[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
U.S. GOVERNMENT PRINTING OFFICE
44-183 PDF WASHINGTON DC: 2007
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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
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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
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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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