would, too, and that is why you will check with USTR.
        Mr. Norton. That is not the intent. We are talking about
    regulatory equivalency agreements, not trade agreements. Trade
    agreements would still be under the purview of USTR, at least
    as we envision the bill, and I think under the chairman's text.
        Mr. Sherman. So it would only be what kind of agreements,
    again?
        Mr. Norton. Regulatory equivalency agreements for financial
    measures, the type that financial services regulators enter
    into, in securities and in banking.
        Mr. Sherman. Okay. Thank you. I believe my time has
    expired.
        Chairman Kanjorski. Thank you, Mr. Sherman.
        We will now hear from the gentleman from Illinois, Mr.
    Manzullo.
        Mr. Manzullo. Thank you, Mr. Chairman. I listened to the
    testimony of the three witnesses, and I have read the testimony
    of the other witnesses on the second panel. I don't know if I
    will be around for that.
        But I am a little bit astonished at the gentleman from
    Illinois. We have a lot of problems in Illinois, but one of the
    areas where we lead the Nation is in insurance. I have a farm.
    No less than seven property and casualty insurance companies
    gave me a quote. The one I went with, a very established
    company, came back several years later and did risk management
    on the farm. It cost me $811 to make the repairs. But I
    appreciate it.
        And the only person here who is really making sense is
    Representative Kennedy, with all deference. Mr. Norton, you
    come in proposing legislation in a complete vacuum. I think
    that is dangerous, to come in and create an Office, establish a
    bureaucracy. And if you guys think for one minute that this
    Congress is going to establish an Office for information and
    not go beyond that, I mean, that is not the way this place
    works.
        First you go in with the soft punch, and that is to
    establish an Office for information. And why the powerful
    insurance industry needs Congress or Treasury to establish a
    database for insurance information just--it just blows my mind
    away. It really does.
        This is an attempt to federalize the insurance industry.
    That is all it is. Representative Kennedy, you understand it
    better than anybody because not only do you have a background
    in insurance, but you lead the Nation in the State legislators.
    Do you agree with my statement? And how dangerous is it for the
    Federal Government to get involved in setting up this Office?
    What could it lead to?
        Mr. Kennedy. Thank you very much, Congressman. I will say
    this, that NCOIL has been very concerned about this. As you
    know, legislators have always played an important role in
    moving forward with regulation. It is up to, ultimately, our
    insurance commissioners and superintendents to carry out that
    role by implementing the rules and regulations for that
    particular process.
        So we are very concerned at this point in time because of
    the particular role that the NAIC plays in this proposed OII.
    There is no role for State legislators, and we feel that that
    has to take place. As you know, the NAIC at this present time,
    it is a private trade association.
        Mr. Manzullo. Well, no, no. I mean, aside from that--and I
    would ask my colleague from Illinois: How do you think that
    this Congress can only go so far, and then you are going to
    stop the brakes? I mean, this is--the initial shots are being
    fired, to come in with the optional Federal charter.
        And because I represent Illinois, because we have some of
    the lowest rates, because we have no regulation, I mean, the
    rates are not regulated in Illinois. And at times, I have
    actually seen my car insurance and house and farm insurance go
    down.
        So why should I, as a Member of Congress from Illinois,
    want to impose a Federal bureaucracy that, just like that,
    could preempt? I mean, if the issue here is international
    agreement, all we have to do is beef up the USTR's Office, give
    them some more money, some more people, and say, ``Look, we
    want you to get involved in this.''
        Mr. McGrath--or McRaith. I am sorry.
        Mr. McRaith. That is okay. First of all, Congressman, I do
    agree with you that we have an excellent insurance marketplace
    in Illinois. We do regulate in Illinois; we just don't regulate
    the rates on the front end, on the P&C side, and on major lines
    of insurance. So I completely agree with you--
        Mr. Manzullo. You regulate for solvency and honesty.
        Mr. McRaith. Right.
        Mr. Manzullo. And we don't have a problem in Illinois
    insurance, do we?
        Mr. McRaith. Excuse me?
        Mr. Manzullo. We don't have a problem in Illinois
    insurance, do we?
        Mr. McRaith. When it comes to the property and casualty
    lines, absolutely not, Congressman. I completely agree with
    you. We have an excellent, robust--
        Mr. Manzullo. That is because of the great job that you are
    doing. Right?
        Mr. McRaith. Thank you very much, Congressman. But to
    answer your question, we can't look at what might happen
    politically, strategically. We have been asked to look at the
    substance of a bill, and in good faith, that is what we have
    offered to comment on.
        The scope of the preemption, as we review the bill, is
    narrow enough--first of all, any agreement has to be run--the
    Director of this OII would have to run the proposal or the
    possibility of any agreement through the advisory group, which
    includes insurance regulators.
        And then, if it becomes part of an agreement, then there is
    the possibility--and I should add, in deference to
    Representative Kennedy, there are 13 spots, and I believe it is
    5 to 7 that are accounted for with an acknowledgment that the
    others can come from other groups as appointed by the
    Secretary. So that could include, of course, State legislators.
    And I work very well with our legislature in Springfield and
    will continue to do so, hopefully.
        But the point is that the scope of the preemption, as
    currently constructed, we are very wary of. But we believe that
    it is narrow enough and can be increasingly narrowed to be
    certain that it will not threaten the consumer protections and
    the marketplace regulation that we know is essential for your
    constituents, for the people of Illinois, and people around the
    United States.
        Mr. Manzullo. Mr. Chairman, I think that Representative
    Kennedy is itching for a rejoinder. Would that be appropriate
    even though my time has run out?
        Chairman Kanjorski. He may.
        Mr. Kennedy. Thank you very much.
        As Director McRaith did point out, many of the spots have
    already been accounted for. But again, there is no guaranteed
    spot within this OII for legislators at this point in time.
    There is a big ``if'' out there, and too many times, there are
    too many ``if's'' and not any concrete proposals that come into
    play.
        So we would like to see something where it is a little bit
    more concrete. Thank you.
        Chairman Kanjorski. Thank you very much, Mr. Manzullo.
        We will now hear from the gentleman from Massachusetts, Mr.
    Capuano.
        Mr. Capuano. Thank you, Mr. Chairman.
        Mr. Kennedy, I am just curious. Would you feel better if
    the legislation specified that a member of your organization be
    part of this advisory board?
        Mr. Kennedy. I would definitely feel a lot better about
    things. I think that would provide us with the necessary input
    we need for our legislators that we represent across the
    country.
        Mr. Capuano. That is fair enough. Honestly, when it comes
    to preemption, especially in a new area of any kind, no matter
    how narrow it is, I share the concerns. As a legislator and as
    a former mayor, I am never convinced that Washington knows
    better than anybody else. So I have similar concerns. But at
    the same time, there are times and places where preemption is
    appropriate, and this may or may not be one of them. I am not
    sure yet.
        I am curious. Mr. Norton, in particular, the role of this
    Director is to advise the Secretary on major domestic and
    international insurance policies. I think it is pretty clear
    that if they advise them on an international issue, and they
    think that the international issue is problematic, that there
    is a power of preemption.
        What if they advise them on a major domestic issue and the
    advice says, hey, this is a problem. It is a redlining problem.
