[Senate Hearing 113-21]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 113-21


 
STREAMLINING REGULATION, IMPROVING CONSUMER PROTECTION, AND INCREASING 
                    COMPETITION IN INSURANCE MARKETS

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                 SECURITIES, INSURANCE, AND INVESTMENT

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXAMINING THE CHALLENGES AND BENEFITS POSED BY THE CURRENT SYSTEM OF 
 INSURANCE LICENSING FOR AGENTS AND BROKERS OPERATING OUTSIDE OF THEIR 
            HOME STATES, AND FOR REGULATORS SUPERVISING THEM

                               __________

                             MARCH 19, 2013

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


                 Available at: http: //www.fdsys.gov /



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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                  Laura Swanson Deputy Staff Director

                   Glen Sears, Deputy Policy Director

              Erin Barry Fuhrer, Professional Staff Member

                Beth Cooper,  Professional Staff Member

                 William Fields, Legislative Assistant

                  Greg Dean, Republican Chief Counsel

            Chad Davis, Republican Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                      Kelly Wismer, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

         Subcommittee on Securities, Insurance, and Investment

                     JON TESTER, Montana, Chairman

           MIKE JOHANNS, Nebraska, Ranking Republican Member

JACK REED, Rhode Island              BOB CORKER, Tennessee
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          DAVID VITTER, Louisiana
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
KAY HAGAN, North Carolina            MARK KIRK, Illinois
ELIZABETH WARREN, Massachusetts      TOM COBURN, Oklahoma
HEIDI HEITKAMP, North Dakota

                Kara Stein, Subcommittee Staff Director

         Brian Werstler, Republican Subcommittee Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                        TUESDAY, MARCH 19, 2013

                                                                   Page

Opening statement of Chairman Tester.............................     1

Opening statements, comments, or prepared statements of:
    Senator Johanns..............................................     2

                               WITNESSES

Monica J. Lindeen, Commissioner of Securities and Insurance, 
  Montana State Auditor, on behalf of the National Association of 
  Insurance Commissioners........................................     4
    Prepared statement...........................................    19
Jon A. Jensen, President, Correll Insurance Group, and Chairman, 
  Government Affairs Committee, on behalf of the Independent 
  Insurance Agents and Brokers of America........................     6
    Prepared statement...........................................    22
Scott Trofholz, President and CEO, The Harry A. Koch Company, 
  Omaha, Nebraska, on behalf of the Council of Insurance Agents 
  and Brokers....................................................     7
    Prepared statement...........................................    25
Baird Webel, Specialist in Financial Economics, Congressional 
  Research Service...............................................     9
    Prepared statement...........................................    29

              Additional Material Supplied for the Record

Prepared statement of the National Association of Insurance and 
  Financial Advisors.............................................    37
Letter of support for NARAB from a coalition of insurance 
  industry groups................................................    39
Letter of support for NARAB from the National Association of 
  Insurance Commissioners........................................    40
Prepared statement of the National Association of Professional 
  Surplus Lines Offices..........................................    41
Prepared statement of Bernd G. Heinze, Esq. Executive Director, 
  the American Association of Managing General Agents............    43
Prepared statement of the Advocates for Insurance Modernization..    52
Prepared statement of Catherine Weatherford, President and CEO, 
  Insured Retirement Institute...................................    68

                                 (iii)


STREAMLINING REGULATION, IMPROVING CONSUMER PROTECTION, AND INCREASING 
                    COMPETITION IN INSURANCE MARKETS

                              ----------                              


                        TUESDAY, MARCH 19, 2013

                                       U.S. Senate,
                     Subcommittee on Securities, Insurance,
                                            and Investment,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee convened at 3 p.m. in room 538 Dirksen 
Senate Office Building, Hon. Jon Tester, Chairman of the 
Subcommittee, presiding.

            OPENING STATEMENT OF CHAIRMAN JON TESTER

    Senator Tester. I want to call to order this hearing of the 
Securities, Insurance, and Investment Subcommittee. This 
hearing is entitled, ``Streamlining Regulation, Improving 
Consumer Protection, and Increasing Competition in Insurance 
Markets.''
    I look forward to hearing from our witnesses this afternoon 
about some of the challenges and benefits posed by the current 
system of insurance licensing for insurance agents and brokers 
operating outside of their home States and for the regulators 
tasked with supervising them.
    Currently, an agent or broker seeking to operate in 
multiple States must do so in each State individually, meeting 
different State-specific requirements and seeking approval from 
each State's jurisdiction, a process that can be time consuming 
and unwieldy.
    Senator Johanns and I introduced legislation last year, the 
National Association of Registered Agents and Brokers Act, to 
create a nonprofit association to provide one-stop licensing 
for agents and brokers operating outside of their home State 
while preserving the authority of State insurance regulators to 
supervise these markets.
    Our legislation, S. 534, which we just reintroduced last 
week with 12 bipartisan cosponsors, would provide insurance 
producers with the option of becoming a member of the National 
Association of Registered Agents and Brokers, or otherwise 
called NARAB, provided they meet the professional standards set 
by the Association. Membership in NARAB would streamline the 
licensing process for agents and brokers, enabling them to be 
licensed once under a single standard rather than following 
different standards in each State, thus saving time and money. 
The Association would set rigorous professional and consumer 
protection standards while preserving the ability for 
regulators to supervise and discipline producers.
    The concept of NARAB was first introduced in 1999 in the 
Gramm-Leach-Bliley Act. More recently, it has been introduced 
as stand-alone legislation. The legislation that Senator 
Johanns and I have introduced enjoys the support of the 
National Association of Insurance Commissioners and 
representatives of the insurance industry, including those 
representatives with us here today.
    I think it is fitting that Senator Johanns and I begin our 
tenure as Chair and Ranking Member of this Subcommittee focused 
on this common sense legislation which we both want to see 
signed into law. And let me say how much I look forward to 
working with Senator Johanns and his staff on this Subcommittee 
to build consensus, to hold agencies accountable, and ensure 
that regulations and markets function fairly and efficiently. 
We have our work cut out for us, but I know that Senator 
Johanns will be a great partner.
    I am looking forward to hearing from all of our witnesses 
this afternoon about the impact of the NARAB legislation, its 
evolution over time, and its potential impact on consumer 
protection, market competition, and the State system of 
insurance regulation.
    With that, I turn it over to you, Senator Johanns, for your 
opening statement.

               STATEMENT OF SENATOR MIKE JOHANNS

    Senator Johanns. Well, thank you, Mr. Chairman, for calling 
this hearing, first of all, and to our panel of witnesses, 
thank you for being here today. We appreciate it.
    I also want to offer a word of thanks to the Senator from 
Montana for his leadership on S. 534, the National Association 
of Registered Agents and Brokers Reform Act of 2013, a piece of 
legislation that, as the Senator indicated, we want to see 
signed into law, and we look forward to the discussion today.
    I also want to say a special thanks to a good friend, Scott 
Trofholz from Omaha. Thank you for making the trek back out 
here. We just saw you recently, so it is good to see you here. 
The subject under discussion today, as we all know, is an 
important one to insurance agents and brokers in Nebraska, but 
for that matter, it is important across the United States.
    If we succeed in reducing administrative and bureaucratic 
barriers to entry in the interstate insurance marketplace, it 
logically follows that competition will increase and, 
hopefully, costs will go down. Obviously, this represents a win 
for everybody involved. Our small business insurance producers 
will face a reduced burden in obtaining licensing in other 
States. Customers will have greater access to insurance 
producers and products. And the vital role of our State 
insurance regulators will be preserved.
    The State-based insurance regulatory regime is one that 
works well, but I am extremely sympathetic to the 
administrative burden borne by our Nebraska-based producer who 
is seeking to write policies on a customer's business venture 
mere miles away across the river in Iowa, write a policy on the 
vacation home in Colorado, and maybe the retirement property 
that they invested in in Arizona, hoping for that day of 
retirement.
    I look forward to hearing from the insurance producers on 
our panel today about the specific challenges they face with 
the current system of insurance licensing and what the proposed 
legislation might do to help.
    I am also interested in hearing from the panelists on how 
they feel market competition may increase as a result of the 
framework of this legislation and to what extent this potential 
increase may result in increased insurance options for 
consumers.
    Further, I am encouraged that this legislation does have 
the support of the National Association of Insurance 
Commissioners, and I look forward to hearing Commissioner 
Lindeen's perspective on the role our State insurance 
commissioners envision playing if this legislation is enacted.
    I also want to wrap up and just say I look forward to 
working with Senator Tester on this committee. We can get a lot 
done working together, and let us just go out and do it. Thank 
you.
    Senator Tester. Absolutely. Well, thank you, Senator 
Johanns.
    And I want to welcome the four witnesses to the panel here 
today. These four folks have spent a lot of time working in 
this field and I want to thank them for their willingness to 
take time out of your busy schedule and be here with us this 
afternoon. I will introduce you all and then we will just go 
right down the line with the testimony. I would ask you ahead 
of time, keep your testimony, I think, within 5 minutes. Your 
entire written document will be a part of the record and that 
will give us some time to ask the difficult questions.
    Commissioner Monica Lindeen is the Montana Commissioner of 
Securities and Insurance and the State Auditor. As Auditor, she 
protects securities and insurance consumers through education, 
fairness, and transparency. During her tenure as State Auditor 
and Insurance Commissioner, her office has returned more than 
$200 million to investors and insurance consumers in Montana. 
Montana is not a particularly big State. This is a big deal. 
And in November of last year, she was elected Vice President of 
the National Association of Insurance Commissioners. Just as a 
side note, I worked with Monica Lindeen when I was in the State 
Legislature when she was a legislator and I was a legislator. 
She is the hardest working person that I have ever been around. 
Thank you very much for being here, Monica.
    Mr. Jon A. Jensen serves as government Affairs Committee 
Chairman of the Independent Insurance Agents and Brokers of 
America, IIABA. As the President of Correll Insurance Group 
based in Spartansburg, South Carolina, he is also the South 
Carolina National Director for the Independent Insurance Agents 
and Brokers of America and the Past National Chairman of the 
Big ``I'' Insurance PAC Board of Trustees. I want to thank you, 
too, Jon, for taking the time for being here. Welcome to the 
panel.
    Scott Trofholz, who Senator Johanns spoke about, serves as 
President and Chief Executive Officer of The Harry A. Koch 
Company located in Omaha, Nebraska. He is also a member of the 
Board of Directors of the Council of Insurance Agents and 
Brokers. Before joining The Harry A. Koch Company, he served as 
Marketing Representative, Service Office Manager, Regional 
Marketing Manager, and Branch Manager of Crum and Forster, a 
Xerox subsidiary. I want to thank you for being here, Scott, 
and very much appreciate your time in making the trek from 
Omaha.
    And last but certainly not least, we have got Baird Webel, 
a Specialist in Financial Economics with the Congressional 
Research Service. Mr. Webel has written extensively on 
financial institution policy, including the insurance industry, 
and coordinated the CRS report on the Dodd-Frank Act. Before 
joining CRS, he worked as a Congressional staffer for 
Representative Cooksey. So I want to thank you for being here, 
Baird. As I told you when you walked in, you are the first 
``Baird'' I ever met, so it is great to have you on the panel, 
if for that reason alone.
    With that, I want to thank you all once again, and we will 
start with your testimony, Commissioner Lindeen.

STATEMENT OF MONICA J. LINDEEN, COMMISSIONER OF SECURITIES AND 
  INSURANCE, MONTANA STATE AUDITOR, ON BEHALF OF THE NATIONAL 
             ASSOCIATION OF INSURANCE COMMISSIONERS

    Ms. Lindeen. Chairman Tester, Ranking Member Johanns, and 
Members of the Committee, thank you for the opportunity to 
testify this afternoon and for your leadership on the NARAB II 
legislation.
    My name is Monica Lindeen, Montana State Auditor, 
Commissioner of Insurance and Securities, and Vice President of 
the NAIC. The NAIC supports the current NARAB legislation 
before you today, and on March 8, we sent a letter of support 
to Congress. We also supported the Senate version of the bill 
in the last Congress.
    Insurance producers play a very important consumer resource 
role in the U.S. insurance system as the regulators of more 
than 6.8 million individuals and business entities licensed to 
provide insurance services in the United States. NAIC members 
recognize that streamlined nonresident producer licensing is an 
important goal.
    However, I want to emphasize that efforts to do so must not 
undermine existing State authorities to protect insurance 
consumers and take enforcement action against malfeasant 
producers. State insurance regulators take our consumer 
protection responsibilities very seriously, and our support of 
this legislation is contingent on the preservation of our 
ability to carry out that mission as we regulate our markets 
and enforce State insurance laws.
    State regulators have broad authority to protect consumers 
through licensing, data collection, and taking action against 
violators of State insurance laws. My written testimony details 
our authorities in that area, but I want to briefly focus today 
on our enforcement record.
    In 2011, State insurance departments received millions of 
consumer inquiries and more than 283,000 official complaints, 
leading to many civil and criminal investigations as well as 
the suspension or revocation of nearly 25,000 licenses and 
nearly 5,000 fines, totaling over $73 million and resulting in 
$115 million in restitution for consumers.
    Turning to the legislation itself, allow me to offer 
comments about the road that brought us here today. Insurance 
commissioners have worked continuously to address nonresident 
producer licensing reform, starting with the NAIC's Producer 
Licensing Working Group in the late 1990s and the NARAB Working 
Group in the early 2000s. The NAIC developed and adopted a 
Producer Licensing Model Act to facilitate nonresident 
licensing and improve reciprocity. States met and exceeded the 
nonresident reciprocity requirements of the Gramm-Leach-Bliley 
Act and continue to work diligently toward uniformity in 
resident licensing standards.
    Even with all of our progress, NARAB II would further 
streamline the administrative process of nonresident licensing, 
but not at the expense of consumer protection, State revenues 
or market regulatory authority. Today's bill contains 
improvements over previous versions, and hopefully, with 
support from both regulators and producers, it will continue to 
attract bipartisan cosponsors and votes as it works its way 
through the process.
    The proposed legislation would establish NARAB with a 
governing board comprised of eight State insurance 
commissioners and five insurance industry representatives. This 
strong regulatory majority ensures that consumers' best 
interests are served by establishing membership criteria, 
drawing from the highest standards that exist in State law.
    In addition to the strong regulator majority on the board, 
the legislation also preserves the existing authorities of 
States with respect to resident licensing, market regulation, 
and consumer protection, and the supervision and enforcement of 
laws related to producer conduct. The bill also includes 
important disclosures to the States, maintains business entity 
licensing, and protects State revenues and fee structures to 
ensure there is no additional cost or revenue loss to those 
States.
    Another important provision requires pre-notification to 
State regulators and the NAIC of any producer seeking to do 
business on the basis of NARAB membership. While the States 
will no longer issue licenses to nonresidents seeking NARAB 
membership, the bill requires notice and a 10-day look period 
during which a State may bring up any objections to a producer 
that seeks to do business in their jurisdiction.
    Last, the bill requires the board to establish a strong 
ethical conduct code related to the NARAB's affairs and 
operation and mandates an FBI criminal background check from 
applicants who have not had one within the last 2 years, 
further raising the bar in the area of consumer protection.
    Taken together, these provisions preserve State regulatory 
authority to police insurance markets and protect consumers.
    In conclusion, we look forward to working with you to 
advance the NARAB II legislation. The bill is the result of 
many years of discussions among State regulators, the producer 
community, and Congress. We cannot stress enough the 
improvements included in this version of the legislation and 
agreed to by all involved are absolutely critical to our 
support while preserving State authority, and our endorsement 
should not be interpreted as support for any further preemption 
of State insurance laws. Insurance regulatory reform should 
always begin and end with the States.
    And I thank you for your time this afternoon and look 
forward to your questions.
    Senator Tester. Thank you, Commissioner Lindeen.
    You may proceed, Mr. Jensen.

