[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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