    It is a flood insurance problem. It is a major problem that may
    be only affecting one area, but certainly has national
    implications. For the sake of discussion, I am trying to make
    it a little easier than just on an issue that might relate to
    just one State.
        But, you know, flood insurance, redlining, any number of
    issues that clearly have national implications. What if that
    advice comes in and says, this is really bad. This State, ``X''
    State, has done something terrible. They are heading down the
    wrong road. They are going to ruin the entire insurance world.
    What do they do about it?
        Mr. Norton. Well, I think, as envisioned in the chairman's
    bill, and in our own proposal, in the Blueprint, the Treasury
    Secretary would have concerns. If one State were going to cause
    a problem for an insurance market nationally, this Office would
    not have the power and the Secretary would not have any power.
    McCarran-Ferguson would remain. The States would still--
        Mr. Capuano. Do you envision the Secretary at least having
    the authority to say something?
        Mr. Norton. Absolutely. The Secretary would want to raise
    that issue in any forum possible, possibly in the Congress, if
    that is the appropriate way to address the issue, or through
    bilateral discussions with the State legislatures.
        Mr. Capuano. But I am saying say something in a public
    manner to say, the State of Massachusetts has made a mistake on
    ``X'' insurance policy matter, and that is really a bad policy
    and we really should do something about it.
        Mr. Norton. Congressman, it is hard for me to comment on a
    hypothetical. I would say that there are--
        Mr. Capuano. That is where I live. I live in hypotheticals.
        Mr. Norton. I understand. I think that there are times in
    financial markets where the Treasury Secretary probably
    wouldn't want to comment publicly, but maybe go directly to the
    insurance commissioner in the State of Massachusetts, to your
    hypothetical, or maybe go to the governor, or maybe go to
    this--
        Mr. Capuano. Fine. He goes to them. A very nice
    conversation. They say, ``Get lost.''
        Mr. Norton. Well, that is an inherent--
        Mr. Capuano. I guess I am asking: Do you ever envision a
    situation where the Secretary would have a public comment on a
    domestic issue?
        Mr. Norton. Well, yes. As envisioned in the bill, the
    Secretary of the Treasury would report, I think, once every 2
    years on major policy matters. So there is a statutory
    requirement under the legislation.
        Mr. Capuano. Honestly, the reason I ask is because I have a
    little trouble with the fact that it is only once a year. I
    would like to see a situation where the Secretary would be
    encouraged on an ongoing basis to make a statement, if deemed
    appropriate.
        I guess to a certain extent, I think Mr. Manzullo is
    correct. I mean, I don't think he is wrong that this might be
    the beginning of looking at broader issues. I am not afraid of
    looking at those broader issues, though. I think it is a
    mistake to pretend that somehow, because today you may not want
    to go someplace, that you shouldn't ask questions, that you
    shouldn't have adequate information.
        And I will point very clearly to a front page article
    yesterday, the Federal Reserve of New York. They just said
    yesterday--not on an insurance matter--that maybe it is time
    for us to be looking at the unregulated aspects of the private
    equity market. Why? Because we are now in an economic downturn
    that most observers will blame on the excesses of the private
    equity market and the fact that we didn't look at them.
        And as we sit here today, we don't have anyplace--the
    Secretary of the Treasury, the Federal Reserve, cannot answer
    us on some very detailed questions we have relative to what
    private equity has been doing.
        I don't see why this would be a concern. I understand the
    concerns of Mr. Kennedy on the specific issue of being at the
    table. I have no problem with that concept. But other than
    having the table adequately represented and having people have
    the ability to make public commentary, why would anybody be
    concerned about the gathering of information? Why would anybody
    be concerned about the ability at some point in the future of
    maybe taking knowledgeable information and making different
    policy decisions?
        Who knows? Maybe they won't. Can anybody here tell me what
    the concern is of why you would be opposed to anybody gathering
    knowledgeable, technical, detailed statistical information that
    may or may not be used in the future?
        Mr. McRaith. Congressman, we recognize and appreciate the
    need for that kind of information, and the need for that
    information to be available to the Congress when needed. We
    supported congressional efforts to collect data about insurance
    company exposures after 9/11.
        As I mentioned in my testimony, we have a massive--the
    largest insurance financial database in the world. We have
    information on over 4 million producers. We can work with the
    Congress to help Congress develop the information it needs to
    answer questions, as you have said, that might come up
    unexpectedly during a given economic cycle. Absolutely.
        I would say in response to your initial question to Mr.
    Norton that we cannot--the question of what is appropriate for
    a local--for one State or another is a difficult question to
    answer unless you are in the State. And for that reason,
    insurance regulation is and should remain a local and therefore
    a State-based matter. What is appropriate for Ohio and
    Congresswoman Pryce is different from what is appropriate for
    Illinois and Congressman Manzullo.
        Mr. Capuano. Thank you, Mr. Chairman.
        Chairman Kanjorski. Thank you very much.
        We now have the gentleman from California, Mr. Royce.
        Mr. Royce. Thank you very much, Mr. Chairman.
        I was going to ask a question on an issue here to Mr.
    Norton. When President Clinton was trying to liberalize trade
    to open up markets overseas, in Africa and in India and South
    Asia, I had the opportunity to travel with him to try to
    advance AGOA and other issues overseas.
        And during that time, I noticed that as we tried to open
    those markets: Commerce was there; Treasury was there; the USTR
    was there. Everyone had a seat at the table as we tried to open
    markets overseas except for insurance because we don't have a
    national market for it here and they are not represented.
        And as you look at the attempts that we have had as sales
    have increased, there is one place where we have really had a
    setback, and that is in the insurance sector. We are having all
    kinds of difficulties right now with Europe, and you know a
    little bit about the acrimony there over the fact that they are
    trying to deal with 54 markets here in the United States as
    they try to create one national market there, and what that is
    creating in terms of attitudes.
        But just the ability to have someone have a seat at the
    table, just the ability to have Treasury have the authority
    here to argue for opening markets, I was going to ask you, Mr.
    Norton, in your opening testimony you signaled that the Office
    of Insurance Information would establish that Federal presence
    and, ideally, have the authority to implement agreements here
    in the United States.
        And I would just ask how you would envision that those
    agreements would be implemented. Would it take care of this
    glaring inequity that I see where we have a huge trade deficit?
    We have all received letters, I think, from the E.U. about
    this. We have a huge trade deficit in this area of insurance,
    and we have surpluses in these other areas where at the Federal
    level there is a seat at the table.
        Would this help address this concern I have?
        Mr. Norton. Congressman, I think it is an important
    question. We do believe that it would help. As you know through
    your leadership on AGOA, USTR is of course the lead negotiator
    on trade agreements. But when you look at financial services in
    the context of regulatory equivalency discussions and
    agreements, you are exactly right. The banking regulators and
    the securities regulators have more flexibility to address
    cross-border issues.
        With regard to the authority of the Office, we do believe
    the authority is appropriate and carefully tailored by the
    chairman. But I would like to emphasize that this preemption is
    a last resort, that the bill calls for a thorough and elaborate
    process where we would work with--or the new Office would work
    with the NAIC, among others, the Commerce Department, the USTR,
    other executive branch agencies, before formulating a policy,
    before going overseas entering into discussions.