STATEMENT OF JON A. JENSEN, PRESIDENT, CORRELL INSURANCE GROUP, 
 AND CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE, ON BEHALF OF THE 
      INDEPENDENT INSURANCE AGENTS AND BROKERS OF AMERICA

    Mr. Jensen. Thank you, Chairman Tester and Ranking Member 
Johanns. My name is Jon Jensen and I am President of Correll 
Insurance Group, headquartered in South Carolina. I am also 
Chairman of the Government Affairs Committee of the Independent 
Agents and Brokers of America, also known as the Big ``I''.
    The Big ``I'' strongly supports S. 534, or NARAB II, which 
was introduced last week by the Chairman and Ranking Member and 
12 other bipartisan original cosponsors. This legislation is 
one of the top priorities for the Big ``I'' and I thank you 
both for your leadership on this issue.
    Members of the Subcommittee are likely well aware of the 
Big ``I'' 's steadfast and unwavering support for State 
regulation of insurance. We strongly believe that States are 
the most appropriate and effective regulators of this vital 
financial sector. However, while the foundation of State 
regulation remains strong, sufficient progress on producer 
licensing reform has not been achieved, despite the best effort 
of State regulators. As a result, there is a critical need for 
targeted Federal legislation, such as NARAB II.
    State law requires insurance agents and brokers to be 
licensed in every jurisdiction in which they conduct business, 
which forces most producers today to comply with inconsistent 
standards and duplicative licensing processes. These 
requirements are costly, they are burdensome and time 
consuming, and they hinder the ability of insurance agents and 
brokers to effectively address the needs of consumers. In fact, 
the current licensing system is so complex and so confusing for 
our members that many are forced to retain expensive 
consultants or vendors or hire staff people dedicated to 
achieving compliance with the requirements of the States in 
which they operate.
    My own firm maintains hundreds of licenses. I myself am 
currently licensed in 27 States. Many producers in my agency 
have more than 20 State licenses, and we have six internal 
staffers who share responsibility for maintaining and updating 
these licenses. These are six staff who could otherwise be 
engaged in client service work, but instead are mired in 
needless administrative paperwork. The compliance costs 
associated with maintaining these hundreds of licenses is 
significant. In addition to agent licenses, my agency must also 
maintain business licenses in many States where we operate.
    In addition to the time and compliance costs associated 
with the agent and agency licensing, I have also experienced 
firsthand the real opportunity costs the current system 
creates. My agency has on numerous occasions missed 
opportunities for new business solely because we are not 
licensed in the correct State. At one point, we had a license 
application delayed for almost 45 days because there was an 
error in the application, but no one in the insurance 
department could figure out what that error was. After 45 days, 
we found out the problem. It really was just simply that we had 
not capitalized a word. The application was corrected in 
literally 2 minutes and we are finally allowed to write 
business in that State.
    There is a better way, and that is the NARAB II legislation 
that you, Mr. Chairman and Ranking Member, have introduced. The 
NARAB II proposal would immediately establish the National 
Association of Registered Agents and Brokers and provide a 
long-awaited vehicle for obtaining the authority to operate on 
a multi-State basis. NARAB II ensures that any agent, broker, 
or agency which elects to become a member of NARAB will enjoy 
the benefits of true licensing reciprocity.
    In order to join NARAB, an insurance producer must be 
licensed in good standing in his or her home State, undergo a 
recent criminal background check, and satisfy the criteria 
established by NARAB. This criteria would include standards for 
personal qualifications, training, and experience. The bill 
would not allow a race to the bottom to occur, as it instructs 
the board to consider the highest levels of insurance producer 
qualifications established under the licensing laws of the 
States.
    NARAB's simple and limited mission would be to serve as a 
portal or central clearinghouse for insurance producers and 
agencies who seek the ability to operate in multiple States. 
NARAB II merely addresses marketplace entry and appropriately 
leaves regulatory authority in the hands of State officials. In 
short, the NARAB II proposal would strengthen State insurance 
regulation, reduce unnecessary redundancies and regulatory 
costs, and enable the industry to more effectively serve the 
needs of insurance buyers. And, it would achieve these results 
without displacing any State regulatory oversight.
    I thank the Subcommittee for its efforts on agency 
licensing reform and look forward to working with you all on S. 
534.
    Senator Tester. Thank you, Mr. Jensen, for your testimony.
    Please proceed, Mr. Trofholz.

 STATEMENT OF SCOTT TROFHOLZ, PRESIDENT AND CEO, THE HARRY A. 
  KOCH COMPANY, OMAHA, NEBRASKA, ON BEHALF OF THE COUNCIL OF 
                  INSURANCE AGENTS AND BROKERS

    Mr. Trofholz. Good afternoon, Chairman Tester, Ranking 
Member Johanns, and Members of the Subcommittee. Thanks so much 
for this opportunity. I am Scott Trofholz, the President and 
CEO of The Harry Koch Company, which is based in Omaha, 
Nebraska. From a startup small business almost 100 years ago, 
we have grown to the largest independent agency in the State of 
Nebraska, with clients including Fortune 500 companies, small 
businesses, and everything in between.
    I am testifying on behalf of my firm as well as members of 
the Council of Insurance Agents and Brokers, which represents 
the Nation's largest insurance agencies and brokerage firms. I 
am also on the board of the Council.
    From our perspective, it is terrific that you are holding 
this hearing and that S. 534 has been introduced to create the 
National Association of Registered Agents and Brokers. We think 
the reform of nonresident producer licensing is an idea whose 
time has come. Let me put it to you this way. Our organization 
first formed a task force to work on this issue in 1933.
    As for myself, I hold nonresident licenses in 48 
jurisdictions. We have over 80 licensed professionals in our 
firm, and you can do the math and see the administrative cost 
and the compliance burden this creates. I am constantly filling 
out paperwork that requires a significant amount of 
administrative assistance and adds costs to our firm and to our 
clients' costs. These regulations are quite often redundant and 
almost always cumbersome.
    You would have no compliant from us if these regulations 
were about assuring a standard of professionalism, but they are 
not. In addition to the initial licenses, we face annual 
renewals in all jurisdictions and must comply--and must satisfy 
all the underlying requirements, such as pre-licensing and 
continual as well as post-licensure oversight.
    As you Senators know very well, there has long been a 
debate about the parameters of State regulation and Federal 
oversight. Not all of us on this panel have agreed on this. But 
on this particular issue, consensus among the major 
stakeholders has been reached. We all agree that we need a tool 
such as NARAB to achieve administrative simplicity and 
uniformity while assuring consumer protection.
    I especially want to thank all the State regulators, 
including Commissioner Lindeen, for all their work on this 
issue--changing laws and licensing practices in their States, 
working together at the NAIC to address the issues through 
model standards and the bully pulpit, and working with all the 
stakeholders and legislators in developing this important 
proposal.
    Regulatory reform is a difficult process and the regulators 
take the brunt of a good deal of griping along the way. But we 
really do appreciate their diligence in protecting consumers 
and providing a vibrant insurance marketplace.
    The idea behind NARAB is pretty simple. It does not create 
a Federal license but rather would serve as a clearinghouse for 
nonresident producer licensure. It would be purely optional and 
self-funding. Not a dime of Federal money would be required. In 
order to be a member of NARAB, a producer would first have to 
be duly licensed in his or her home State. The board of NARAB, 
whose majority would be made up of insurance regulators, would 
set the criteria of NARAB membership and the standards of 
professionalism would be at least as high as the most stringent 
State. When a producer meets that standard, he or she can 
utilize NARAB as the clearinghouse to receive that nonresident 
license.
    NARAB would submit licensing fees to the States and the 
States would not lose any revenue. This is truly a win-win 
scenario. If NARAB is not the most efficient means through 
which the producers can be licensed, nothing compels a producer 
to use it. The governance of the organization assures the State 
regulators will be able to fully protect and, we believe, 
enhance the quality of individuals engaged in insurance 
transactions.
    As has already been stated, the original NARAB versions in 
Gramm-Leach-Bliley created an incentive for the States to move 
toward reciprocity. Reciprocity has smoothed over some of the 
differences, but unless there is real uniformity in 
administrative procedures, brokers and insurance consumers will 
continue to suffer from unnecessary costs.
    Again, Mr. Chairman and Senator Johanns, we are grateful 
for your leadership on this issue and look forward to working 
with you.
    Senator Tester. Thank you, Mr. Trofholz. I appreciate your 
testimony, and we will proceed with Mr. Webel.
    Mr. Webel.

 STATEMENT OF BAIRD WEBEL, SPECIALIST IN FINANCIAL ECONOMICS, 
                 CONGRESSIONAL RESEARCH SERVICE

    Mr. Webel. Hello. Mr. Chairman and Ranking Member Johanns, 
thank you very much for the opportunity to testify today. My 
written testimony contains additional detail and background on 
insurance regulation and different Federal attempts to 
influence insurance regulation. Today, I will focus on NARAB 
and insurance producer licensing.
    Before I begin, I just would like to let everybody know, 
which I know you know, that CRS's role is to provide objective, 
nonpartisan research and analysis for Congress and we do not 
take positions on particular legislation.
    As everyone has stated, the States are the primary 
regulators of insurance. This leads to some multiplicity of 
regulation across State jurisdictions, almost inevitably so. 
There have been attempts to unify or harmonize State regulation 
by both the insurance regulators and the insurance legislators 
at the State level for many, many years. But despite such 
efforts, we hear stories as we have heard from the rest of the 
panel about the costs and inefficiencies in various parts of 
the insurance regulatory system.
    The attempts that have been brought before Congress to 
address this have largely been in the realm of either a 
complete Federalization of the system or some Federal, shall we 
say, help for other bodies in the insurance regulatory system 
to achieve this uniformity. Although I would say, if I were 
writing this, the word ``help'' might be in quotation marks, 
because not everyone in the system has welcomed such help.
    The NARAB provisions, as mentioned, were originally part of 
the Gramm-Leach-Bliley Act. They provided for the creation of a 
NARAB Association, which would allow people to operate across 
State lines with a single membership in this Association. But, 
as we have heard, there continue to be problems, partly because 
the NARAB Association in Gramm-Leach-Bliley was not mandatory. 
The States were given the opportunity to institute either 
reciprocity or some sort of uniformity in the system, which 
they did, and the NAIC certified that as many as 47 different 
jurisdictions reached the reciprocity standards. But I think 
that, again, as the details that have been given, there are 
some issues that have come up with it and we have continued to 
hear problems from people despite the reciprocity legislation 
that is in place.
    I think that the problems that one continues to hear, 
despite the reciprocity legislation that is in place, leads to 
the conclusion as we consider further legislation that the 
details of the legislation really do matter, that there can be 
little details--little differences between States can add up to 
big differences to the producer licensing experience.
    The NARAB II legislation that is before the Congress today 
basically does away with the conditionality that was found in 
NARAB I, and institutes the NARAB structure immediately. It has 
changes to the board structure that was originally in the NARAB 
I legislation. It has changes, to some degree, to the oversight 
that the NAIC would have on the NARAB organization. But the 
organization remains deeply embedded in the State regulatory 
system, with a majority of the board being insurance 
commissioners.
    Another part that has been added since NARAB I are 
provisions providing for Federal Attorney General and FBI 
assistance or authority in background checks, which has been a 
point of contention or point of difficulty with some States in 
terms of accessing, I believe, the Federal resources on 
criminal background checks.
    I think that another lesson that can perhaps be learned in 
the 15 years or so since the Gramm-Leach-Bliley is also that 
continued oversight by Congress matters. I think anyone that 
has been on Capitol Hill for a while knows that when a law is 
passed instructing the executive branch to do something, it 
really helps when Congress keeps their thumb on the executive 
to make sure that it happens. That is in a situation where 
Congress frequently has budgetary oversight or much more direct 
oversight mechanisms on the body that is undertaking the 
authority.
    In this case, it becomes a private body that is sanctioned 
by Congress, and I think that that brings up challenges as to 
how does Congress continue to oversee what it has created. And 
I find it very interesting that one of the initial NARAB 
legislation--NARAB II legislations--included reports directly 
to Congress. But the administration basically objected to the 
reporting because it was a reporting to both the executive and 
to Congress. The newer legislation does not have the reporting 
to Congress and I think that is in response to those concerns, 
but that may be something that Congress will want to think 
about again as to how it is going to oversee the NARAB 
organization going forward.
    If you have any further questions, I would be happy to 
answer them.
    Senator Tester. Well, thank you, Mr. Webel. I appreciate 
your testimony as well as everybody else's.
    Since it is just the Ranking Member and myself, I do not 
know that we are going to put the clock on. I am going to ask a 
few questions and kick it over to you, and when you get tired, 
you can kick it back.
    I want to start by once again thanking you for all the work 
that each and every one of you have done on this. Your 
respective organizations have been very positive in the efforts 
to streamline the State insurance licensing process and you 
need to take that back to not only yourselves, but anybody in 
your organization that it applies to. Without your work, I 
think it is fair to say that Senator Johanns and myself would 
not have been able to introduce this bill. So thank you for 
that.
    I want to talk a little bit about consumer impact, consumer 
protection as it relates to NARAB. Can each of you discuss from 
your perspective the potential impact of the streamlined 
licensing process as conceived through the NARAB on consumers, 
positive or negative. We will start with you, Commissioner.
    Ms. Lindeen. Thank you, Mr. Chairman, Senator. I would 
just--I would start out by saying that, once again, State 
regulators really do take protecting consumers very seriously. 
It is our number one priority, as I am sure you have heard 
before. And our support of this legislation really is 
contingent on that preservation of that ability to protect 
consumers and making sure that we are regulating our markets 
and enforcing State insurance laws, as I said.
    The legislation appropriately, we believe, leaves 
regulatory authority in the hands of State officials, which 
does nothing, then, to limit our ability to protect consumers 
by upholding those laws in our home States. So I think that is 
probably the number one reason why we think that this bill as 
it stands is a good piece of legislation.
    I would also note that, in some cases, NARAB producer 
membership requirements may be even tougher, may provide for 
even tougher regulations, which I think Mr. Webel mentioned, 
when it comes to fingerprinting and FBI background checks. We 
think that that is important, as well. Obviously, right now, 
there is only about half the States that actually require that.
    And, finally, I would just say that any time you can have 
multiple sets of eyes on something when it comes to regulation, 
it is a good thing. So we think that this is a good bill as it 
stands for consumer protection.
    Senator Tester. Good. Mr. Jensen, do you have anything to 
add?
    Mr. Jensen. Yes. Thank you, Mr. Chairman. I do find it 
interesting this morning, as I was preparing for this hearing, 
I did get an email from a fellow agent of mine and he said, 
``Make sure that you mention that this is not just a pro-agent 
bill. This is absolutely pro-consumer.'' He said, ``The quicker 
that I can go to market for one of my clients, the better I 
serve my client.'' And I think that is a very appropriate 
comment on his part.
    I know from my own personal standpoint, when I have a 
client that is a small businessman who calls me and tells me 
how excited he is to be venturing into another State and 
expanding his business and I have to say, wait a minute, slow 
down. Do not be so excited. We do not have a license there. It 
will take us a day or two, or a week, or 45 days to be able to 
facilitate that for you. It is a very dampening effect, I 
think, on small business. There is no question about it. And so 
I think this is, by far, a very pro-consumer piece of 
legislation.
    Senator Tester. OK. Scott.
    Mr. Trofholz. I agree with everything that has been said so 
far. Any time we can have uniformity and less administrative 
headache and get things to the market quicker, the end is that 
the consumer benefits, and that is what we are all trying to do 
in the first place.
    Senator Tester. OK. Baird, anything that----
    Mr. Webel. Yes. As written, and I think as people are 
intending to carry it out, that it would result in increased 
competition and increased competition is generally good for the 
consumer.
    Senator Tester. OK. Good.
    Commissioner Lindeen, to you specifically, can you comment 
on how NARAB would impact your ability and the ability of your 
fellow commissioners to protect consumers, and if that answer 
is it would have no impact, that is a good enough answer for 
me, but if it would have an impact, I would like to know.
    Ms. Lindeen. Senator Tester, I would say that it would have 
no negative effect on our ability to protect consumers.
    Senator Tester. Very good. I am going to kick it over to 
you, Senator Johanns.
    Senator Johanns. Let me start with Scott, if I could. I 
used this example of a person who maybe lives in Iowa, but you 
service their business and they have various interests in other 
States. Is that a common occurrence? Is that something you deal 
with on a regular basis?
    Mr. Trofholz. Absolutely. The world is getting smaller, and 
in many cases, you are taking an example of a personal 
insurance policy, but businesses do business across multi 
States. And so, as I mentioned to you, we have over 650 
licenses in our small firm and it is just--it is not so much 
the process, it is which State requires what. I mean, it is 
the--we just would like to have one place to go to get that all 
done and it would speed up the process. And again, as we talked 
about, the redundancies would come out of this, which should be 
better for the consumer in the end. But that happens all the 
time.
    Senator Johanns. Mm-hmm. Jon, do you have thoughts on that?
    Mr. Jensen. Yes. I absolutely concur, and it is even--it is 
very difficult for us, because the States may change their 
regulations from year to year. So we think we have a grasp of 
it and know what we are doing and then discover some change has 
occurred and all of a sudden it is back to the drawing board. I 
guess as small business owners and professionals, we find that 
very frustrating, to think we do not know that what we are 
doing is absolutely proper.
    Senator Johanns. Commissioner, on the issue of, let us just 
take a typical consumer complaint. Let us say that you have a--
the law passes. You have an agent in another State other than 
your own State, but they are doing business in your State. They 
have lawfully complied and you have a constituent in Montana 
who feels that they have been cheated or something. Do you then 
have jurisdiction of that complaint? Is that how that would 
work, because that activity occurred in your State?
    Ms. Lindeen. Senator, I would definitely be able to 
continue to investigate the consumer complaint, and if I found 
that there was any issue with a law being broken, I would be 
able to then deal with the producer in the appropriate manner, 
absolutely.
    Senator Johanns. If I could jump over to Baird, what about 
this legislation do you think has a better chance of working 
than previous attempts, because there have been some previous 
attempts to try to streamline or reciprocity to try to deal 
with this issue. What makes this better and different, 
hopefully?
    Mr. Webel. I think that the existence of the organization, 
the ability to have the single license is an important aspect. 
I think that it has the potential to really streamline things. 
But, as I said, a lot really depends on how things are carried 
out.
    I will go back to a law passed in 1981 and 1986 on risk 
retention groups that was supposed to provide, essentially, 
home State regulation of a risk retention group which would 
then operate across the country. If you listen to the risk 
retention group associations now, they will complain about the 
various barriers that have been put up by States which they see 
as not giving them access across the country.
    So I think that, as I said, the details and the ongoing 
implementation of it really matters in terms of are there 
little things that are done to prevent people from truly 
operating across the country and who decides? Does it take a 
Federal lawsuit? If a producer feels like they should be able 
to operate in another State, but somehow is not being able to 
do so underneath the law, do they actually have to file a 
lawsuit in Federal court to obtain some kind of judgment that 
they should be able to do so? There are a lot of barriers that 
can come up after legislation is actually written.
    Senator Johanns. Sure. Any of the other panelists have any 
thoughts about that? We not only want to pass the legislation, 
but we would like to look out there 5 years, 10 years, and say, 
you know, this was the key. This was the secret and now we can 
see all this benefit that is occurring.
    Commissioner.
    Ms. Lindeen. If I could, Senator, if I could, I would like 
to just step back for one moment and just kind of remind 
everybody that after passage of the Gramm-Leach-Bliley Act, I 
mean, there were these standards set in place and the States 
were asked--they said that States, at least 27, 28, 29 States 
had to meet those standards. The States worked very hard to 
meet those standards and exceeded what the Act asked for. We 
had, as was mentioned, I think, earlier in one of the 
testimonies, we had 47 States who were meeting those standards.
    So we have come a long way, and I think that a lot of 
times, these things just do not happen overnight. I think that 
it is very important that the devil is in the details. Once 
NARAB is created and we have that governing board, we are going 
to have 2 years to be able to work out the details, and I think 
that we have got a lot of history and knowledge in terms of 
what needs to be done to make sure that this works 
appropriately and that the process is more effective and more 
efficient for everyone involved.
    Senator Johanns. OK. Scott or Jon, do you have thoughts?
    Mr. Trofholz. Yes. We were part of the authorship of NARAB 
I, and after seeing what some of the things that we needed to 
improve upon that were done, that is where we came up with 
NARAB II and helped cosponsor this and we think we have worked 
a lot of those, if I can use the term, ``bugs'' out of the 
system to make this more uniform and less costly from an 
administrative standpoint.
    Senator Johanns. Mm-hmm. Jon.
    Mr. Jensen. Yes, Senator. I would say one critical 
difference, that this actually does create NARAB. In 1999, it 
was only a threat as such.
    Senator Johanns. Right. It was, if you do not do this, then 
you might get whatever.
    Mr. Jensen. Correct. And this actually creates the vehicle.
    Senator Johanns. Mm-hmm. I would think insurance agents 
across the country would be desperately clamoring for this. I 
cannot imagine--because it would seem to me so common, like in 
a city like Omaha, because you are right on the border, you are 
going to have business from other jurisdictions around you. 
This would be, it would seem to me--it would seem like 
virtually every client who walked in would have these 
complexities where you have got to make sure your licenses are 
current, et cetera. So it would seem to me that the insurance 
industry would absolutely demand that this would be 
implemented. Am I seeing that right?
    Mr. Jensen. Absolutely.
    Mr. Trofholz. Absolutely. Since 1933, we have been trying 
to do this correctly, so we are hoping we can push this one 
across the finish line.
    Mr. Jensen. The burden is greater than you can imagine 
inside our own walls. It is tremendous. And as Scott mentioned, 
small business is expanding out. It is not just in personal 
lines. It is in those businesses seeking economic growth 
outside of their own neighborhoods.
    Senator Johanns. OK. I will kick it back to you, Jon.
    Senator Tester. Thank you.
    It has only been 80 years. What the heck. Government works 
deliberately, I guess. That is code for slow.
    [Laughter.]
    Senator Tester. Commissioner Lindeen, in your testimony, 
you highlight a careful balance the NARAB establishes between 
the board and the State insurance regulators. Can you highlight 
exactly how the NARAB Board would work in coordination with 
offices like yours to transmit membership decisions, fees, 
complaints to individual States.
    Ms. Lindeen. Senator, thank you for the question. 
Obviously, once the board is in place and they have set their 
rules and processes and they would be--if they have a 
producer--I am just going to give you an example. If they have 
a producer who has somehow or another broken one of those rules 
that was set by NARAB, obviously, they are going to have an 
issue and take care of that with the producer. But they will 
make sure that they pass that information down to us. Are there 
other specific examples that you can think of?
    There is going to be a lot of coordination. Obviously, we 
have a lot of producer licensing databases that are in place 
already that the NAIC and the industry take advantage of in 
terms of tracking producer licensing, tracking any complaints, 
any violations, fines that have occurred. And I think that 
there definitely will be an ability for the board to continue 
to have access to that information and also have the ability to 
contract with an outside organization to do that, as well.
    Senator Tester. OK. So you feel confident that the 
legislation is complete enough that the lines of responsibility 
are clear?
    Ms. Lindeen. Senator----
    Senator Tester. Between the board and the commissioners' 
offices?
    Ms. Lindeen. Senator, I believe that the legislation is 
clear enough in terms of setting the parameters in an 
appropriate manner----
    Senator Tester. OK.
    Ms. Lindeen.----with the appropriate amount of regulators 
on the board giving us the authority we need. Yes, sir, I do.
    Senator Tester. OK. Both Mr. Jensen and Mr. Trofholz talked 
about 48 licenses, 27 licenses in different States, anywhere 
from six to 80 compliance officers on those. Have you been able 
to quantify in terms of time or money the cost which the 
current system ends up costing consumers because of the added 
administration when you have to be registered in 27 States or 
48 States or whatever it might be?
    Mr. Trofholz. That is--Senator, that is difficult. 
Chairman, it is difficult for us to come up with a number. We 
can tell you internally what it costs us to process that, and I 
would assume a good share of that would go back into the 
consumer because we would be much more efficient. You know, 
that varies by agency. But we have one person that spends 2 
days a month doing this kind of stuff.
    Senator Tester. OK.
    Mr. Trofholz. That is a rough estimate, and that does not 
include all the other things, the renewal, the State license, 
the continuing education, all the things that go along with 
that.
    Senator Tester. OK.
    Mr. Jensen. We know inside our office that it costs us tens 
of thousands of dollars. But to tell you, Senator, what it 
costs the consumer is hard to say.
    Senator Tester. Yes.
    Mr. Jensen. It is hard to quantify. It is a matter of 
quicker to the market, better for the consumer.
    Senator Tester. I got you. There are people from soup to 
nuts that work in the insurance industry as far as size goes. 
Could you talk about the impacts of NARAB as it applies--I am 
talking to Jon and Scott again--as it applies to market 
competition and what the impact would be, if any, on smaller 
producers and their ability to compete.
    Mr. Jensen. I think, personally, that the smaller producers 
are probably--have a greater benefit by NARAB. Organizations 
such as Scott and myself that have a little more size to them 
have resources inside the walls that can handle these things, 
whereas a smaller agent that may have four or five employees 
has no way of really being able to deal with the various 
regulatory climates in the various States. They do not have the 
internal resources to be able to do that, and in many cases, 
they are just having to walk away from pieces of business that 
they may be able to produce because they cannot handle it. They 
cannot serve their client in the best way they need to, so they 
must pass it on to someone else who has better resources.
    Mr. Trofholz. That is the same answer.
    Senator Tester. OK.
    Mr. Trofholz. I agree with Jon 100 percent on that.
    Senator Tester. All right. Baird, you talked a little bit 
about--and do not let me put words in your mouth, OK? You 
talked about the background checks, and if I heard you right, 
that there could be a problem accessing the Federal database.
    Mr. Webel. When you review the kinds of things that people 
have said in the past 10, 15 years, I believe there have been 
issues with the State regulators having some question as what 
they can access in terms of the Federal databases and whether 
they can get complete information or not. And so I think that 
the sections in the bill now, I believe were put in 
specifically because of those sorts of problems----
    Senator Tester. To be able to enable that?
    Mr. Webel. Yes.
    Senator Tester. You talked about the board change. You 
talked about the conditionality. Was there anything else in 
this bill that was changed that you saw that might help with 
its passage? It is a very similar question to the one Senator 
Johanns raised.
    Mr. Webel. From the original one, or----
    Senator Tester. Yes. From NARAB, the first one.
    Mr. Webel. The actual implementation rather than 
conditionality is the biggest thing.
    Senator Tester. OK.
    Mr. Webel. I think that the fact that it continues to be 
very deeply entwined in the State regulatory system, the bill 
is not a Federal takeover of the system, this seems to be 
something that Congress has hesitated over before--Federal 
takeovers of the system--but is willing to sometimes use 
Federal preemption to make the system more efficient. And so 
the bill seems to follow in the same vein of the things that 
have passed in the past.
    Senator Tester. OK. My last question, and actually, it will 
go to Monica again, on keeping out bad actors. I mean, how--and 
maybe it goes back to being able to have access to the 
database. Maybe it is just communication between the different 
States and ultimately this would help facilitate that. But how 
would the board ensure the highest professional ethical 
standards, but more importantly, how would they keep out the 
bad actors? How do you see that coming down the pike, prevent 
the bad actors from becoming NARAB members to begin with?
    Ms. Lindeen. Well, Senator, I think that the background 
checks are an important part of that, making sure that every 
State in every case is doing those, well, through the NARAB 
board, that those background checks are occurring. And, 
obviously, it is also important, then, that the board would 
have access to all the data that is already out there about 
individuals through our database systems. So I think that that 
is the number one, I think, way that that can be accomplished. 
And, as you say, communication is always important.
    But I think that, once again, I just really want to--this 
is based on some comments that were made--just stress the fact 
that NARAB is not--would have no regulatory authority. 
Obviously, this is just a tool to facilitate a process that is 
still going to continue to preserve State regulators' 
authorities to protect those consumers.
    Senator Tester. OK. Thank you.
    Senator Johanns.
    Senator Johanns. If I could just follow up on that 
question, as I understand the legislation, there is a 10-day 
period----
    Ms. Lindeen. Right.
    Senator Johanns.----and I am assuming that that 10-day 
period would be utilized by commissioners to take a look and 
maybe something pops up. Maybe this person is under 
investigation in another State for some kind of wrongdoing. You 
could push back then on that person doing business in your 
State, right? Explain how that would work.
    Ms. Lindeen. Senator, I appreciate that, and I would have 
added that to my response to Senator Tester's question, because 
that is another key element in this piece of legislation, is 
that each State would be able then to have that 10-day look-
back period, and if they had any problems that had occurred in 
their jurisdiction, they could push back, and hopefully, that 
would be--that the board then would look at that and say, there 
is an issue here.
    Senator Johanns. OK. One thing I would always ask in the 
Governor's office when people would come to me with a great 
idea, I would always say, explain to me who is for you and who 
is against you. Tell me, in this legislation, do you know of 
any group that would be out there that would, after this 
hearing, call us and say this is a problem, this is why we do 
not like this legislation? And, Commissioner, I will start with 
you.
    Ms. Lindeen. I do not know of any. Honestly, Senator, I 
think it is a lovefest.
    Senator Johanns. Good.
    [Laughter.]
    Senator Johanns. We like those once in a while, too, you 
know.
    Ms. Lindeen. No, but it is not something--it is not a 
lovefest that came easily, obviously. These are discussions and 
negotiations that have been occurring for years. And I think 
that it is--I think we have come to a point now where we can 
all agree on some specifics in order to move forward, to give 
industry what they want, which is the ability to have a 
streamlined process so that they can get their products so that 
they can do their work for their consumers and that we, as 
regulators, can do our job, as well, which is to protect 
consumers. And so I think that it is to a point where we all 
agree and we need to move forward.
    Senator Johanns. Jon, Scott, any thoughts on that?
    Mr. Jensen. I completely echo that and we know of no one 
that would oppose this now.
    Senator Johanns. Mm-hmm.
    Mr. Trofholz. I agree with Jon.
    Senator Johanns. Yes.
    Mr. Webel. I am not aware of any specific groups that have 
expressed opposition. I would note that it is, to some degree, 
a Federal preemption of some State laws. There will be people 
out there that may be unhappy about that. And having attended a 
conference of the National Conference of Insurance Legislators 
(NCOIL) as a Federal representative, I will tell you that there 
are insurance legislators in the country that do not trust the 
Federal Government very much. So I think that you may still 
hear from some people that are not happy with the legislation.
    Senator Johanns. Mm-hmm.
    Mr. Webel. I would just note that that organization, NCOIL, 
as a whole, has taken a neutral stance on the NARAB II 
legislation.
    Senator Johanns. You know, here is what I would offer, and 
then I have no other questions. But this is a comment I would 
offer. I do not know that there is anybody in Congress more 
States' rights oriented than the two people sitting up here 
today. My entire background was State and local before I came 
here to join the President's cabinet, entirely. I have said 
over and over again, I just think regulating closest to the 
people affected is the best way of doing business.
    However, I have seen this issue rattle around and rattle 
around and rattle around, and it seems to me if there was ever 
a sweet spot to be achieved, this legislation achieved it 
through working together and compromise and giving here and 
giving there, to recognize that the States are the regulators 
in this area. And I do believe that the legislation respects 
that. I really do.
    The other thing I would say, if this problem is not solved 
at some point, then I think you have a risk of other 
legislation at some point in time that turns everything upside 
down.
    Ms. Lindeen. Yes.
    Senator Johanns. And to me, that would be extremely 
worrisome. This legislation has the best chance of solving a 
very, very difficult problem, in my opinion, and I certainly 
agree with you. There are people that push back on anything 
that has a Federal flavor to it. But for the work of many who 
tried to reach that sweet spot, we would not be here today, and 
I just think that this is such an important step. Otherwise, 
other consequences are awaiting us that I do not think we will 
like nearly as much, because this has been such a problem for 
so long. Eighty years is long enough, and my hope is we can get 
this problem solved.
    Ms. Lindeen. We thank you both for your leadership in 
helping us do that.
    Senator Johanns. I am done.
    Senator Tester. Well, thank you, Senator Johanns. I very 
much appreciate those remarks, as I appreciate the remarks of 
the panel today. I meant it in the beginning when I said, thank 
you for your time. I know you could all be doing something else 
and you are not. You are here advocating for this bill, or at 
least giving us information about this bill. So I want to thank 
you for that.
    This hearing has really underscored the importance of 
legislation to finally establish the National Association of 
Registered Agents and Brokers and has highlighted all of the 
efforts that have occurred up to this point. I certainly look 
forward to working with Senator Johanns and many of our 
witnesses today and others in getting this legislation across 
the finish line.
    To that end, I have a few documents that I want to submit 
into the record. I have a letter of support for NARAB dated 
February 19 from a broad coalition of insurance industry 
groups; a letter of support for NARAB dated March 8, 2013, from 
the leadership of the National Association of Insurance 
Commissioners; written testimony from the National Association 
of Professional Surplus Lines Offices; written testimony from 
the Advocates for Insurance Modernization; written testimony 
from the American Association of Managing General Agents; and 
written testimony from the Insured Retirement Institute.
    Senator Tester. The hearing record will remain open for 7 
days for any additional comments or for any questions that 
might be submitted to the record.
    With that, thank you all. This hearing is adjourned.
    [Whereupon, at 3:58 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]