        Should an agreement be reached, it would then go back and
    have an elaborate process on notice and comment. And there is
    time for States to implement such agreements that, in all
    likelihood, they were a big voice in. And we think that the
    balance is a good one and it does address the issues that you
    raised in your question.
        Mr. Royce. Some of the foreign government officials have
    continued to raise issues associated with our having over 50
    different insurance regulators. Some have threatened taking
    punitive action because of the lack of a single point of entry
    into the U.S. marketplace.
        It has been well-publicized that the European Union
    Solvency II directive could severely impact the competitive
    business of U.S. firms operating in Europe, should Europe take
    retaliatory action. Of course, one of the arguments the
    Europeans make is that our system, our structure, is so
    injurious to our own position to compete that we are going to
    fall further behind and the U.S. industry's enormous trade
    deficit is going to continue to grow.
        But that aside, do you believe an Office of Insurance
    Information would be enough to prevent U.S. companies from
    being punished should the E.U. try to take the type of decisive
    action that is being argued by their officials that deal with
    these trade issues?
        Mr. Norton. Well, it is certainly difficult to predict the
    outcome of any discussions. We do believe that this Office and
    the authority that, again, is carefully crafted under the
    chairman's bill would help in those discussions. We can look to
    other examples in financial services--in the securities area
    with Basel II, with financial holding companies and banks, the
    CSE regime of investment banks, are all beneficiaries of cross-
    border dialogues and regulatory discussions with the
    appropriate regulators in those fields.
        So again, I don't want to prejudge how this Office may or
    may not help or direct the outcome in Solvency II. But it would
    certainly help, in our view.
        Mr. Royce. Thank you.
        Chairman Kanjorski. The gentleman from Texas, Mr. Hinojosa.
        Mr. Hinojosa. Chairman Kanjorski, I want to thank you for
    holding this very important and timely hearing today. It is my
    understanding, and perhaps you can correct me, that the draft
    of H.R. 5840 completed June 4th would create an Office of
    Insurance Information in the Department of the Treasury. So I
    am going to be asking questions of Mr. Norton.
        Some of the groups that oppose the legislation have
    characterized the new Office and its duties and powers as a way
    to preempt virtually all State insurance laws, excluding health
    insurance. And I happen to be a supporter of States' rights.
        I have not taken a position on this draft bill, but I would
    like to have some additional information. My understanding
    further is that because the Office of Insurance Information
    will serve as a Treasury representative to the Trade Promotion
    Coordinating Committee, it will have the power to determine or
    at least influence the language included in agreements that
    will be entered into between the United States and foreign
    governments, authorities, or some regulatory entity on
    insurance matters, basically giving them the power to preempt
    any and all State laws. And that concerns me.
        Mr. Norton, would you be able to provide me in writing with
    any insurance negotiations the United States currently has
    under consideration with any foreign governments, regulatory
    entities, with health insurance excluded? Particularly the ones
    that are under consideration right now with Panama, Colombia,
    and Korea.
        Mr. Norton. We would be happy to get back to you,
    Congressman.
        Mr. Hinojosa. Yes. I would like to see those and see how
    this insurance regulation and law, proposed law, would help us
    improve those negotiations and the work that is going on. I
    know that NAFTA was completed about 14 years ago, and there is
    talk about trying to bring it back up and renegotiate it.
        And there certainly are proponents, as many as there are
    opponents, because we know that there are winners and there are
    losers. And so the States that are losing, of course, are not
    happy with it. States like mine, Texas, is a winner, and so
    they are certainly on the opposite side.
        So if you can provide that information to me and my Office,
    I would appreciate it very much. And I close by commending
    Chairman Kanjorski for holding this hearing today, and look
    forward to working with you and your staff as the bill moves
    forward in the committee and onto the Floor. Thank you.
        Chairman Kanjorski. I thank the gentleman. I do want to
    assure you that we are trying to narrow the preemption as much
    as we can, and we have been working with the various entities
    to accomplish that.
        Mr. Hinojosa. Well, if you do, I think that I would be a
    little bit more agreeable. But at this point, I have great
    concerns when we, the Federal Government, try to take over
    those State rights.
        Chairman Kanjorski. I appreciate that.
        The gentlelady from New York, Mrs. McCarthy.
        Mrs. McCarthy. Thank you, Mr. Chairman.
        Mr. Kennedy, I would just like to ask, because I am having
    a hard time confusing--how much on the State level as State
    legislators do with the compact have to do with international
    insurance? How does that come into the play of the State?
        Mr. Kennedy. Actually, the compact does not deal with
    international insurance issues. It is, you know, more about
    life, disability, and long-term care type insurance. But
    legislators sit on that particular compact. As you know, 31
    States have currently joined. It is under discussion right now
    in the State of New York. Our president-elect, Senator Seward
    from New York State, is trying to shepherd it through the New
    York State Senate at this point in time.
        We provide what we feel is an important advisory role to
    that insurance compact, and we think that the compact has been
    one of those type of creations that, for all intents and
    purposes, has helped to address some of the issues about
    control filing of one-stop, I guess you can call it, filing for
    new filings for insurance and those other types of products
    that would go before it.
        Mrs. McCarthy. So Mr. Norton, with the legislation that we
    are still working on, and being that we are deleting with
    basically into insurance, how does that affect the States?
        Mr. Norton. Well, I think the legislation is necessary and
    the Office is necessary because we want cross-border activity
    in insurance. And what we have found is that it is difficult
    for cross-border agreements to be reached because our
    counterparts overseas don't have anybody to talk to or reach
    agreement with.
        And I would just add, the NAIC does a very good job of
    formulating policy and engaging in international discussions.
    But they are limited by their ability to follow up and carry
    those agreements back because you have to go through 50
    different insurance commissioners and, in some matters, 50
    different legislatures. So it is difficult to reach uniformity.
        Again, the chairman's mark--
        Mrs. McCarthy. See, that is the point I am trying to
    understand. We are going to international insurance. The States
    right now don't deal with any international insurance. So I am
    trying to see--because I believe in States' rights also, so I
    am really trying to see if the States don't deal with
    international insurance, and the Federal Government is trying
    to have a seat at the table for international insurance, how
    are we preempting the State on those particular issues?
        Mr. Norton. Well, I think that we would only preempt the
    State where--State or States--there is really discrimination
    against foreign-regulated entities. So if an insurance company
    is located overseas and is trying to do business in the United
    States, and a State would, say, have different laws that are
    applicable to that insurance company versus an insurer located
    domestically, that is where you get some of the tension. And
    this Office would help formulate policy for the United States,
    and would be a place where dialogue could be advanced and
    achieved.
        Mrs. McCarthy. Would you agree that with a lot of Federal
    laws that we pass here in the United States, if the State has a
    stronger law, we usually go with the State law?
        Mr. Norton. I am sorry. Could you--I couldn't hear that.
        Mrs. McCarthy. With a lot of laws that we pass on the
    Federal level, a lot of States--and I will talk about New
    York--a lot of our laws actually supersede what the Federal
    regulation would be. And many times, the Federal law, which is
    on maybe a lower level, we accept the State law.
        I am just trying to see where I am going on where we are
    afraid that our States--we are going to overrule them when they
    don't have international--that is the part I am trying to
    clarify in my mind.