                PREPARED STATEMENT OF MONICA J. LINDEEN
    Commissioner of Securities and Insurance, Montana State Auditor
    on behalf of the National Association of Insurance Commissioners
                             March 19, 2013

Introduction
    Chairman Tester, Ranking Member Johanns, and Members of the 
Committee, thank you for the opportunity to testify this afternoon, and 
thank you both for your leadership on the NARAB II legislation, S. 534, 
which we are here to discuss today.
    My name is Monica Lindeen, and I am the Montana State Auditor and 
Commissioner of Insurance and Securities. I currently serve as Vice-
President of the National Association of Insurance Commissioners 
(NAIC), and I present this written testimony on behalf of that 
organization. The NAIC is the United States standard-setting and 
regulatory support organization created and governed by the chief 
insurance regulators from the 50 States, the District of Columbia, and 
five U.S. territories. Through the NAIC, we establish standards and 
best practices, conduct peer review, and coordinate our regulatory 
oversight. NAIC members, together with the central resources of the 
NAIC, form the national system of State-based insurance regulation in 
the United States.
    The NAIC supports S. 534. On March 8, the other NAIC officers and I 
sent a letter supporting the bill to the Chairmen and Ranking members 
of the Senate Banking Committee and the House Financial Services 
Committee. We also supported the Senate version of the bill in the last 
Congress.
    As the regulators of more than 6.8 million individuals and business 
entities licensed to provide insurance services in the United States, 
the NAIC recognizes that streamlined nonresident producer licensing is 
an important goal, but I want to emphasize that efforts to do so must 
not undermine current State authorities to protect insurance consumers 
and take enforcement action against malfeasant producers. State 
insurance regulators take our consumer protection responsibilities very 
seriously, and our support of this legislation is contingent on the 
preservation of our ability to carry out that mission as we regulate 
our markets and enforce State insurance laws.
Policing Insurance Producers and Protecting Consumers
    State regulators' top priority is the protection of insurance 
consumers. We do this in a variety of ways, from licensing and 
collecting data on insurers and producers to investigating consumer 
complaints and violations of State insurance laws. We also consistently 
try to educate consumers regarding their rights and recourses against 
unscrupulous actors.

Licensing
    The State insurance departments have a strong track record 
regarding the licensing of individuals and business entities through 
pre-licensure requirements and evaluations and post-licensure consumer 
protection and market regulation. In addition, State coordination is 
facilitated through the State Producer Licensing Database maintained by 
the NAIC.
    In order to be licensed, insurance producers must pass an 
examination by specific line of authority. In addition, many States 
require pre-licensing education training prior to a candidate taking a 
producer licensing examination. In addition to the examination process, 
producer applicants undergo a background check, which includes the 
fingerprinting of applicants in many States.
    Once licensed, most States require an insurance producer to obtain 
what is known as a company appointment to sell a company's products. 
States typically require insurance producers to complete 24 hours of 
continuing education training every 2 years, with three of the 24 hours 
addressing ethics.

Monitoring and Tracking Producers
    State insurance departments monitor the activities of producers 
licensed in their State as part of their market conduct regulation 
responsibilities. When producers operate in multiple jurisdictions, 
departments must coordinate efforts to track producers and prevent 
violations. Special databases maintained by the NAIC assist States by 
sharing information about the activities of insurance producers. One 
such database, the Regulatory Information Retrieval System (RIRS), 
contains information on producers and companies against which some type 
of regulatory action has been taken. The Special Activities Database 
(SAD) contains data on unauthorized activities and disciplinary actions 
taken by other regulatory agencies other than a State insurance 
department. Finally, the Complaints Database System (CDS) provides 
online access to closed complaints.
    The NAIC also maintains the State Producer Licensing Database 
(SPLD), a nationwide comprehensive database of individuals and business 
entities licensed by States to sell, solicit or negotiate insurance. 
The SPLD allows States to share information to facilitate the licensing 
process and track producers licensed in more than one State. 
Information shared in the Producer Database (PDB), which companies 
access to conduct due diligence prior to appointing an agent, includes 
demographic and biographical information, current and historical 
license information, types of licenses held, authorized lines of 
business, and a record of insurance regulatory actions (listed in 
RIRS). Finally, the SPLD links to SAD and CDS databases to provide 
States a comprehensive regulatory picture of an insurance producer. 
This information is pushed to the States through the NAIC's 
Personalized Information Capture System or PICS Alerts. When one State 
takes a regulatory action against a producer, all States in which the 
producer holds a license are electronically notified.
    With SPLD in place to serve as a cornerstone, the National 
Insurance Producer Registry (NIPR), a nonprofit affiliate of the NAIC, 
connects State insurance departments with insurers, producers, 
licensing service providers, and other stakeholders in the licensing 
process. Among its many benefits of such a wide-area network, NIPR's 
state-of-the-art electronic filing system provides efficiencies to the 
licensing of producers by facilitating the electronic licensing 
application process; automating the producer appointment and 
termination process; providing companies access to data contained in 
the PDB; and streamlining billing and collection of licensing and 
appointment fees.

Complaints and Enforcement Actions
    State regulators have broad statutory authority to regulate and 
police their markets on behalf of consumers. State insurance 
departments take in hundreds of thousands of consumer complaints every 
year that lead to civil or criminal investigations, fines, and 
restitution for consumers.
    While specific processes vary from State to State, in most cases, 
action begins with a consumer complaint or inquiry. Professional staff 
at State insurance departments thoroughly review complaints and 
investigate whether State laws have been violated by either a producer 
or an insurer. If a State regulator determines a producer has violated 
State law, remedies include fines, cease and desist orders, and 
suspension of licenses to keep bad actors from harming consumers. In my 
own State of Montana, in 2011, we levied 29 fines totaling $125,000, 
and recovered over $78,000 for consumers through 11 restitutions. For 
the same year, nationwide, State insurance departments received more 
than 283,000 official complaints, leading to the suspension or 
revocation of nearly 25,000 licenses, and nearly 5,000 fines totaling 
over $73 million and resulting in $115 million in restitution for 
consumers.
    Additionally, many States have formed separate criminal insurance 
fraud units. These units, which may or may not reside within the 
State's insurance department, investigate insurance fraud in order to 
prevent bad actors from harming consumers and to keep fraudulent claims 
from increasing the cost of insurance. Recent years have seen an 
increase in the number of fraud investigators employed by the States as 
awareness and scrutiny of insurance fraud has increased.

Educational Efforts
    In addition to monitoring producers and investigating potential 
producer violations of State insurance laws, State regulators also 
provide educational materials, comparison guides, seminars, and strive 
to improve our outreach to help consumers know their rights. 
Independently and through the NAIC, State regulators issue frequent 
consumer alerts; we also share information about insurance companies 
through tools such as our Consumer Information Source (CIS) service, 
including closed complaints, licensing information, and financial data 
on producers and insurers. CIS allows consumers to obtain key 
information before purchasing an insurance policy.

NARAB II--Background
    Turning to the legislation itself, allow me to offer comments about 
the road that brought us here today. As you know, the proposed 
legislation will amend the Gramm-Leach-Bliley Act to create a nonprofit 
corporation known as the National Association of Registered Agents and 
Brokers, or NARAB, in order to streamline nonresident market access for 
insurance producers licensed in their resident States. NARAB will be 
led by a Board of Directors, the majority of which will be State 
insurance commissioners, and the Board will establish membership 
requirements applicable to eligible nonresident insurance producers. 
Membership will permit insurance producers to access insurance markets 
similar to what nonresident producer licensing allows.
    Insurance commissioners have worked for a very long time to address 
nonresident insurance producer licensing reform. Starting with the 
NAIC's Producer Licensing Working Group in the late 1990s and the NARAB 
Working Group in the early 2000s, the NAIC developed and adopted a 
Producer Licensing Model Act (PLMA) to facilitate nonresident licensing 
and improve reciprocity. States met and exceeded the nonresident 
reciprocity requirements of the Gramm-Leach-Bliley Act and continued to 
work diligently toward uniformity in resident licensing standards.
    In the mid-to-late 2000s, the NAIC reconstituted its NARAB Working 
Group in order to update and strengthen our approach to reciprocity. 
After a considered evaluation of new issues and administrative 
practices, the NARAB Working Group recommended the NAIC adopt a 
heightened standard for reciprocity, which was adopted by the NAIC 
Executive Committee and Plenary in 2009. A subsequent review determined 
that the States continued to meet and exceed GLBA's reciprocity 
standard.
    Even with all our progress, the NAIC agrees that further 
improvement is needed. The States have made such significant progress 
in reforming producer licensing that today's system is unrecognizable 
from the system of 10-15 years ago. However, the narrow, targeted area 
of the nonresident insurance producer licensing process is one of the 
exceptionally rare instances where we believe Federal legislation could 
be used. NARAB II would streamline the administrative process of 
nonresident licensing (or its equivalent under NARAB), but not at the 
expense of consumer protection, State revenues or market regulatory 
authority.

Specific Provisions of Interest
    Today's bill contains improvements over versions introduced in 
previous Congresses, and hopefully with support from both regulators 
and producers, it will continue to attract bipartisan co-sponsors and 
votes as it works its way through the legislative process. I would now 
like to take a few moments to address some of the provisions in the 
NARAB II bill that were crucial to winning the support of State 
regulators.
    The proposed legislation would establish NARAB with a 13-member 
governing board comprised of eight State insurance commissioners and 
five insurance industry representatives. This strong regulator majority 
serves to ensure that while the industry has several seats at the 
table, regulators will be able to ensure that consumers' best interests 
are served by establishing membership criteria drawing from the highest 
standards that exist in State law. NARAB will be administering what has 
been a regulatory function, and so it should be guided by regulators. 
As a result, the bar will be raised with respect to nonresident 
producers seeking to access other markets. This will virtually 
eliminate the risk of a race to the bottom where consumer protection is 
concerned. In addition to the strong regulator majority on the board, 
the legislation also preserves the existing authorities of States with 
respect to resident licensing, market regulation and consumer 
protection, and the supervision and enforcement of laws related to 
producer conduct and possible disciplinary actions. These components of 
our regulatory programs are essential to serving our monitoring 
function and protecting consumers.
    The bill also includes important disclosures to the States, 
maintains business entity licensing, and protects State revenues and 
licensing structures to ensure there is no additional cost or revenue 
loss to the States--something that is critically important. NARAB's 
administrative costs will be funded through fees paid by producers.
    Another important provision from our perspective requires pre-
notification to State regulators and the NAIC of any producer seeking 
to do business on the basis of NARAB membership. Therefore, while the 
States will no longer issue licenses to nonresidents seeking NARAB 
membership, the bill requires notice and a 10-day ``look'' period 
during which a State may bring up any objections to a producer that 
seeks to do business in their jurisdiction through that membership.
    Lastly, the bill requires the board to establish a strong ethical 
conduct code related to NARAB's affairs and operation, and mandates an 
FBI criminal background check from applicants who have not had one 
within the previous 2 years. The latter requirement further raises the 
bar in the area of consumer protection.
    Taken together, these provisions preserve State regulatory 
authority to police our markets and to protect insurance consumers 
while streamlining the licensing process for insurance producers, and 
help to explain why the NAIC has chosen to support the bill we are 
discussing today.

Conclusion
    We look forward to continuing our consumer protection efforts and 
working with you to advance the NARAB II legislation. The bill is the 
result of many years of negotiations and discussions between State 
regulators, the insurance producer community, and your respective 
staffs. We cannot stress enough that the improvements included in this 
version of the legislation, and agreed to by all involved, are 
absolutely critical to our support. We thank the sponsors and 
cosponsors for working with us to achieve a good bill that accomplishes 
the goals of facilitating nonresident licensing and at the same time 
preserving State authorities. NARAB represents a unique and very narrow 
case where Federal legislation can be used to streamline a process, 
while preserving State authority, and should not be interpreted to 
suggest support for any further preemption of State insurance laws. 
Insurance regulatory reform should always begin and end with the 
States.
    Thank you again for the opportunity to be here and I look forward 
to your questions.
                                 ______
                                 
                  PREPARED STATEMENT OF JON A. JENSEN
                President, Correll Insurance Group, and
                 Chairman, Government Affairs Committee
  on behalf of the Independent Insurance Agents and Brokers of America
                             March 19, 2013

Introduction
    The Independent Agents and Brokers of America (IIABA) thanks the 
Committee, and especially Subcommittee Chairman Jon Tester and Ranking 
Member Mike Johanns, for the opportunity today to testify in support of 
agent licensing reform. IIABA's support for State insurance regulation 
is well-known to observers of the insurance industry and to the Members 
of the Subcommittee, and we continue to confidently believe that States 
are the most appropriate and effective regulators of this vital 
financial sector. However, while our support for State regulation 
remains unwavering, we are just as strongly committed to the pursuit 
and implementation of regulatory and legislative reforms that address 
the inefficiencies and unnecessary duplication that continue to hinder 
its effectiveness. The foundation of State regulation remains strong 
and offers considerable benefits, but the difficult truth is that 
sufficient progress on producer licensing reform and similar 
marketplace access issues has not been achieved. The need for effective 
licensing reform is greater than ever.

Producer Licensing Reform and the Need for NARAB II
    State law requires insurance agents and brokers to be licensed in 
every jurisdiction in which they conduct business, which forces most 
producers today to comply with inconsistent standards and duplicative 
licensing processes. These requirements are costly, burdensome and time 
consuming, and they hinder the ability of insurance agents and brokers 
to effectively address the needs of consumers. In fact, the current 
licensing system is so complex and confusing for our members that many 
are forced to retain expensive consultants or vendors or hire staff 
people dedicated to achieving compliance with the requirements of the 
States in which they operate.
    Some observers mistakenly believe that most insurance agents 
operate only within the borders of the State in which they are 
physically located and that the problems associated with the current 
licensing system only affect the Nation's largest insurance providers. 
The marketplace, however, has changed considerably in recent decades. 
There are certainly agencies that have elected to remain small and 
perhaps only service the needs of clients in one or two States, but 
that is no longer the norm. My firm spends tens of thousands of dollars 
per year on licensing fees alone, but the more significant cost for us 
is the immeasurable staff time that goes into maintaining hundreds 
licenses and responding to the duplicative State requirements and 
document requests. For smaller businesses, which lack the staff and 
resources of larger competitors, the exorbitant cost and unnecessary 
complexity of ongoing licensing compliance is especially burdensome. 
Research conducted by IIABA has found the following:

    Approximately 60 percent of IIABA member businesses have a 
        staffer whose duties are dedicated to obtaining and maintain 
        the appropriate insurance licenses for the agency and its 
        personnel. On average (across all agencies surveyed), insurance 
        agencies have one full-time equivalent employee dedicated to 
        such activities.

    About 3 percent of insurance agency operating expenses, on 
        average, are spent on licensing compliance efforts. This 
        percentage is highest for the smallest agencies (4.3 percent).

    The inefficiencies, unwarranted expenses, and redundancy associated 
with the existing licensing system are further exacerbated because many 
insurance agents serve the needs of consumers and business located in 
other jurisdictions. Both society and the insurance marketplace have 
changed considerably in recent decades, and it is incredibly common for 
insurance agencies to work with customers in other States. IIABA's 
largest members today operate in all 50 States, and it is increasingly 
common for small and mid-sized agencies to be licensed in 25-50 
jurisdictions as well. In fact, research conducted by our association 
has found that producers who operate in more than one State are 
licensed in an average of nine jurisdictions.

Lack of True Reciprocity
    Perhaps the most significant deficiency with the current licensing 
mechanism is the inability of States--despite their best efforts--to 
fully implement true licensing reciprocity.
    Congress recognized the need to reform the multi-State licensing 
system in 1999, when it incorporated the original NARAB subtitle into 
the Gramm-Leach-Bliley Act (GLBA). GLBA did not provide for the 
immediate establishment of the National Association of Registered 
Agents and Brokers and instead included a series of ``act or else'' 
provisions that encouraged the States to simplify the licensing 
process. In order to forestall the creation of NARAB, at least a 
majority of States (interpreted to be 29 jurisdictions) were required 
to license nonresidents on a reciprocal basis. To be deemed ``NARAB 
compliant,'' GLBA mandated that States issue a nonresident license to 
any applicant who meets three simple criteria: (1) is licensed in good 
standing in his/her home State, (2) submits the appropriate 
application, and (3) pays the required fee. The Act is precise and 
States that a nonresident license must be issued ``without satisfying 
any additional requirements.'' In short, GLBA required compliant States 
to accept the licensing process of a producer's home State as adequate 
and complete, and no additional paperwork requests or other 
requirements are permitted (no matter how trivial or important they may 
seem).
    Unfortunately, true reciprocity remains elusive. Agents and brokers 
hoped meaningful and tangible reform was imminent following GLBA's 
passage and the subsequent enactment of at least elements of the 
Producer Licensing Model Act (PLMA) by most jurisdictions, but 
insurance producers still await the promised benefits a dozen years 
later. Producers expected the implementation of something analogous to 
a driver's license-type system, which might allow nonresidents to 
easily and efficiently operate in multiple States after qualifying for 
licensure at home. Congress's action in the late 1990s spurred some 
activity and modest State-level improvements, but insurance producers 
have been largely disappointed by the lack of meaningful progress made 
in recent years.
    States too often ignore the principle of reciprocity and opt 
instead to reevaluate and second-guess the licensing decisions of a 
person's resident State. Although the GLBA and the PLMA clearly 
establish the limits of what may be required of a nonresident 
applicant--a nonresident in good standing in his/her home State shall 
receive a license if the proper application or notice is submitted and 
the fees are paid--States continue to impose additional conditions and 
fail to respect the licensing determinations made by resident 
regulators. The imposition of these extra requirements (such as the 
submission of documents and other information that have already been 
provided to the home State regulator) makes it impossible for many 
insurance producers to quickly obtain and efficiently maintain the 
necessary licenses and violates the reciprocity standards established 
in Federal and State law.
    The Gramm-Leach-Bliley Act empowers the National Association of 
Insurance Commissioners (NAIC) to determine whether States have 
achieved and maintain compliance with the requirements of the NARAB 
reciprocity standard. The NAIC has previously asserted that nearly 
every State has satisfied the standard, yet the suggestion that so many 
jurisdictions recognize nonresidents on a truly reciprocal basis would 
surprise the practitioners who must regularly comply with the extra 
hurdles and requirements imposed by States.

Duplicative Layers of Licensing Requirements
    While most observers are aware that insurance agents and brokers 
must obtain a license in every State in which they operate, fewer 
recognize that nonresidents often confront three layers of duplicative 
and redundant licensing requirements in each jurisdiction. 
Specifically, many insurance departments require nonresidents to (1) 
obtain an individual insurance license, (2) obtain a similar license 
for the applicant's agency, and (3) register as a foreign corporation 
with the Secretary of State, even when the State's corporate statutes 
impose no such mandate. These multiple layers of licensure offer no 
additional benefit or protection to consumers, yet they impose 
considerable costs, delays, and unintended consequences on the agent 
and broker community. The effects of these requirements are 
considerable for insurance producers who operate in multiple States, 
and the enforcement of many of these rules violates the principle of 
reciprocity and the GLBA/NARAB standard. Addressing these problems 
would produce significant benefits and enable insurance firms to focus 
greater resources on serving the needs of consumers.

The NARAB II Proposal
    IIABA believes the most efficient, effective, and sensible way to 
address the licensing and marketplace access problems discussed above 
is through targeted legislation at the Federal level. Limited Federal 
legislation can effectively remedy identified deficiencies in the 
current system, establish greater interstate consistency in key areas, 
and preserve day-to-day regulation in the hands of State officials. 
This pragmatic and politically feasible approach can be used on a 
compartmentalized issue-by-issue basis to address acknowledged problems 
and to establish uniformity and interstate consistency where necessary.
    Our experience in recent years suggests that there are certain 
problems with the State regulatory system that are resistant to reform 
via the traditional path of model laws and State-by-State legislative 
action. Targeted Federal legislation can overcome the structural 
impediments, collective action challenges, and other practical and 
political barriers that have stalled previous reform efforts. There are 
only a finite number of areas where uniformity and consistency are 
essential, and Congress has the ability to address each of these issues 
on a national basis. This can be done through a single legislative act 
or a series of bills and can be achieved without dismantling, 
replacing, or impairing the State-based system. State regulators do a 
tremendous job protecting consumers and ensuring the solvency of 
insurers, and nothing should be done to undermine or jeopardize their 
ability to do so on a prospective basis.
    IIABA specifically supports the use of this approach to address the 
licensing problems identified above, and the most appropriate and 
practical way to do so is through the NARAB II legislation, which has 
twice passed the House of Representatives. This legislation, S. 534, 
has once again been introduced in this Congress by Subcommittee 
Chairman Jon Tester and Ranking Member Mike Johanns. Companion 
legislation (H.R. 1155) has been introduced in the House of 
Representatives by Insurance Subcommittee Chairman Randy Neugebauer and 
Rep. David Scott. The NARAB II proposal would, as the NAIC has 
previously stated, ``achieve the goal of nonresident reciprocity in 
insurance producer licensing'' and ``work in partnership with existing 
State licensing operations.'' The measure has enjoyed broad industry 
support, and nearly the entire insurance industry has endorsed the 
legislation. The NAIC, too, has fully endorsed S. 534. Finally, the 
legislation enjoys strong bipartisan Congressional support, and in fact 
it already enjoys the support of 14 bipartisan original cosponsors in 
the Senate and 41 in the House.
    The NARAB II proposal would immediately establish the National 
Association of Registered Agents and Brokers and provide agents and 
brokers with a long-awaited vehicle for obtaining the authority to 
operate on a multistate basis. It would eliminate barriers faced by 
agents who operate in multiple States, establish licensing reciprocity, 
and create a one-stop facility for those who require nonresident 
licenses. The bipartisan proposal benefits policyholders by increasing 
marketplace competition and consumer choice and by enabling insurance 
producers to more quickly and responsively serve the needs of 
consumers. S. 534 ensures that any agent or broker who elects to become 
a member of NARAB will enjoy the benefits of true licensing 
reciprocity. In order to join NARAB, however, an insurance producer 
must be licensed in good standing in his/her home State, undergo a 
recent criminal background check (long a priority of State insurance 
regulators), and satisfy the criteria established by NARAB. These 
criteria would include standards for personal qualifications, training, 
and experience, and--in order to discourage forum shopping and prevent 
a race to the bottom--the bill instructs the board to ``consider the 
highest levels of insurance producer qualifications established under 
the licensing laws of the States.''
    NARAB's simple and limited mission would be to serve as a portal or 
central clearinghouse for insurance producers and agencies who seek the 
regulatory authority to operate in multiple States. The bill discretely 
utilizes targeted congressional action to produce efficiencies and is 
deferential to States' rights at the same time. S. 534 merely addresses 
marketplace entry and appropriately leaves regulatory authority in the 
hands of State officials. The proposal does nothing to limit or 
restrict the ability of State regulators to enforce State marketplace 
and consumer protection laws. State officials will continue to be 
responsible for regulating the conduct of producers and will, for 
example, investigate complaints and take enforcement and disciplinary 
action against any agent or broker who violates the law. In short, the 
NARAB II proposal would strengthen State insurance regulation, reduce 
unnecessary redundancies and regulatory costs, and enable the industry 
to more effectively serve the needs of insurance buyers--and it would 
achieve these results without displacing or adversely affecting State 
regulatory oversight.

Conclusion
    The IIABA thanks the Subcommittee for its efforts--past and 
present--to implement tangible and effective insurance marketplace 
improvements. We appreciate today's hearing on ``Streamlining 
Regulation, Improving Consumer Protection and Increasing Competition in 
Insurance Markets'' and we look forward to working with you on passage 
of the NARAB II proposal.
                                 ______
                                 
                  PREPARED STATEMENT OF SCOTT TROFHOLZ
              President and CEO, The Harry A. Koch Company
        on behalf of the Council of Insurance Agents and Brokers
                             March 19, 2013

    Chairman Tester and Members of the Subcommittee, thank you for the 
opportunity to testify before you today in support of The National 
Association of Registered Agents and Brokers Reform Act. My name is 
Scott Trofholz. I am the President and CEO of The Harry A. Koch 
Company, based in Omaha, Nebraska. I personally have been with The Koch 
Co. for 22 years. We are a profitable and growing 96-year-old firm 
offering consulting and insurance solutions for businesses and 
individuals with exposures throughout country. Koch clients include 
Fortune 500 Companies, small businesses and everything in between. We 
offer commercial lines, employee benefits, bonds and personal 
insurance. We are the largest family owned agency in Nebraska and 
employee around 100 residents. My testimony today is on behalf of my 
firm, as well as the member firms of the Council of Insurance Agents 
and Brokers (The Council). I'm a member of the Board of Directors of 
The Council, which represents the Nation's leading, most productive and 
most profitable commercial agencies and brokerage firms. Council 
members specialize in a wide range of insurance products and risk 
management services for business, industry, government, and the public. 
Operating both nationally and internationally, Council members conduct 
business in more than 3,000 locations, employ more than 120,000 people, 
and annually place approximately 80 percent--well over $250 billion--of 
all U.S. insurance products and services protecting business, industry, 
government and the public at-large, and they administer billions of 
dollars in employee benefits. Since 1913, The Council has worked in the 
best interests of its members like myself, securing innovative 
solutions and creating new market opportunities at home and abroad.
    Creating an effective and efficient insurance regulatory system in 
the United States is important not only to insurance brokers and the 
industry in general, but to policyholders and the economy as a whole. 
Agent and broker licensing is a critical piece of the insurance 
regulatory scheme.
    Nonresident insurance agent and broker (``producer'') licensing is 
a growing bureaucratic issue for me and my colleagues. For example, I 
currently hold nonresident licenses in 48 jurisdictions. Our agency has 
approximately 88 licensed individuals, 35 of whom are licensed in 
multiple jurisdictions, who hold a total of 630 licenses across the 
country. Besides the licensed individuals, the agency is also licensed 
as a nonresident in 49 States and holds a resident license in our home 
State. For an agency of 103 staff members, we have a dedicated person 
who is responsible for all licensing compliance. The time spent on 
renewals and new license applications is considerable due to the fact 
there are certain States that require additional requirements, besides 
the license application or renewal fees. These additional requirements 
must be submitted to the State before the license can be issued. These 
items include (but are not limited to) criminal background checks, 
proof of citizenship, and fingerprints. These additional compliance 
requirements create more costs to the agency, take time away from the 
producers, and make the licensing process more unwieldy. I'm constantly 
facing paperwork to try to stay on top of the multitude of regulations 
that are quite often redundant and almost always cumbersome. As for our 
trade association, my predecessors on our Board of Directors formed a 
task force to work on the growing problems of nonresident producer 
licensure--in 1933.
    Although insurance agent and broker licensing processes have 
improved over the last decade and a half--due to the enactment of the 
NARAB provisions of the Gramm-Leach-Bliley Act (GLBA)\1\ and the 
reforms put in place by the States since that time--there remain 
redundancies, inefficiencies and inconsistencies across the States that 
result in unnecessary costs on insurance producers and consumers due to 
the regulatory and administrative burdens the requirements impose. This 
is why The Council supports adoption of The National Association of 
Registered Agents and Brokers Reform Act of 2013 (``NARAB II''), and 
the creation of NARAB. We are especially grateful to you, Mr. Chairman, 
and Sen. Johanns, for your willingness to lead on this issue through 
the introduction of S. 534 (and the 12 bipartisan other sponsors in the 
Senate) and we look forward to working with all of the members of this 
Committee to see this effort through.
---------------------------------------------------------------------------
    \1\ Pub. L. No. 106-102, 113 Stat. 1338 (1999).
---------------------------------------------------------------------------
    We believe that creation of NARAB is the best means through which 
we can achieve comprehensive producer licensing reform. NARAB II 
creates a national ``passport'' for such licensure. Insurance producers 
licensed in their home States can obtain nonresident licenses for any 
and all other States through the NARAB licensing clearinghouse. It is 
optional for agents--so an agent can choose to go through NARAB or 
directly through the States. Moreover, NARAB would not replace or 
displace State insurance regulation. Indeed, the legislation takes 
great pains to ensure that there is no question regarding State 
authority, and clarifies the State's continuing role in the licensure 
process through the notice period and regulator participation in NARAB, 
as well as incorporation of the highest State standards in NARAB's 
licensing requirements.
    In my testimony today, I will provide you with an overview of the 
difficulties faced by Council members in their daily efforts to comply 
with the current State licensing requirements, as well as a brief 
discussion of the proposed legislation. First, however, I would like to 
thank the State insurance regulators, including Commissioner Lindeen, 
Montana's Insurance Commissioner and the NAIC's Vice President, for all 
their work on this issue: changing laws and licensing practices in 
their States; working together at the NAIC to address the issue through 
models, standards, FAQs and the bully pulpit; and working with all the 
stakeholders in developing this important proposal. The regulators are 
to be commended for working in good faith to develop a NARAB proposal 
that will work for everyone--consumers, insurance producers, and 
regulators. Regulatory reform is a difficult process, and the 
regulators have been the brunt of a good deal of griping along the way, 
but we really do appreciate their hard work, diligence, and patience, 
and look forward to continuing to work with them as the process 
continues.