        Mr. Norton. Well, when there are issues, and reinsurance
    collateral could be one where providers of reinsurance are not
    allowed the same access into our markets or a type of more
    reasonable access to our markets, that has effects on the
    larger national insurance marketplace.
        And so that is why we have highlighted reinsurance
    collateral as one issue that this Office could address through
    regulatory agreements of equivalency, and strike an agreement
    working with the NAIC, which has spent a lot of time on this
    issue and is trying hard to advance a resolution.
        But it is not able to do that. I mean, the NAIC and the
    States have recognized the need to address this issue. So I
    don't think our goals are at all in conflict. The States
    themselves have recognized that they need to get together,
    discuss matters of international insurance, and try and
    formulate a policy, go overseas, discuss them, see if they can
    reach agreement.
        So I think that that is not a debate among the States or
    the Federal Government. The question is: Can we actually get a
    resolution? And to date, we have not been able to because the
    State system is so bifurcated.
        So I don't think that there is a dispute that there are
    issues at hand. I think the challenge is finding a way to
    resolve them. That is why we proposed this Office to achieve
    results. And we think that the bill, as introduced, achieves
    those goals.
        Mrs. McCarthy. Well, the whole idea of having hearings is
    so that we can hear the concerns and hopefully work on the
    concerns that everyone has. My time is up. Sorry. Thank you.
        Chairman Kanjorski. The gentlelady from Illinois, Ms. Bean.
        Ms. Bean. Thank you, Mr. Chairman.
        Most of my questions have already been asked and answered
    for this panel. But I did want to personally thank our home
    State insurance commissioner, Mike McRaith, for participating.
    And as the chairman alluded to, I know we are proud of what we
    feel is the best insurance division in the country and your job
    running it.
        I think the fact that Illinois does have a deregulated
    environment has led to greater access and more consumer choice
    than many States around the Nation. And while I know Mike and I
    may disagree on the role the Federal Government should play
    relative to insurance regulation and/or the need for a
    potential national insurance commissioner, certainly his
    knowledge of the industry and his valiant protection of
    consumer concerns would make him an ideal candidate for such a
    role.
        I would also like to thank Secretary Norton of the Treasury
    for providing further testimony on your Blueprint for Reform,
    and at least getting the dialogue started about evaluating our
    current structure and where we might need to update it.
        So I thank you both, and I am going to save my further
    questions for the next panel.
        Chairman Kanjorski. Thank you very much, Ms. Bean.
        Mr. Murray, the gentleman from Connecticut--Murphy, I am
    sorry, the gentleman from Connecticut.
        Mr. Murphy. Thank you very much, Mr. Chairman. I have no
    questions.
        Chairman Kanjorski. It looks like we have completed this
    panel. So for purposes of that, I want to thank you gentlemen
    for participating in today's hearing, and the panel is
    dismissed.
        I would now like to welcome our second panel.
        Mr. McRaith. Mr. Chairman, we do have an exhibit we would
    like to tender to the committee, which we will circulate, that
    outlines all the different committees and regulatory structures
    internationally that the NAIC is involved with, both directly
    and in a supportive role.
        Chairman Kanjorski. Excellent. We will enter it in the
    record. If there are no objections, the exhibit will be
    appropriately marked and entered into the record.
        Thank you, Mr. McRaith.
        Mr. McRaith. Thank you very much.
        Chairman Kanjorski. I am pleased to welcome our second
    panel. First, we have Mr. Neal S. Wolin, president and chief
    operating officer of property and casualty operations at The
    Hartford Financial Services Group, testifying on behalf of the
    American Insurance Association.
        Mr. Wolin?

       STATEMENT OF NEAL S. WOLIN, PRESIDENT AND CHIEF OPERATING
        OFFICER, PROPERTY AND CASUALTY OPERATIONS, THE HARTFORD
     FINANCIAL SERVICES GROUP, ON BEHALF OF THE AMERICAN INSURANCE
                              ASSOCIATION

        Mr. Wolin. Mr. Chairman, members of the committee, I am
    testifying today on behalf of the American Insurance
    Association and its member companies. Mr. Chairman, I will be
    brief.
        First let me thank the committee for providing me the
    opportunity to discuss the Office of Insurance Information with
    you today. I also want to thank you for your hard work to
    modernize and improve insurance regulation in the United
    States.
        A short trip back in time makes it clear why our country
    needs the Office of Insurance Information. Terrorist attacks on
    our homeland demanded a Federal response. By creating the
    Terrorism Risk Insurance Act, this committee saw to it that
    American economic activity would not be threatened by future
    terrorist attacks.
        The Gulf Coast and Eastern Seaboard have dealt with some of
    the worst natural catastrophes in our country's history. Those
    storms inflicted terrible harm on thousands of our citizens and
    damage to property resulting in tens of billions of dollars of
    insurance losses. These are just a few of the challenges that
    have affected our industry and the country in recent years.
        We have also witnessed the rapid development of global
    commerce. The U.S. Government needs to have a designated voice
    on insurance matters in dealing with foreign governments and
    foreign regulatory bodies.
        Mr. Chairman, since the start of the 107th Congress, this
    committee has dealt with reforming reinsurance and surplus
    lines markets regulation, with significant changes to and
    reauthorization of TRIA, with reforming and reauthorizing the
    National Flood Insurance Program, with a proposal to allow FEMA
    to sell wind coverage, with another proposal to provide Federal
    liquidity to State natural catastrophe reinsurance funds, with
    a Federal natural catastrophe fund, and with regulation of auto
    insurance, underwriting, and rating.
        The committee is currently reviewing proposals to deal with
    producer licensing and to expand the Liability Risk Retention
    Act. In short, you have been very, very busy on insurance
    issues.
        In all that activity on all the issues I mentioned and
    others, something important is missing: an accredited insurance
    witness at this table to offer the most appropriate and
    impartial advice and counsel on insurance on behalf of the U.S.
    Government. That same voice is needed around the globe.
        The legislation we discuss today will remedy that problem.
    On behalf of the AIA and its member companies, I congratulate
    you and Ranking Member Pryce, and thank you for this bill to
    create an Office of Insurance Information.
        I bring a perspective on this issue not only from the
    insurance industry, but also from the Executive Branch. Before
    coming to The Hartford, I had the honor of serving Secretary
    Rubin and Secretary Summers as Deputy General Counsel and
    General Counsel of the U.S. Department of the Treasury. I can
    assure you we would have benefitted greatly from an OII. I
    congratulate Secretary Paulson for supporting your efforts to
    create this Office.
        Thank you for your leadership. The AIA and its member
    companies, including The Hartford, stand ready to help the
    committee in any way as you move forward.
        Thank you very much, Mr. Chairman.
        [The prepared statement of Mr. Wolin can be found on page
    93 of the appendix.]
        Chairman Kanjorski. Thank you, Mr. Wolin.
        Next, we have Mr. Stephen Rahn, vice president and
    associate general counsel of the Lincoln Financial Group,
    testifying on behalf of the American Council of Life Insurers.
        Mr. Rahn?

      STATEMENT OF STEPHEN E. RAHN, VICE PRESIDENT AND ASSOCIATE
      GENERAL COUNSEL, LINCOLN FINANCIAL GROUP, ON BEHALF OF THE
                   AMERICAN COUNCIL OF LIFE INSURERS

        Mr. Rahn. Thank you, Mr. Chairman, Ranking Member Pryce,
    and members of the subcommittee. On behalf of the American
    Council of Life Insurers, I would like to thank you for the
    opportunity to present our views on H.R. 5840.
        The ACLI applauds your efforts as well as those of the
    bill's cosponsors to explore ways in which insurance regulation
    can be modernized and made to operate more effectively, both
    domestically and globally. My testimony today will address both
    the bill as introduced and your recently released discussion
    draft.
        As the ACLI has testified on other occasions before this
    subcommittee, more and more issues that are vitally important
    to our business are being debated and decided here in Congress,
    and all too often, Congress doesn't have an effective means of
    getting access to critical information on the industry as a
    whole, or of getting policy advice on domestic and
    international issues that reflects a national rather than a
    more parochial or State-specific perspective.
        And more recently, these domestic issues have been
    overshadowed by international concerns that highlight the
    difficulty of dealing effectively with global policy and
    regulatory matters through a State-based regulatory system.
        Mr. Chairman, for these reasons we welcome and strongly
    support the creation of an Office of Insurance Information
    within the Department of the Treasury, and your proposal to
    have explicit authority vested in the Federal Government to
    establish U.S. policy on insurance matters. We also support
    giving that Office the ability to enter into agreements with
    foreign governments to implement Federal policy.
        We believe an OII would be enormously beneficial to
    Congress as it considers issues that are important to our
    business. It would facilitate the handling of international
    insurance matters, and it would provide a means for effectively
    involving the insurance industry as national policy decisions
    are made affecting U.S. financial institutions.
        As the ACLI reviewed the introduced version of H.R. 5840,
    we looked very closely at the issue of preempting State laws
    that are determined to be inconsistent with agreements entered
    into by the OII on international insurance policy matters. We
    formulated five principles that we believe provide prudent
    guidance on this point.
        First, we agree with the approach of H.R. 5840 to limit the
    preemption to international issues where Federal policy is
    reflected in an agreement between the OII and a foreign
    jurisdiction or authority.
        Second, we agree with the bill's stated intent not to
    create any supervisory or regulatory authority in the OII or
    Treasury over any U.S. insurer.
        Third, the preemption should not be used in a way that
    leads to a real or potential solvency gap. Since the OII will
    not have any supervisory role, State laws that involve material
    solvency functions should never be preempted. I should also
    note that we were pleased to see in the discussion draft the
    addition of administrative due process language to help assure
    that the preemption is used only in appropriate circumstances.
        Fourth, we agree with the direction the discussion draft
    seems to be taking by requiring the OII to consult with the
    advisory group before entering into any international
    agreements with foreign jurisdictions or authorities, or before
    making any determination that a State measure is inconsistent
    with such an agreement and therefore preempted.
        Our fifth and last principle, and one where we do have some
    concern, is that we would not want to see the preemption result
    in material, unfair discrimination against any U.S. insurer.
    Our concern here is that the preemption can take place only to
    assure that a non-U.S. insurer does not receive less favorable
    treatment than a U.S. insurer. We don't want to see a
    circumstance arise inadvertently where the preemption results
    in the collateral consequence of treating a U.S. insurer less
    favorably than a foreign insurer, with no ability to employ
    preemption to remedy the situation.
        Mr. Chairman, while our review and analysis of your
    discussion draft continues, we do have several specific
    comments on the new elements of the bills. The details are in
    my written statement, but briefly, they are as follows.
        With respect to the collection of data by the OII, we are
    concerned over the expansion of this authority to include the
    collection of non-publicly-available information. We are also
    quite concerned with the elevated level of prominence the
    discussion draft gives to the NAIC, and its relationship with
    the OII. Finally, we object to the addition of the Federal
    Trade Commission as a member of the advisory group.
        Mr. Chairman, we understand and fully appreciate your
    intent that the OII not be construed as a substitute for, or as
    a step in the direction of, an optional Federal charter. As our
    comments above indicate, we see significant value in the
    establishment of the role of the OII in and of itself, and
    support the creation of such an Office for that reason.
        However, we want to make it clear that our support for H.R.
    5840 in no way diminishes our belief that an insurance optional
    Federal charter, such as the Bean-Royce bill, is vitally
    necessary for the life insurance business, and our commitment
    to work with Congress to make that objective a reality.
        In conclusion, Mr. Chairman, we thank you for your
    leadership role in addressing the issues and for advancing H.R.
    5840 in this subcommittee, and we look forward to continuing to
    work with you and members of the subcommittee as this important
    legislation moves forward.
        [The prepared statement of Mr. Rahn can be found on page 78
    of the appendix.]
        Chairman Kanjorski. Thank you very much, Mr. Rahn.
        Now I am pleased to welcome to our committee Ms. Tracey
    Laws, senior vice president and general counsel of the
    Reinsurance Association of America.
        Ms. Laws?

    STATEMENT OF TRACEY W. LAWS, SENIOR VICE PRESIDENT AND GENERAL
           COUNSEL, REINSURANCE ASSOCIATION OF AMERICA (RAA)

        Ms. Laws. Good afternoon. My name is Tracey Laws, and I am
    senior vice president and general counsel of the Reinsurance
    Association of America. We are a national trade association
    representing property and casualty insurance companies that
    specialize in assuming reinsurance. I am pleased to appear
    before you today to provide the RAA's comments on H.R. 5840.
        The RAA supports the spirit and purpose of this
    legislation, and we applaud Chairman Kanjorski and the other
    cosponsors for their leadership on regulatory reform issues. My
    comments today will focus on the legislation's potential
    benefits to the reinsurance industry and our suggested
    modifications, which we believe are necessary for the bill to
    achieve its stated goal.
        First, the RAA strongly supports authorizing the Director
    of the OII to advise the Treasury Secretary on major domestic
    and international insurance policy issues, including
    reinsurance requirements. The Federal Government has a strong
    interest in understanding the reinsurance market as it responds
    to catastrophes like 9/11 and the 2005 hurricanes. The creation
    of the OII will fill the current lack of a lead Federal entity
    that understands how decisions made by the Federal Government
    can impact the insurance industry.
        Second, the RAA also strongly supports empowering the OII
    to establish Federal policy on international issues. The recent
    Treasury Blueprint noted that foreign government officials have
    continued to raise issues associated with having 50-plus
    different insurance regulators, making coordination on
    international insurance issues difficult for both foreign
    regulators and companies.
        The Blueprint also noted that the NAIC's status as a
    nongovernmental body and the inherent patchwork nature of the
    State-based system make it increasingly more difficult for the
    United States to speak effectively with one voice on
    international regulatory issues.
        That lack of a single voice is adversely impacting U.S.
    reinsurers now. For U.S. reinsurers, the E.U. Solvency II will
    set forth a process for determining which third countries are
    equivalent for purposes of their companies doing business in
    the European Union.
        Although this issue is still being discussed, it is our
    understanding that the European Parliament recently obtained a
    legal opinion stating that the European Commission cannot grant
    equivalence to a U.S. State under Solvency II. Without Federal
    involvement by a knowledgeable entity tasked with
    responsibility for international policy issues, the U.S.
    reinsurance industry will continue to be disadvantaged in these
    equivalence discussions.