State Insurance Agent and Broker Licensing Today
    GLBA's NARAB provisions required that a majority of the 56 U.S. 
insurance regulatory jurisdictions \2\ enact either uniform agent and 
broker licensure laws or reciprocal laws permitting an agent or broker 
licensed in one State to be licensed in all other reciprocal 
jurisdictions simply by demonstrating proof of licensure and submitting 
the requisite licensing fee.
---------------------------------------------------------------------------
    \2\ The 56 jurisdictions are the 50 States, the District of 
Columbia, Guam, the Northern Mariana Islands, Puerto Rico, Samoa and 
the Virgin Islands.
---------------------------------------------------------------------------
    After enactment of GLBA, the State insurance regulators, through 
the NAIC, chose to pursue enactment of reciprocal licensing 
requirements, and pledged to ultimately exceed reciprocity by 
establishing uniform producer licensing requirements in all the States. 
The regulators amended the NAIC's Producer Licensing Model Act (PLMA) 
to meet the NARAB reciprocity provisions, and most of the States 
followed by enacting some sort of licensing reforms. In 2002, the NAIC 
officially certified that a majority of the 56 U.S. insurance 
regulatory jurisdictions met the NARAB reciprocity requirements, 
thereby averting creation of NARAB.\3\ In 2010, the NAIC recently 
undertook a recertification review and determined that 40 jurisdictions 
(39 States and the District of Columbia) are currently reciprocal for 
producer licensing purposes.\4\ Seven States that had previously been 
certified as reciprocal are no longer so.
---------------------------------------------------------------------------
    \3\ NAIC NARAB (EX) Working Group Report: Certification of States 
for Producer Licensing Reciprocity Adopted Aug. 8, 2002; NAIC 
Certification of States for Producer Licensing Reciprocity, Sept. 10, 
2002.
    \4\ NAIC NARAB (EX) Working Group, First Supplement to the ``Report 
of the NARAB Working Group: Recommendations of States Continuing to 
Meet Reciprocity Requirements of the Gramm-Leach-Bliley Act,'' Sept. 
2011, available at http://www.naic.org/committees_ex_pltf_
narabwg.htm.
---------------------------------------------------------------------------
    Even among the States deemed reciprocal, however, administrative 
inefficiencies and inconsistencies remain that affect every insurer, 
every producer and every insurance consumer. In a study scheduled to be 
released this spring, the Foundation for Agency Management Excellence 
(FAME)\5\ has compiled extensive data on State licensing laws and 
regulations, as well as implementation of those laws and rules. Despite 
similar requirements in many of the States, the research shows that 
differences and inconsistencies abound--whether its business entity 
lines of authority (required in approximately 30 States, but not 
required in the rest); pre-licensing education requirements (some 
States require no pre-licensing education, the rest require between 20 
and 200 hours of education); producer appointments (some States require 
individuals to be appointed with carriers, some require agencies to be 
appointed, some require both, some require renewals, some are 
perpetual, etc.); and numerous other requirements. While these may seem 
like small issues, they can easily turn into large problem for entities 
with insurance producers licensed as residents in multiple 
jurisdictions: they must constantly renew licenses throughout the year, 
based upon the individual requirements in each State.
---------------------------------------------------------------------------
    \5\ FAME is a 501(c)(3) charitable and educational organization 
administered by The Council of Insurance Agents & Brokers and is 
located in Washington D.C.
---------------------------------------------------------------------------
    Reciprocity has helped smooth over some of these differences, but 
unless there is real uniformity in administrative procedures as well as 
statutory requirements, brokers--and insurance consumers--will continue 
to suffer from unnecessary costs.
    Almost all of the member firms of our association, like our own, 
continue to hold hundreds of resident and nonresident licenses across 
the country. For some, the number of licenses has actually increased 
since enactment of GLBA. One Council member, for instance, has 
approximately 5,000 licensed individuals, 3,100 of whom are licensed in 
multiple jurisdictions, who hold 76,100 licenses across the country. 
Another member has approximately 1,400 individuals holding 12,000 
licenses nationwide. In addition to initial licenses, Council members 
face annual renewals in 51-plus jurisdictions, and must satisfy all the 
underlying requirements, such as pre-licensing and continuing 
education, as well as post-licensure oversight. This redundancy costs 
Council members anywhere from tens of thousands to many millions of 
dollars annually to administer.
    In addition to the lack of full reciprocity, the standards by which 
the States measure compliance with licensing requirements differ from 
State to State, as well. These include substantive requirements--pre-
licensing education, continuing education and criminal background 
checks, for example--as well as the administrative procedures to comply 
with these requirements. In addition to the day-to-day difficulties the 
current set-up imposes, the lack of uniform application of law among 
the States inhibits efforts to reach full reciprocity. Some States may 
be disinclined to license as a nonresident a producer whose home State 
has ``inferior'' licensing standards, even a State with similar or 
identical statutory language. In fact, several States that have failed 
to adopt compliant licensure reciprocity regimes (notably California 
and Florida) claim their refusal is based on this absence of uniform 
standards--thus implying that the standards of other States do not 
measure up.
    The NAIC has attempted to move the States toward uniformity, and we 
are especially grateful for the herculean efforts that many State 
regulators have made toward this goal. Following on the PLMA, the NAIC 
adopted uniform licensing standards (ULS), which include 42 separate 
standards purporting to establish uniform approaches to licensing 
issues ranging from an applicant's age, to education requirements, to 
examinations, to applications. The NAIC has spent most of the last 
decade encouraging the States to adopt the ULS, and in 2008 performed 
as assessment of every State's compliance with the standards. A report 
was issued, and a follow-up was done in 2009.\6\ The 2008 report and 
2009 follow-up found a significant lack of uniformity across the 
States, particularly on licensure requirements such as fingerprinting/
background checks, where divergent State approaches are extremely 
burdensome on producers.\7\
---------------------------------------------------------------------------
    \6\ NAIC Producer Licensing (EX) Working Group, Producer Licensing 
Assessment Aggregate Report of Findings, Feb. 19, 2008; NAIC Producer 
Licensing (EX) Working Group, Producer Licensing Assessment Progress 
Report, Mar. 16, 2009.
    \7\ NAIC Producer Licensing (EX) Working Group, Producer Licensing 
Assessment Aggregate Report of Findings, Feb. 19, 2008, p. 14.
---------------------------------------------------------------------------
    Even if there were broad State compliance with the ULS, however, 
producer licensing requirements would be far short of uniformity for 
the simple reason that a significant number of the ``uniform 
standards'' do not create a single requirement for the States to meet, 
rather they serve more as suggestions or a menu of options to guide 
State action.
    Of the 42 standards, there are roughly 17 that do not require the 
States to meet a uniform requirement. Some of the 17 are clearer than 
others in their lack of standard-setting (Standard 12, for example, 
provides that the standard for failure of examination and re-testing is 
to be ``determined by each State''), but all give the States 
flexibility that is unwarranted if the goal is to have the same 
requirements in every State.
    These numbers--and, more critically, the regulatory and 
administrative burdens they represent--vividly demonstrate that, 
despite the improvements that resulted from the enactment of NARAB, 
comprehensive reciprocity and uniformity in producer licensing laws 
remains elusive, and it does not appear the NAIC and the States are 
capable of fully satisfying those goals. That is not a slight on the 
regulators--it is almost an impossible task getting regulators, 
legislators, and other stakeholders from 56 different jurisdictions to 
agree to a single set of licensing requirements and procedures--but it 
is the reason we need a national licensing framework.

NARAB II
    The inability of the States to fully implement licensing 
reciprocity and to make real progress toward uniform laws and 
regulations has been demonstrated repeatedly in the dozen years since 
GLBA's enactment. The Federal law put pressure on the States and 
resulted in real improvements in licensing processes, but the 
resistance to comprehensive change has stymied attempts to achieve 
comprehensive reform. As a result, brokers continue to face differing 
licensing obligations across the States, imposing administrative and 
financial burdens that affect not only brokers, but consumers as well. 
This is why The Council--as well as all other major stakeholders, 
including the State insurance regulators represented through the NAIC, 
support enactment of S. 534, the NARAB II legislation.
    NARAB would be a self-regulatory national licensing authority 
operated by a Presidentially appointed Board of Directors. A majority 
of the Board would be State insurance regulators, with the remainder 
representing the various segments of the insurance industry.
    NARAB membership would be voluntary. Insurance producers--agents, 
brokers, and agencies--who opt to become members of NARAB would have to 
obtain resident licenses from their home States before applying for 
NARAB membership. Once licensed in their home States, producers 
operating in multiple jurisdictions could apply for NARAB membership 
and one-stop nonresident licensing. To qualify for membership, a 
producer would be required to comply with NARAB's membership criteria. 
The NARAB Board would establish the membership criteria, which would 
include standards for personal qualifications, education, training and 
experience. In addition, NARAB member applicants would be required to 
undergo a national criminal background check if their resident State 
does not require one. Nonresident States would be prohibited from 
imposing any requirement upon a member of NARAB that is different from 
the criteria imposed by NARAB.
    Applicants would have to pay the fees mandated by each State to 
receive licenses. Moreover, NARAB would levy and collect assessments 
from members to cover administrative expenses. The licenses would be 
obtained from, and the fees would be paid to, NARAB, which would ensure 
that appropriate licensure applications are filed with, and the 
requisite fees paid to, each State from which NARAB members seek a 
license. In other words, NARAB would function as a clearinghouse to 
more efficiently process multi-State license applications.
    NARAB membership would be renewed annually, and NARAB would have 
the authority to bring disciplinary actions to deny, suspend, revoke or 
decline renewal of membership. The membership criteria for any NARAB 
member must meet and exceed the highest professional requirements that 
currently exist among States. Thus, as a practical matter, to be 
eligible for NARAB membership a producer would have to effectively 
satisfy the substantive licensing requirements for all the States.
    NARAB would thus be given the authority, among other things, to:

    Create a clearinghouse for processing insurance producer 
        licenses which would avoid duplication of paperwork and effort 
        State-by-State;

    Issue uniform insurance producer applications and renewal 
        applications to apply for the issuance or renewal of State 
        licenses;

    Develop uniform continuing education standards and/or 
        establish a reciprocity process for continuing education 
        credits;

    Create a national licensing exam process; and

    Utilize a national database for the collection of 
        regulatory information concerning the activities of insurance 
        producers.

    Finally, the legislation does not seek to replace or displace State 
insurance regulation. Indeed, the bill very clearly retains State 
regulatory authority over insurance producers. Although NARAB would 
have an important role in the licensing of nonresident insurance 
producers, the bill clarifies the State regulators' continuing role in 
the licensure process through the notice period and regulator 
participation on the NARAB Board and in standard setting. Moreover, 
State regulators would continue to supervise and discipline producers, 
and would continue to enforce State consumer protection laws.

Conclusion
    The licensing of insurance agents and brokers across the country is 
unnecessarily burdensome, inefficient and costly. The States have 
worked for years to devise a system to overcome the obstacles created 
by 56 different jurisdictions seeking to do it their own ways, but for 
understandable reasons, the political dynamic in those jurisdictions 
has precluded uniformity. The NARAB provisions of the Gramm-Leach-
Bliley Act, enacted in 1999, were the first step in the process toward 
creating a sensible, streamlined system. Meanwhile, the pace of 
interstate activity in the insurance marketplace has outstripped the 
pace of reform efforts in individual States. The NAIC leadership is to 
be commended for embracing the administrative simplicity that would be 
achieved through the enactment of S. 534. We strongly believe that this 
legislation is needed to finally create a State insurance producer 
licensing system that works for today's agents and brokers--and today's 
marketplace.
    Thank you for your consideration of our views, and for your 
willingness to devote your legislative attention to this issue.
                                 ______
                                 
                   PREPARED STATEMENT OF BAIRD WEBEL
   Specialist in Financial Economics, Congressional Research Service
                             March 19, 2013

    Mr. Chairman, Ranking Member Johanns, Members of the Subcommittee:

    Thank you for the opportunity to testify before the Subcommittee. 
My name is Baird Webel. I am a Specialist in Financial Economics at the 
Congressional Research Service. This statement responds to your request 
for testimony addressing the general topic of today's hearing and 
particularly legislation before the Subcommittee. My written testimony 
begins with a discussion of some general approaches that Congress has 
taken in addressing insurance regulation in the past and this is 
followed with a section addressing insurance producer licensing, past 
proposals for a National Association of Registered Agents and Brokers, 
and S. 534, the National Association of Registered Agents and Brokers 
Reform Act of 2013. The testimony concludes with an appendix providing 
general background on insurance regulation drawn from forthcoming and 
past CRS reports.
    CRS's role is to provide objective, nonpartisan research and 
analysis to Congress. CRS takes no position on the desirability of any 
specific policy. Any arguments presented in my written and oral 
testimony are for the purposes of informing Congress, not to advocate 
for a particular policy outcome.

Insurance Regulation and Federal Legislation
    The individual States have been the primary regulators of insurance 
in this country for the past 150 years. The 1945 McCarran-Ferguson Act 
specifically authorized the States' role and Congress has recognized 
State primacy in insurance regulation in more recent laws shaping the 
financial regulatory system, such as the Gramm-Leach-Bliley Act (GLBA), 
also known as the Financial Services Modernization Act of 1999 (P. L. 
106-102), and the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (the Dodd-Frank Act; P.L. 111-203). Although Congress may have 
generally reaffirmed the State-based system in such laws, the operation 
of the system has continued to be of interest to Congress, as 
evidenced, for example, by this hearing today.
    Legislative proposals to change various aspects of the insurance 
regulatory system have been introduced periodically over the years 
since 1945. These proposals have ranged from relatively minor 
adjustments to completely rethinking the role of the Federal Government 
in the system. The approaches considered by Congress in the past have 
included:

Creation of a Broad and Optional Federal Regulatory System for 
        Insurance
    Examples of this include several different bills calling for an 
optional Federal charter for insurers akin to the current dual banking 
regulatory system, in which a bank may receive a charter from either an 
individual State or a Federal regulator. The most recent such 
legislation to be introduced was H.R. 1880 in the 111th Congress, which 
was referred to the House Committee on Financial Services.