        Third, the RAA also strongly supports the legislation's
    goal to authorize the OII to ensure that State insurance
    measures are consistent with Federal policy. It is critical
    that the OII be authorized to ensure that its policies are
    uniformly respected throughout the States by the ability to
    preempt any inconsistent State insurance measures. To do
    otherwise would perpetuate the patchwork system and undermine
    the ability of the United States to effectively participate in
    the international arena.
        I would like now to focus on the RAA's two significant
    concerns with the current draft of the bill: the scope; and the
    process provisions of the preemption section.
        The preemption provision is very important to the RAA, and
    we strongly urge that it be made consistent with the broader
    authority conferred on the OII to allow preemption of State
    insurance measures that are inconsistent with any Federal
    policy on international matters, not just those embodied in
    international agreements. Unless this occurs, States will be
    able to have laws, regulations, and policies that conflict with
    Federal policy so long as that Federal policy is not embodied
    in an international agreement.
        We also believe there may be serious unintended
    consequences resulting from the preemption language. A State
    insurance measure is preempted only to the extent that the
    measure treats a non-U.S. insurer less favorably than it treats
    a U.S. insurer. This language sets the bar for what States can
    do. So long as U.S. insurers are treated the same as non-U.S.
    insurers, there can be no preemption. This inappropriately
    transfers the power to determine policy within the Federal
    Government to the States.
        By way of example, collateral reduction is a controversial
    issue among various industry participants, including a lack of
    unanimity among State regulators on this issue. Certain
    insurance industry groups have argued rather than having any
    collateral reduction for non-U.S. reinsurers, they would prefer
    to also impose collateral on U.S. entities. Under the current
    legislation, such a State insurance measure would not be
    preempted so long as the collateral requirements are imposed
    equally on U.S. reinsurers and non-U.S. reinsurers. Imposing
    collateral on U.S. reinsurers would be an enormous step
    backwards, and would be inconsistent with the goals of
    regulatory reform set forth in the Treasury Blueprint and in
    international insurance regulatory standards.
        Our second concern relates to the process for preempting
    State insurance measures. We agree that there should be a
    process. However, the process set forth in the legislation is
    very extended and includes a stay provision that can negate the
    director's determination that preemption is warranted.
        That stay provision uses extremely broad standards that
    allow States to have a second bite at the apple to avoid
    preemption after a decision-making process that provides ample
    opportunity for notice, comment, and appeal. The RAA would urge
    that the stay provision be deleted as unnecessary.
        We would like to thank Chairman Kanjorski and the
    subcommittee for this opportunity to comment on H.R. 5840, and
    we look forward to working with you and the other members as
    this legislation moves forward.
        [The prepared statement of Ms. Laws can be found on page 58
    of the appendix.]
        Chairman Kanjorski. Thank you very much, Ms. Laws. We
    appreciate that.
        And then finally, we will hear from Mr. David Sampson,
    president and CEO of the Property Casualty Insurers Association
    of America.
        Mr. Sampson?

     STATEMENT OF DAVID A. SAMPSON, PRESIDENT AND CHIEF EXECUTIVE
       OFFICER, PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA

        Mr. Sampson. Mr. Chairman, members of the subcommittee,
    thank you for the opportunity to be with you today. I want to
    thank you especially, Mr. Chairman, for your leadership on
    increasing congressional knowledge about our complex industry,
    and facilitating global commerce and making sure American
    companies are not placed at a competitive disadvantage.
        PCIA is a trade association with over 1,000 members
    representing a broad diversity, from the multi-line, multi-
    billion-dollar carriers to small specialty insurers that write
    in a single State.
        Mr. Chairman, the PCIA board has not yet taken a position
    on the formation of an Office of Insurance Information. And
    while we have an open mind regarding the need for such an
    Office, our members do have a number of questions concerning
    the proposal.
        Some of our members see the potential value, and have
    articulated that; yet others, quite honestly, have some very
    deep concerns. And what I would like to do very briefly is to
    highlight our concerns regarding the scope of the proposed
    Office of Insurance Information; data collection procedures in
    the NAIC, serving in the only named role of information
    provider; and the power of preemption. Let me summarize those
    very quickly.
        Regarding the scope, although the draft legislation seems
    to have been very carefully crafted to narrow the scope and
    reach of the OII to address data collection and conformity with
    international agreements and treaties, many of our member
    companies are concerned that this Office represents the leading
    edge of a comprehensive Federal insurance regulatory body.
        Secondly, with respect to data collection, data collection
    can be a very useful tool. The power of mandating information
    collection is a very powerful regulatory function in its own
    right. It can also be very expensive and inefficient.
        So we would support collection of data by the OII only
    where it has a clear and compelling reason for collecting the
    data, and the costs of collecting that data do not outweigh the
    expected benefits of collecting the data. We don't believe that
    you can have someone sitting within Treasury and, just out of
    curiosity, making a significant data request for companies all
    across the country.
        And finally, with respect to preemption, PCIA is concerned
    that the OII could circumvent the McCarran-Ferguson Act as far
    as treaties and agreements are concerned. And we believe that
    circumventing a Federal statute should only occur by
    legislative action, not by administrative action, because it
    adds uncertainty to the regulatory environment, and uncertainty
    in the regulatory environment is the greatest enemy for the
    business community.
        We appreciate your leadership, Mr. Chairman. We look
    forward to working with you on these issues. Your efforts will
    help ensure we best serve consumers and foster a very strong,
    competitive U.S. economy. And as we continue this important
    debate, we encourage the subcommittee to address all of the
    questions that have been raised today by the companies who
    provide very vital insurance products.
        We believe that our ability to obtain answers to those
    questions and clarifications will ultimately determine our
    board's position on the bill. And we look forward to working
    cooperatively with you and the committee as we go forward.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Sampson can be found on page
    86 of the appendix.]
        Chairman Kanjorski. Thank you very much, Mr. Sampson. And
    to all of the witnesses, we appreciate your forthright
    testimony.
        First let me thank Mr. Wolin for his comment that as a
    former Treasury official, he believes Treasury would benefit
    from this bill, from this new Office. We thank you for that. It
    is very difficult to get a good, positive opinion from a
    Treasury official, so your bringing that forward today is very
    helpful.
        We have heard from the four witnesses, and I think they
    have expressed that the biggest problem is preemption. And in
    just the last week or two, I have heard more about preemption
    than I probably care to hear for the next year.
        But I guess I want to throw out a general question: Do you
    have any idea how we could work through this quickly? We have a
    very small window here for this legislation to proceed through
    the House and through the Senate. Is this element the killer?
    Or is there some way that we could gain the benefit of some of
    the witnesses here and the organizations represented here to
    move with this process to craft preemption to the extent that
    it would be readily acceptable to so many of the different
    opinions of the committee and Members of the House and
    eventually the Senate?
        Anyone who wants to grab that question and run with it or
    throw it back at me is perfectly welcome to do so. Yes?
        Mr. Rahn. Well, Mr. Chairman, I guess I will start. You
    know, on behalf of the ACLI, again we are supportive of what
    you are doing here in creating the Office of Insurance
    Information and also working to address the international
    issues.
        We have worked hard since the bill has been introduced in
    the various versions to craft these principles, and I know that
    we are committed to working with your staff to help translate
    that into new legislative language that we would hope would
    begin to address those principles. So I think we stand ready to
    help you in that regard.
        Ms. Laws. On behalf of the RAA, the preemption provision is
    very important to our members. We would certainly like to see
    it strengthened, but at a minimum, we would need to see the
    preemption provision stay in the bill. And we look forward to
    working with you to see how we can modify it to come to the
    kind of consensus that you need because we also would like to
    see this bill move forward quickly. So we have every incentive
    to assist you in any way that we can in accomplishing that.
        Chairman Kanjorski. And it is readily concedable to you, I
    think, that if we do not have preemption in there, we are just
    passing toothpaste. Is that correct? I mean, it will be--
        Ms. Laws. I don't know if I would have said it that way,
    but that works.
        Chairman Kanjorski. Thank you.
        Yes, Mr. Sampson? Do you want to get your 2 cents in on
    preemption?
        Mr. Sampson. Well, on preemption, I think the best I could
    do today would be to offer to make our staff lawyers available
    to work with your staff on seeing if there is a way. I think
    our general concern, however, though, is the administrative
    preemption process as opposed to a legislative preemption
    process. And so we would be happy to consult with your staff
    with our staff attorneys.
        Chairman Kanjorski. I would certainly appreciate that. As I
    previously indicated, we are under terrible time constraints
    here, and I see a window of opportunity. However, if we do not
    move this Office through, it is highly unlikely that we are
    going to get a good start in the next Congress--at least the
    Congress will not have a good start, those of us who are still
    here.
        We really want to encourage that to happen because I am
    more acutely aware every day, with the meetings I am having
    with various international officials, that we are running the
    risk of being noncompetitive as an industry in the world
    market. It is our own fault because of our by failure to keep
    up to speed with what other nations in the world are doing and
    expect us to respond with.
        But as anything that grows like topsy, when you try and put
    it into some format that is understandable and logical, it
    presents some significant challenges. We recognize that we may
    have challenges, but I certainly urge you all to help us as
    much as you can. Feel free to direct your questions to the
    staff or myself, and anything you see when we are going awry,
    certainly give us a call on it.
        And now I have had my 2 cents. Mr. Royce of California,
    would you like to put your 2 cents in?
        Mr. Royce. Yes. I will throw in 2 cents, Mr. Chairman, 2
    bits.
        I was going to ask Mr. Wolin, as I am going over his
    testimony here, if he could explain his objection to the FTC
    being a member of the advisory group. I just wanted to
    understand that.
        Mr. Wolin. Congressman, it is really just a point about the
    FTC not having authority presently with respect to the
    insurance industry. We think that people on the advisory
    groups, representatives, ought to represent perspectives that
    are currently expert in insurance. As we understand it, that is
    really the point of the advisory group and of the Office
    itself.
        So it is really from that perspective, Congressman, that we
    suggest that there are more appropriate members of the advisory
    group that should be included.
        Mr. Royce. Mr. Rahn, you wanted to add something?
        Mr. Rahn. If I may, because we had also recommended that
    the FTC not be included for similar reasons that were just
    stated. Congress really removed the Federal Trade Commission
    from the business of insurance about 28 years ago, so it really
    has no expertise in that.
        If the issue is to try to bring a consumer perspective on
    these things, we think there are other groups that you could
    reach out to that would bring that to the advisory committee.
        Mr. Royce. I see. All right.
        Let me ask Ms. Laws a question, if I could, Tracey. If
    Congress were to move forward with the creation of an Office on
    International Insurance, in what ways would it improve your
    company's ability to operate in the global marketplace and
    address these same issues?
        Ms. Laws. Thank you for that question. Most of our
    companies do business on a global basis and manage their
    capital on a global basis. The ability to have a Federal seat
    at the table to talk with other regulatory bodies, to enter
    into supervisory authority agreements that enhance the ability
    for cross-border reinsurance transactions, is certainly to the
    benefit of our companies.
        And I might add it is to the benefit of the consumers in
    the United States. We are the largest consumer of property
    casualty insurance in the world, and you need the entire global
    reinsurance market in order to satisfy that need.
        Mr. Royce. Would you have any concern about what that
    Office would be able to study and analyze, or what they
    wouldn't be able to study and analyze, for that matter?
        Ms. Laws. As the bill is currently constituted?
        Mr. Royce. Right.
        Ms. Laws. It seems like they have broad authority to study
    and look at all international issues at this point. It seems
    pretty broad.
        Mr. Royce. So you think that is addressed pretty well? All
    right. Well, Mr. Chairman, I will yield back.
        Chairman Kanjorski. Thank you very much, Mr. Royce.
        And we will have Mr. Scott of Georgia.
        Mr. Scott. Thank you very much, Mr. Chairman. And again,
    welcome to the committee.
        As I mentioned in my opening statement, our NARAB bill has
    about half of this committee, both Democrats and Republicans,
    who are joined in as cosponsors. We feel, and we are very
    hopeful, with the chairman's blessings and guidance, that it
    will be included as a part of the entire package for insurance
    reform that we are working on.
        And with that in mind, with that level of support and
    interest that we have in this committee, I thought it might be
    interesting to get a comment from a couple of you, particularly
    you, Mr. Sampson, because as I understand it, many of the
    companies which you represent do utilize insurance agents. Is
    that correct?
        Mr. Sampson. Yes. And our board recently endorsed in
    concept the NARAB II proposal. Obviously, as with any piece of
    legislation, the devil is always in the details. And we did
    articulate some specific concerns. But we do believe that the
    NARAB II proposal would be of significant benefit to our member
    companies.
        Mr. Scott. That is very good, and good to hear. And
    certainly, for those of us who are working on this issue, it is
    good to know of that level of support.
        And Mr. Wolin--is that correct, Wolin?
        Mr. Wolin. Yes.
        Mr. Scott. As I understand it, independent agents serve as
    a distribution force for your products as well. And I wonder if
    you might comment on the usefulness of our legislation.
        Mr. Wolin. Sure, Congressman. Speaking as the president of
    The Hartford's property and casualty companies, we have been
    for our almost 200-year history an independent agency company.
    And we support legislation that will make it easier for our
    agents, and for that matter, for us, to do business in the
    licensing area. So that is where we stand.
        Mr. Scott. Very good.
        Thank you very much, Mr. Chairman. I yield back my time.
        Chairman Kanjorski. Thank you very much, Mr. Scott.
        The gentlelady from Illinois, Ms. Bean.
        Ms. Bean. Thank you, Mr. Chairman.
        I am particularly interested in learning a little more
    about the preemption language in the new draft of H.R. 5840,
    and how it might apply to State insurance measures today.
        If Congress enacted the draft version of H.R. 5840
    tomorrow, what current State insurance measures that are
    inconsistent with ``international insurance matters'' would
    that new law preempt? And what future State insurance measures
    might this preemption apply to? Do you envision it applying to
    solvency laws? Could it apply to accounting standards?