Creation of a Federal Regulatory System for Particular Types of 
        Insurance
    In the discussion over the past decade about the possibility of 
increased Federal involvement in insurance issues, arguments are 
sometimes made regarding the differing local characteristics of 
insurance, which is particularly applicable to property/casualty 
insurance. Some have thus suggested that, rather than a full-scale 
Federal charter for insurance, it would be more appropriate to have 
Federal regulation for lines of insurance that face largely the same 
characteristics across the country. During House committee 
consideration of legislation (H.R. 2609, 111th Congress) incorporated 
into the Dodd-Frank Act, amendments were offered to create a Federal 
charter for reinsurers and to create a Federal charter for bond 
insurers. These amendments were withdrawn before being voted upon in 
committee. The reinsurer amendment was also offered as a stand-alone 
bill (H.R. 6529, 111th Congress), which was referred to the House 
Committee on Financial Services.

Expansion of Other Federal Regulatory Powers to Include Insurance
    Federal oversight on insurance could be implemented from entities 
that are not set up specifically to address insurance. For example, 
legislation (H.R. 3126, 111th Congress) incorporated into the Dodd-
Frank Act initially would have authorized the Consumer Financial 
Protection Bureau to oversee title, credit, and mortgage insurance, 
although the final bill did not do so. The Federal Reserve, following 
the Dodd-Frank Act, regulates holding companies that have banking 
subsidiaries, including many whose primary business is insurance, as 
well any companies designated by the Financial Stability Oversight 
Council (FSOC) as systemically important, which could include insurance 
companies.

Federal Preemption of Multiple State Regulatory Authority in Favor of a 
        Single State
    Congress took this approach in the Liability Risk Retention Act 
(LRRA; 15 U.S.C.  3901 et seq), which was enacted in 1981 and amended 
in 1986. The LRRA allows a limited range of State-chartered insurance 
companies to operate throughout the country without licenses from the 
individual States. Other examples include the Nonadmitted and 
Reinsurance Reform Act (NRRA), which was enacted as part of the Dodd-
Frank Act. The NRRA provides that the home State of the insurance 
consumer would have primary tax and regulatory authority over surplus 
lines insurance.

Broad Federal Standard Setting to be Carried Out by Other Entities
    The National Association of Registered Agents and Brokers (NARAB) 
provisions of the Gramm-Leach-Bliley Act, which would be further 
amended by S. 534 under discussion today, are a primary example of this 
sort of approach. Congress sets the broad goals of uniformity and 
reciprocity in insurance producer licensing but creates a private body 
with the authority to fill in the details and manage the process. 
Another example would be a provision of the NRRA, which preempts State 
laws on eligibility of surplus lines insurers if they conflict with 
National Association of Insurance Commissioner (NAIC) model laws.

Insurance Producer Licensing and NARAB
    Licensing of insurance agents and brokers (known generally as 
``producers'') has long been an integral part of the insurance 
regulatory system. Individual States typically require that insurance 
producers operating within their borders obtain a license from that 
State, and different licenses are also often required for different 
lines of insurance. Such licensure provides a mechanism for insurance 
regulators to enforce standards of conduct, particularly with regard to 
consumer protections, as well as providing a revenue source to help 
defray the cost of the insurance regulatory system. Aspects of 
insurance producer licensing include specific education or knowledge 
requirements, such as continuing education, and, in some States, 
criminal background checks. The NAIC has adopted model laws regarding 
licensure and a model insurance producer license form, but individual 
States are free to modify NAIC models, or not adopt them at all, 
resulting in variability in licensing requirements across the country. 
Insurance producers who operate in multiple States have long sought 
increased uniformity and reciprocity across States to reduce their 
costs resulting from the multiplicity of license requirements.
    In addition to the costs that might result from the specific 
aspects of the insurance licensing system, any professional licensing 
regime acts as a barrier to entry for those who might be interested in 
providing services that require a license. Economic theory suggests 
that such barriers increase consumer costs to some degree and have the 
potential to be used as a protectionist measure to prevent competition, 
allowing license-holders to extract economic rents from consumers. 
Whether or not the public benefits resulting from licensure outweigh 
the costs is a decision to be evaluated on a case-by-case basis by 
public policymakers. Some form of licensure for those in the financial 
services industry has been generally accepted and is required in 
Federal law for people involved in securities transactions with the 
public, for example.

GLBA and NARAB I
    Provisions in the Gramm-Leach-Bliley Act sought to address 
insurance producer complaints about the variation in State licensing 
requirements through a sort of provisional Federal preemption of State 
laws. The law called for the creation of a private, nonprofit licensing 
body, the National Association of Registered Agents and Brokers, whose 
insurance producer members would have been authorized to operate across 
State lines without individual licenses from every State. While backed 
by Federal authority, the NARAB to be created by the provisions in GLBA 
(hereafter referred to as ``NARAB I'') would have been entwined in the 
system of State regulation. Membership in NARAB I would have been open 
only to people already holding a State insurance producer license and 
the NAIC would have appointed the members of the NARAB I board and had 
other oversight authorities.
    The NARAB I language in GLBA also offered the States the 
opportunity to avoid creation of the NARAB I organization if a majority 
of the States created among themselves systems of either uniformity or 
reciprocity in insurance producer licensing within a 3-year window 
after passage of GLBA. The NAIC was given the authority to determine 
whether the States met the GLBA standard with the possibility of 
Federal judicial review of this determination. The individual States 
and the NAIC reacted relatively quickly to this opportunity with the 
promulgation of an NAIC model law that would provide for reciprocity 
and the adoption of laws providing for reciprocity in sufficient number 
of States that the NAIC determined the GLBA standards were met; as a 
result, the NARAB I organization was not created.
    The GLBA statutory requirements for reciprocity may have been 
satisfied by 2002, but insurance producers continued to identify 
inefficiencies and costs of the State licensing system in the years 
following. In 2008, testimony before a House subcommittee, for example, 
an insurance agent representative indicated that States continued to 
``impose additional conditions and requirements''\1\ on nonresident 
agents despite the reciprocity called for in law. In 2009, the 
Government Accountability Office (GAO) cited issues regarding 
fingerprinting and background checks as particular barriers to 
uniformity or reciprocity in producer licensing and as potentially 
posing a problem for insurance consumer protection. GAO also found 
differences in licensing requirements and insurance line definitions as 
potentially creating inefficiencies that ``could result in higher costs 
for insurers, which in turn could be passed on to consumer[s].''\2\ In 
addition to concerns about the substance of the reciprocity in place, 
reciprocity laws have not been adopted by every State. The NAIC 
certified 47 States as reciprocal, but the three States not certified 
were California, Florida, and Washington, which together have nearly 20 
percent of the Nation's population.
---------------------------------------------------------------------------
    \1\ Statement of Tom Minkler on behalf of the Independent Insurance 
Agents & Brokers of America, Subcommittee on Capital Markets, 
Government-Sponsored Enterprises, and Insurance, Committee on Financial 
Services, U.S. House of Representatives, April 16, 2008, p. 6, 
available at http://archives.financialservices.house.gov/hearing110/
minkler041608.pdf.
    \2\ U.S. Government Accountability Office, Insurance Reciprocity 
and Uniformity, GAO-09-372, April 6, 2009, p. 21, http://www.gao.gov/
products/GAO-09-372.
---------------------------------------------------------------------------
    Concerns about the effect, or lack of effect, of the NARAB I 
provisions have prompted some Members of Congress to seek a further 
legislative solution.

NARAB II Legislation
    Legislation to mandate the creation of a NARAB organization 
(hereafter referred to as NARAB II) was first introduced into the House 
of Representatives in the 110th Congress (H.R. 5611), with similar 
legislation in the 111th Congress (H.R. 2554). The House passed these 
bills in both Congresses by voice vote, but the legislation was 
referred to committee when received by the Senate. NARAB II legislation 
was introduced in the 112th Congress (H.R. 1112) and the 113th Congress 
(H.R. 1155). Unlike the previous Congresses, the House did not bring 
H.R. 1112 to the floor in the 112th Congress. H.R. 1155 has been 
referred to committee in this Congress. Senate legislation to create 
NARAB II was first introduced in the 112th Congress (S. 2342), with the 
bill reintroduced in this Congress as S. 534.
    Although specific legislative provisions, such as the precise 
makeup of the NARAB organization's board, have changed in the various 
iterations of NARAB II legislation, the bills have retained the same 
essential purpose. The bills would amend the NARAB sections from GLBA 
to remove the conditionality and instead create a NARAB organization 
regardless of State actions on reciprocity and uniformity. The NARAB II 
legislation would create an organization very similar to that 
originally envisioned in GLBA. It would be a nonprofit, private body, 
whose members would be required to be State-licensed insurance 
producers, but who would also be able to operate across States without 
having licenses from the individual States.
    Among the differences between the NARAB II proposed in S. 534 and 
the original NARAB I are----

    Appointment of the Board:

    NARAB I was to have a seven-member board appointed by the NAIC.\3\ 
S. 534 specifies a 13-member board appointed by the President and 
confirmed by the Senate. Eight of the 13 are to be State insurance 
commissioners, with the remainder being representative of the insurance 
industry.
---------------------------------------------------------------------------
    \3\ The NAIC could lose this appointment authority if (1) States 
representing 50 percent of the total commercial lines insurance 
premiums did not satisfy uniformity or reciprocity requirements and (2) 
the NAIC had not approved the bylaws or was unable to supervise the 
organization.

---------------------------------------------------------------------------
    Oversight by the NAIC:

    In addition to the board appointments, NARAB I provided several 
other methods of NAIC oversight, including NAIC approval of NARAB bylaw 
changes and rules, and NAIC review of disciplinary actions.\4\ S. 354 
gives much less direct authority to the NAIC. For example, NARAB II 
would file changes to bylaws with the NAIC, but the NAIC would not have 
the authority to disapprove the changes.
---------------------------------------------------------------------------
    \4\ The NAIC could lose its oversight authority under the same 
conditions as the possible loss of its board appointment authority.

---------------------------------------------------------------------------
    Criminal Background Checks:

    S. 354 requires a Federal criminal background check prior to 
membership in NARAB II and provides for the performance of these checks 
by the U.S. Attorney General, including the authority of the Attorney 
General to charge fees to defray the costs incurred. There were no 
similar provisions on background checks in GLBA for NARAB I.