        Ms. Laws. I will go first. It is our understanding, as
    Treasury testified, that this is in terms of regulatory
    agreements. So it would be on a prospective basis. And because
    of the detailed process that allows for the input by the board,
    it seems like they would have input into the actual agreement
    that might be drafted. And so the process could take care of
    taking concerns of State laws.
        I am always a little bit confused when people talk about
    State solvency laws. The purpose, or one of the main purposes,
    of regulation, and certainly with reinsurance, is solvency. And
    I think that can be construed very broadly. So I think it is
    important to focus on exactly what the specific laws would be.
    But I think the process would take care of it, and it would be
    prospective.
        Ms. Bean. Mr. Wolin?
        Mr. Wolin. Congresswoman, I think that the best example is
    probably in the collateral area that Deputy Assistant Secretary
    Norton spoke of earlier on the first panel.
        As Ms. Laws has suggested, though, I think in order for the
    preemptive effect to take place, you would first need an
    international agreement and for this Office to set policy, and
    then to see where State laws conflict with whatever that
    agreement and policy happens to be.
        But I think collateral is an area where different States
    have taken different approaches, and calls out for this idea of
    the United States speaking with one voice and having one
    position on matters that deal with international insurance
    issues.
        Ms. Bean. Mr. Rahn, did you want to comment?
        Mr. Rahn. I think you began with a proposition that
    currently you have no Federal agency that has responsibility
    for setting policy on international issues on insurance, and
    the fact that there is currently no authority for preemption of
    any State laws.
        And so I think looking forward, you have looming out
    there--you have Solvency II, you have collateral, reinsurance
    collateralization, as issues that need to be addressed. And
    they are enormous issues from a public policy perspective
    because depending upon the direction that those go, it could
    affect how insurance companies in this country--for example,
    where they want to locate, where they want to operate.
        So I think the key is to have someone to focus on those
    issues, to look at the laws that should be preempted, but do it
    in a way that is consistent with our principles. Don't
    disadvantage U.S. insurers. Don't create any solvency problems.
    And also, then, help address a major regulatory issue.
        Ms. Bean. Mr. Sampson?
        Mr. Sampson. I think the primary issue--
        Ms. Bean. And if there are any current State measures that
    you think this would apply to, I would also like to get that,
    not just looking forward.
        Mr. Sampson. I am sorry?
        Ms. Bean. If there are any current State measures that you
    think this would apply to as well.
        Mr. Sampson. I understand that there may be some issues as
    to where a ceding insurer can get credit for reinsurance only
    under certain circumstances. But we would be happy to provide
    you more specific details on that.
        Ms. Bean. Thank you. I don't have anything further.
        Chairman Kanjorski. Thank you very much, Ms. Bean.
        Now we will hear from the gentleman from Connecticut, Mr.
    Murphy.
        Mr. Murphy. Thank you very much, Mr. Chairman.
        Mr. Wolin, I want to take advantage of your unique status
    of having been inside Treasury and now out in the industry to
    just maybe expand a little bit on your comments at the outset
    of your testimony as to the barriers that exist right now
    within Treasury.
        They are frequently appearing before this committee, as you
    have noted, on a dizzying array of insurance proposals that we
    have seen just in the last year-and-a-half. But I think it
    would be instructive to hear a little bit more on some of the
    barriers that exist right now to having that type of full
    participation that we are inevitably going to continue to need
    as we rehash a lot of the proposals that we have seen in the
    last 16 months.
        Mr. Wolin. Thank you, Congressman. The principal barrier is
    that there really isn't a unit within the Treasury that has
    developed expertise, that has staff, that has resources, that
    has authority to collect data, to analyze it, and to be an
    advisor to the President and the Secretary of the Treasury on
    the one hand, and to this committee and to others in Congress
    on the other.
        And I think the principal barriers are really those--
    expertise, staff, resources, and then the capacity to bring
    data and information together to formulate those judgments and
    to exercise therefore that advice function.
        Mr. Murphy. This question is sort of keyed off of some of
    your testimony, Mr. Wolin. But I will open it up to the panel.
    I am particularly interested in the new regulatory structure
    that the E.U. is in the process of developing. And the
    suggestion in your testimony, Mr. Wolin, is that this is
    something that we need to be particularly concerned about and
    may sit at a particular disadvantage, given our State
    regulatory structure.
        And I am interested as to how this Office might help
    facilitate that conversation. Without full regulatory oversight
    from a Federal agency through OFC, how might this new Office be
    able to help our industry in what is going to be potentially a
    difficult conversation with the new European standards that we
    are about to be living under?
        Mr. Wolin. Congressman, I think the principal way in which
    it can assist is to create one place, one focal point, with
    what foreign regulators, in this case the E.U., can interact
    with us and where we as a country can speak with one voice in
    the other direction so that from a policy perspective, in
    figuring out how to structure and then to think about and then
    structure the regulatory environment here and how it interacts
    with the European regulatory structure, that we have coherence
    as opposed to a multiplicity of voices, which is very, very
    difficult to deal with--in fact nearly impossible to deal
    with--when you are talking about international conversations
    about regulatory topics, in this case in the insurance
    industry.
        Mr. Murphy. And specifically with regard to Solvency II, is
    it too late for that conversation to happen? Is it too late for
    us to have that one singular voice with an effective seat at
    the table?
        Mr. Wolin. I am not sure that it is too late, Congressman,
    but it is getting on toward the witching hour, is how I would
    say it.
        Ms. Laws. Congressman, if I could just add on, I agree with
    everything Mr. Wolin said. And the specific example would be
    from my testimony regarding the reinsurers. They are deciding
    now, under Solvency II, how reinsurers that are not domiciled
    in the E.U. will be able to do business in the E.U., how the
    equivalence standard is going to work.
        They have had interaction with the NAIC, but the NAIC does
    not speak for the United States. I have talked about the
    problems, it appears, from the legal opinion and how they are
    not going to grant equivalence to a U.S. State under Solvency
    II. From the U.S. reinsurer's perspective, having that single
    voice with the authority to negotiate would be critical.
        And to answer your timing question, yes, it doesn't go into
    effect until 2012. But the decisions are being made now so that
    it can then go through the implementation process.
        Mr. Murphy. Mr. Rahn?
        Mr. Rahn. I would just agree with--yes, thanks. I don't
    want to take your time, but I agree with what has been said.
    And it may be late, but it is certainly better late than never,
    as they say, and I think that this will move things forward.
        But don't lose sight of the advantage they will have for
    the domestic issue, on domestic issues, too. Because currently
    Congress has no place to go for information that this Office
    could collect on domestic insurance issues.
        Mr. Murphy. Thank you very much, Mr. Chairman.
        Chairman Kanjorski. Thank you very much, Mr. Murphy.
        Well, I think we have completed the hearing. Does anyone
    else have any additional questions? Ms. Bean, are you
    satisfied? Okay.
        The Chair notes that some members may have additional
    questions for this 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 American Home
    Ownership Protection Coalition; the National Association of
    Mutual Insurance Companies; and Mr. Eric Gerst. Without
    objection, it is so ordered that the statements are submitted
    and entered into the record.
        The panel is thanked and dismissed, and this hearing is
    adjourned.
        [Whereupon, at 12:26 p.m., the hearing was adjourned.]
                                A P P E N D I X

                                June 10, 2008
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