Appendix.  Background on Insurance and Insurance Regulation
    Insurance companies constitute a major segment of the U.S. 
financial services industry. The industry is often separated into two 
parts: life and health insurance companies, which also often offer 
annuity products, and property and casualty insurance companies, which 
include most other lines of insurance, such as homeowners insurance, 
automobile insurance, and various commercial lines of insurance 
purchased by businesses. Premiums for life/health companies in 2011 
totaled $581.4 billion and premiums for property/casualty insurance 
companies totaled $436.0 billion.\5\ Assets held by the insurance 
industry totaled approximately $7.5 trillion according to the National 
Association of Insurance Commissioners (NAIC).
---------------------------------------------------------------------------
    \5\ Premium amounts used are net premiums written from AM Best, 
2012 Statistical Study: U.S. Property/Casualty--2011 Financial Results, 
March 26, 2012, and AM Best, 2012 Statistical Study: U.S. Life/Health--
2011 Financial Results, March 28, 2012.
---------------------------------------------------------------------------
    Different lines of insurance present very different characteristics 
and risks. Life insurance typically is a longer-term proposition with 
contracts stretching into decades and insurance risks that are 
relatively well defined in actuarial tables. Property/casualty 
insurance typically is a shorter-term proposition with 6-month or 1-
year contracts and greater exposure to catastrophic risks. Health 
insurance has evolved in a very different direction, with many 
insurance companies heavily involved with healthcare delivery, 
including negotiating contracts with physicians and hospitals and a 
regulatory system much more influenced by the Federal Government 
through Medicare, Medicaid, the Employee Retirement Income Security Act 
of 1974 (ERISA),\6\ and the Patient Protection and Affordable Care Act 
(ACA).\7\ This testimony will concentrate primarily on nonhealth 
insurance.
---------------------------------------------------------------------------
    \6\ P.L. 93-406, 88 Stat. 829.
    \7\ P.L. 111-148, 124 Stat. 119.
---------------------------------------------------------------------------
    Insurance companies, unlike banks and securities firms, have been 
chartered and regulated solely by the States for the past 150 years. 
One important reason for this is an 1868 U.S. Supreme Court 
decision.\8\ In Paul v. Virginia, the Court held that the issuance of 
an insurance policy was not a transaction occurring in interstate 
commerce and thus not subject to regulation by the Federal Government 
under the Commerce Clause of the U.S. Constitution. Courts followed 
that precedent for the next 75 years. In a 1944 decision, U.S. v. 
South-Eastern Underwriters Association, the Court found that the 
Federal antitrust laws were applicable to an insurance association's 
interstate activities in restraint of trade.\9\ Although the 1944 Court 
did not specifically overrule its prior holding in Paul, South-Eastern 
Underwriters created significant apprehension about the continued 
viability of State insurance regulation and taxation of insurance 
premiums. By 1944, the State insurance regulatory structure was well 
established, and a joint effort by State regulators and insurance 
industry leaders to legislatively overturn the South-Eastern 
Underwriters decision led to the passage of the McCarran-Ferguson Act 
of 1945.\10\ The Act's primary purpose was to preserve the States' 
authority to regulate and tax insurance.\11\ The Act also granted a 
Federal antitrust exemption to the insurance industry for ``the 
business of insurance.''\12\
---------------------------------------------------------------------------
    \8\ Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1868).
    \9\ U.S. v. South-Eastern Underwriters Association, 322 U.S. 533 
(1944).
    \10\ 15 U.S.C.  1011 et seq.
    \11\ Richard Cordero, Exemption or Immunity from Federal Antitrust 
Liability Under McCarran-Ferguson (15 U.S.C. 1011-1013) and State 
Action and Noer-Pennington Doctrines for Business of Insurance and 
Persons Engaged in It, 116 ALR Fed 163, 194 (1993).
    \12\ 15 U.S.C.  1012(b). The Supreme Court has made clear that the 
business of insurance does not include all business of insurers in 
Group Health and Life Insurance, Co. v. Royal Drug, Co., 440 U.S. 205, 
279 (1979). For further explanation of this distinction, see the CRS 
Report RL33683, Courts Narrow McCarran-Ferguson Antitrust Exemption for 
``Business of Insurance'': Viability of ``State Action'' Doctrine as an 
Alternative, by Janice E. Rubin.
---------------------------------------------------------------------------
    After 1945, the jurisdictional stewardship entrusted to the States 
under McCarran-Ferguson was reviewed by Congress on various occasions. 
Some narrow exceptions to the 50-State structure of insurance 
regulation have been enacted, such as one for some types of liability 
insurance in the Liability Risk Retention Act (LRRA) created by 
Congress in 1981 and amended in 1986.\13\ In general, however, when 
proposals were made in the past \14\ to transfer insurance regulatory 
authority to the Federal Government, they were successfully opposed by 
the States as well as by a united insurance industry. Such proposals 
for increased Federal involvement usually spurred a series of 
regulatory reform efforts at the individual State level and by State 
groups, such as the NAIC and the National Conference of Insurance 
Legislators (NCOIL). Such efforts were directed at correcting perceived 
deficiencies in State regulation and forestalling Federal involvement. 
They were generally accompanied by pledges from State regulators to 
work for more uniformity and efficiency in the State regulatory 
process.
---------------------------------------------------------------------------
    \13\ 15 U.S.C.  3901 et seq. See CRS Report RL32176, The Liability 
Risk Retention Act: Background, Issues, and Current Legislation, by 
Baird Webel.
    \14\ Most such proposals prior to the 1990s focused on relatively 
narrow amendments to McCarran-Ferguson rather than large-scale 
replacement of the State regulatory system.
---------------------------------------------------------------------------
    A major effort to transfer insurance regulatory authority to the 
Federal Government began in the mid-1980s and was spurred by the 
insolvencies of several large insurance companies. Former House Energy 
and Commerce Committee Chairman John Dingell, whose committee had 
jurisdiction over insurance at the time, questioned whether State 
regulation was up to the task of overseeing such a large and 
diversified industry. He chaired several hearings on the State 
regulatory structure and also proposed legislation that would have 
created a Federal insurance regulatory agency modeled on the Securities 
and Exchange Commission (SEC). State insurance regulators and the 
insurance industry opposed this approach and worked together to 
implement a series of reforms at the State level and at the NAIC. Among 
the reforms implemented was a new State accreditation program setting 
baseline standards for State solvency regulation. Under the 
accreditation standards, to obtain and retain its accreditation, each 
State must have adequate statutory and administrative authority to 
regulate an insurer's corporate and financial affairs and the necessary 
resources to carry out that authority. In spite of these changes, 
however, another breach in the State regulatory system occurred in the 
late 1990s. Martin Frankel, an individual who had previously been 
barred from securities dealing by the SEC, slipped through the 
oversight of several States' insurance regulators and diverted more 
than $200 million in premiums and assets from a number of small life 
insurance companies into overseas accounts.\15\
---------------------------------------------------------------------------
    \15\ See, for example, ``17-Year Sentence Affirmed for Investor Who 
Looted Insurers,'' New York Times, March 24, 2006, available at http://
www.nytimes.com/2006/03/24frankel.html?ref=
martinfrankel.
---------------------------------------------------------------------------
    Another State reform largely implemented in the late 1980s and 
early 1990s was the introduction of State insurance guaranty funds.\16\ 
These funds, somewhat analogous in function to the Federal Deposit 
Insurance Corporation (FDIC) for banks, provide protection for 
insurance consumers who hold policies from failed insurance companies. 
If an insurance company is judged by a State insurance regulator to be 
insolvent and unable to fulfill its commitments, the State steps in to 
rehabilitate or liquidate the insurer's assets. The guaranty fund then 
uses the assets to pay the claims on the company, typically up to a 
limit of $300,000 for property/casualty insurance \17\ and $300,000 for 
life insurance death benefits and $100,000 for life insurance cash 
value and annuities.\18\ In most States, the existing insurers in the 
State are assessed to make up the difference should the company's 
assets be unable to fund the guaranty fund payments. This after the 
fact assessment stands in contrast to the FDIC, which is funded by 
assessments on banks prior to a bank failure and which holds those 
assessments in a segregated fund until needed. Insurers who are 
assessed by guaranty funds generally are permitted to write off the 
assessments on future State taxes, which indirectly provide State 
support for the guaranty funds.
---------------------------------------------------------------------------
    \16\ For more information, see CRS Report RL32175, Insurance 
Guaranty Funds, by Baird Webel.
    \17\ National Conference of Insurance Guaranty Funds, ``Facts and 
Statistics,'' available at http://www.ncigf.org/media-facts.
    \18\ National Organization of Life & Health Insurance Guaranty 
Associations, ``Frequently Asked Questions,'' available at http://
www.nolhga.com/policyholderinfo/main.cfm/location/questions.
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The Gramm-Leach-Bliley Act
    The 1999 Gramm-Leach-Bliley Act (GLBA)\19\ significantly overhauled 
the general financial regulatory system in the United States. Support 
for GLBA came largely as a result of market developments frequently 
referred to as ``convergence.'' Convergence in the financial services 
context refers to the breakdown of distinctions separating different 
types of financial products and services, as well as the providers of 
once separate products. Drivers of such convergence include 
globalization, new technology, e-commerce, deregulation, market 
liberalization, increased competition, tighter profit margins, and the 
growing number of financially sophisticated consumers.
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    \19\ P.L. 106-102, 113 Stat. 1338.
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    GLBA intended to repeal Federal laws that were inconsistent with 
the way that financial services products were actually being delivered, 
and it removed many barriers that kept banks or securities firms from 
competing with, or affiliating with, insurance companies. The result 
was the creation of a new competitive paradigm in which insurance 
companies found themselves in direct competition with brokerages, 
mutual funds, and commercial banks. GLBA did not, however, change the 
basic regulatory structure for insurance or other financial products. 
Instead, it reaffirmed the McCarran-Ferguson Act, recognizing State 
insurance regulators as the ``functional'' regulators of insurance 
products and those who sell them.\20\
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    \20\ Functional regulation would entail, for example, insurance 
regulators overseeing insurance products being offered by banks, while 
banking regulators would oversee banking products offered by insurers. 
Institutional regulation tends to focus more on the charter of the 
institution so, for example, banking regulators oversee all the 
activities of a bank even if the bank is offering insurance products.
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    Some insurance companies believe that in the post-GLBA environment, 
State regulation places them at a competitive disadvantage in the 
marketplace. They maintain that their noninsurer competitors in certain 
lines of products have federally based systems of regulation that are 
more efficient, while insurers remain subject to perceived 
inefficiencies of State insurance regulation, such as the regulation of 
rates and forms as well as other delays in getting their products to 
market. For example, life insurers with products aimed at retirement 
and asset accumulation must now compete with similar bank products. 
Banks can roll out such new products nationwide in a matter of weeks, 
while some insurers maintain that it can take as long as 2 years to 
obtain all of the necessary State approvals for a similar national 
insurance product launch. In the aftermath of GLBA, the largely united 
industry resistance to Federal intervention in insurance changed. Many 
industry participants, particularly life insurers, larger property/
casualty insurers, and larger insurance brokers, began supporting broad 
regulatory change for insurance in the form of an optional Federal 
charter for insurance patterned after the dual chartering system for 
banks.\21\
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    \21\ Banking charters are available from both the individual States 
and the Federal Government. For more information on optional Federal 
charter legislation, see CRS Report RL34286, Insurance Regulation: 
Federal Charter Legislation, by Baird Webel.
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    GLBA also addressed the issue of modernizing State laws dealing 
with the licensing of insurance agents and brokers and made provision 
for a federally backed licensing association, the National Association 
of Registered Agents and Brokers (NARAB). NARAB would have come into 
existence 3 years after the date of GLBA's enactment if a majority of 
the States failed to enact the necessary legislation for uniformity or 
reciprocity at the individual State level. The requisite number of 
States enacted this legislation within the 3-year period, and thus the 
NARAB provisions never came into effect. The issue of insurance 
producer licensing reciprocity or uniformity continued, as some saw and 
continue to see problems in the actions taken by the individual States. 
Not every State has passed legislation implementing reciprocity, and 
some have argued that it has not always been implemented as smoothly as 
desired even in those States that did.

Insurance after the Gramm-Leach-Bliley Act
    Congress passed the Gramm-Leach-Bliley Act to enhance competition 
among financial services providers. Though many observers expected 
banks, securities firms, and insurers to converge as institutions after 
it passed, this has not occurred as expected. In fact, the major merger 
between a large bank, Citibank, and a large insurer, Travelers, which 
partially motivated the passage of GLBA, has effectively been undone. 
The corporation that resulted from the merger, Citigroup, has divested 
itself of almost all of its insurance subsidiaries. Although large 
bank-insurer mergers did not occur as expected, significant convergence 
continued. Instead of merging across sectoral lines, banks began 
distributing-but not ``manufacturing''-insurance, and insurers began 
creating products that closely resembled savings or investment 
vehicles. Consolidation also continued within each sector, as banks 
merged with banks and insurers with insurers. In addition, although 
Congress instituted functional regulation in GLBA, regulation since has 
still tended to track institutional lines.\22\
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    \22\ See CRS Report RS21827, Insurance Regulation After the Gramm-
Leach-Bliley Act, by Carolyn Cobb.
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    From the 107th through the 110th Congresses, congressional interest 
in insurance regulatory issues continued. A number of broad proposals 
for some form of Federal chartering or other Federal intervention in 
insurance regulation were put forward in both houses of Congress and by 
the Administration, but none were marked up or reported by the various 
committees of jurisdiction.\23\ In the same timeframe, a number of 
narrower bills affecting different facets of insurance regulation and 
regulatory requirements were also introduced in Congress, including 
bills addressing surplus lines \24\ and reinsurance, insurance producer 
licensing, and expansion of the Liability Risk Retention Act beyond 
liability insurance.
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    \23\ Broad proposals from the 107th to 110th Congresses included 
the National Insurance Act of 2007 (S. 40 and H.R. 3200, 110th 
Congress); the National Insurance Act of 2006 (S. 2509 and H.R. 6225, 
109th Congress); the Insurance Consumer Protection Act of 2003 (S. 
1373, 108th Congress); and the Insurance Industry Modernization and 
Consumer Protection Act (H.R. 3766, 107th Congress), and the 2008 
Blueprint for a Modernized Financial Regulatory Structure released by 
the U.S. Treasury and available at http://www.treasury.gov/press-
center/press-releases/Documents/Blueprint.pdf.
    \24\ Surplus lines insurance is insurance sold by insurance 
companies not licensed in the particular State where it is sold. For 
background on this insurance, see CRS Report RS22506, Surplus Lines 
Insurance: Background and Current Legislation, by Baird Webel.
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Insurance and the Financial Crisis
    As the 110th Congress approached its close, the financial crisis 
that began in 2007 reached panic proportions with the conservatorship 
of Fannie Mae and Freddie Mac, the failure of Lehman Brothers, and the 
government rescue of American International Group (AIG) in September 
2008. This crisis overlaid a range of new issues and arguments to the 
previously existing debate on insurance regulatory reforms. The 
financial crisis grew largely from sectors of the financial industry 
that had previously been perceived as presenting little systemic risk, 
including insurers. Some see the crisis as resulting from failures or 
holes in the financial regulatory structure, particularly a lack of 
oversight for the system as a whole and a lack of coordinated oversight 
for the largest actors in the system. Those holding this perspective 
increased the urgency in calls for overall regulatory changes, such as 
the implementation of increased systemic risk regulation and Federal 
oversight of insurance, particularly larger insurance firms. The 
generally good performance of insurers in the crisis, however, also 
provided additional affirmation to those seeking to retain the State-
based insurance system.
    Although insurers in general are considered to have weathered the 
financial crisis reasonably well, the insurance industry saw two 
notable failures--one general and one specific. The first failure was 
spread across the financial guarantee or monoline bond insurers. Before 
the crisis, there were about a dozen bond insurers in total, with four 
large companies dominating the business. This type of insurance 
originated in the 1970s to cover municipal bonds but the insurers 
expanded their businesses since the 1990s to include significant 
amounts of mortgage-backed securities. In late 2007 and early 2008, 
strains began to appear due to this exposure to mortgage-backed 
securities. Ultimately some bond insurers failed and others saw their 
previously triple-A ratings cut significantly. These downgrades rippled 
throughout the municipal bond markets, causing unexpected difficulties 
for both individual investors and municipalities who might have thought 
they were relatively insulated from problems stemming from rising 
mortgage defaults.
    The second failure in the insurance industry was that of a specific 
company, American International Group.\25\ AIG had been a global giant 
of the industry, but it essentially failed in mid-September 2008. To 
prevent bankruptcy in September and October 2008, AIG sought more than 
$100 billion in assistance from the Federal Reserve, which received 
both interest payments and warrants for 79.9 percent of the equity in 
the company in return. Multiple restructurings of the assistance have 
followed, including nearly $70 billion through the U.S. Treasury's 
Troubled Asset Relief Program (TARP). The rescue ultimately resulted in 
the U.S. Government owning 92 percent of the company. The assistance 
for AIG has ended with all the Federal Reserve assistance repaid and 
the sale by the U.S. Treasury of all of its equity stake in the 
company.
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    \25\ See CRS Report R40438, Federal Government Assistance for 
American International Group (AIG), by Baird Webel.
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    The near collapse of the bond insurers and AIG could be construed 
as regulatory failures. One of the responsibilities of an insurance 
regulator is to make sure the insurer remains solvent and is able to 
pay its claims. Because the States are the primary insurance 
regulators, some may go further and argue that these cases specifically 
demonstrate the need for increased Federal involvement in insurance. 
The case of AIG, however, is a complicated one. Although AIG was 
primarily made up of State-chartered insurance subsidiaries, at the 
holding company level it was a federally regulated thrift-holding 
company with oversight by the Office of Thrift Supervision (OTS). The 
immediate losses that caused AIG's failure came from both derivatives 
operations overseen by OTS and from securities lending operations that 
originated with securities from State-chartered insurance companies.
    The 111th Congress responded to the financial crisis with the Dodd-
Frank Wall Street Reform and Consumer Protection Act,\26\ which enacted 
broad financial regulatory reform. Although the Dodd-Frank Act had a 
number of provisions that directly and indirectly addressed insurance, 
it left the States as the primary functional regulators of insurance. 
The Dodd-Frank Act provisions that most directly addressed insurance 
and are of ongoing concern were (1) creation of a Federal Insurance 
Office (FIO); (2) systemic-risk provisions, such as the creation of a 
Financial Stability Oversight Council (FSOC) with the authority to 
oversee systemically important insurers; and (3) previously introduced 
provisions harmonizing the tax and regulatory treatment of surplus 
lines insurance and reinsurance (the Nonadmitted and Reinsurance Reform 
Act).\27\ Provisions in the law regarding holding company oversight 
could also affect a number of companies who are primarily insurers, but 
who also have banking or thrift subsidiaries and are thus overseen by 
the Federal Reserve following the Dodd-Frank Act.
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    \26\ P.L. 111-203, 124 Stat. 1376. See CRS Report R41350, The Dodd-
Frank Wall Street Reform and Consumer Protection Act: Issues and 
Summary, coordinated by Baird Webel.
    \27\ For more information on the specific insurance provisions in 
the Dodd-Frank Act, see CRS Report R41372, The Dodd-Frank Wall Street 
Reform and Consumer Protection Act: Insurance Provisions, by Baird 
Webel.
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    Attention on insurance regulation in the 112th Congress was largely 
occupied with follow-up to the Dodd-Frank Act. The Dodd-Frank Act left 
many of the specifics up to regulatory rulemaking and this rulemaking 
is still ongoing. Of particular concern was the specific approach that 
the Federal Reserve may take to bank or thrift-holding companies who 
are primarily involved in insurance and the possibility of FSOC 
designating some insurers and systemically important and thus subject 
to additional oversight. Neither issue reached a resolution during the 
112th Congress.

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