[Congressional Record Volume 148, Number 15 (Friday, February 15, 2002)]
[Extensions of Remarks]
[Pages E181-E182]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




      INSURANCE INDUSTRY MODERNIZATION AND CONSUMER PROTECTION ACT

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                      Thursday, February 14, 2002

  Mr. LaFALCE. Mr. Speaker, today I am introducing the Insurance 
Industry Modernization and Consumer Protection Act. This legislation 
will give insurance companies the ability to overcome the cumbersome 
inefficiencies of the current system through an optional Federal 
insurance charter. Companies that choose the optional federal charter 
will be able to bring new, innovative insurance products to our 
national markets much more quickly, giving consumers and businesses 
more choices in insurance products. It will also introduce strong 
federal oversight and consumer protections that should be required for 
an industry of such economic importance.
  Importantly, for the first time in over half a century, the Insurance 
Industry Modernization and Consumer Protection Act will make the 
Federal antitrust laws generally applicable to the business of 
insurance, something I first called for in the 1970s. This will greatly 
enhance the ability of consumers and regulators to ensure a fair and 
evenhanded insurance market.
  The domestic insurance industry, with assets of over $4 trillion held 
by both life and property and casualty insurers, plays a major and 
central role in the U.S. economy. All businesses depend on insurance 
for protection from both known and unknown hazards. Without insurance, 
banks and other lenders would have to bear the risks of the hazards 
that befall their customers. Credit would be both harder to obtain and 
more expensive.
  The events of September 11th underscore the crucial part that 
insurance plays in ensuring U.S. domestic economic security and 
stability. Without an estimated $40 to $70 billion in insurance 
benefits, the businesses and individuals affected by the terrorists 
attacks could not begin to rebuild their financial lives.
  The health of the U.S. insurance market has a significant global 
impact as well. The U.S. represents over one-third of the world 
insurance market. In the year 2000, U.S. consumers and companies paid 
$840 billion of the world's $2.4 trillion in premiums.
  Despite the industry's central role in the national and global 
economy, the business of insurance is regulated solely at the state 
level, with absolutely no federal oversight. Since 1976, I have called 
for giving the Federal government a role in the regulation of the 
insurance industry. The Insurance Industry Modernization and Consumer 
Protection Act will strengthen the competitiveness of the U.S. 
insurance industry and provide the national government a voice in 
regulating an industry that is so vital to our national interests.
  The current state-by-state regulation of the insurance industry does 
not reflect either the economic centrality of the industry or the 
reality of today's market. Many of the domestic insurance companies are 
heavily engaged in interstate commerce, and sell insurance products to 
a global, national or, at the very least, a multistate market. However, 
in the United States, we subject insurance companies to the burden and 
cost of being licensed in every jurisdiction in which they choose to 
sell policies. This checkerboard of inconsistent and inefficient 
regulation impairs strong regulatory oversight and increases the costs 
of doing business. It also has the potential of putting U.S. domestic 
insurance companies at a serious competitive disadvantage in what is an 
increasingly global insurance market. The current system unnecessarily 
increases costs, impedes the efficient delivery of products and 
services and, too often, inadequately protects consumers.
  Over 50 different insurance departments, each with its own peculiar 
laws and procedures, regulate insurance companies that operate on a 
national basis. This current regulatory system adds to the cost of 
operating insurance companies in two ways. First, an insurance company 
is required to invest considerable resources to comply with the laws of 
each of these jurisdictions and to interact with all of these 
regulators. Secondly, the delay in approving insurance products results 
in lost profits. Insurance companies have testified before the 
Financial Services Committee that they can experience delays of up to 
18 months in obtaining the approval of the 50 plus state insurance 
departments. One national life insurance company estimates that it 
loses $50 million per year in lost profits because of these delays.
  Consumers also suffer from the inability of insurers to bring their 
products to market quickly. Regulatory delays often translate into 
consumers'inability to obtain the best price or the most favorable 
product features. A well-designed regulatory scheme will create 
efficiencies and creativity that will benefit both consumers and 
insurance companies.
  The Insurance Industry Modernization and Consumer Protection Act also 
benefits consumers by establishing a strong regulatory scheme to combat 
unfair and deceptive practices. Currently, some states do a very good 
job in protecting consumers. But, unfortunately, other states do not 
have a tradition of vigorous protection of consumers.
  To raise the standards of those states with inadequate consumer 
protections and to prevent a competition in laxity between the Federal 
insurance regulator and the state insurance regulators, my legislation 
will require that all state-regulated insurers meet certain standards 
that the Act applies to federally chartered insurers. The Insurance 
Industry Modernization and Consumer Protection Act currently requires 
all state-regulated insurers to meet the same market conduct standards 
that the Act applies to federally chartered insurers. It is my 
intention to expand these minimum standards to other areas, including 
adequate information disclosure and effective means of redress for

[[Page E182]]

consumers who have been harmed by illegal practices.
  I do not view optional federal chartering as a means to escape 
vigorous state regulation of the insurance industry. The last thing I 
want is to encourage a ``race to the bottom,'' as state and federal 
regulators compete for the participation of insurance companies by 
progressively weakening the quality and effectiveness of their 
oversight. I have indicated to the National Association of Insurance 
Commissioners that this bill should not be used as an excuse to weaken 
existing state consumer protections, or to scuttle attempts to improve 
these protections.
  Establishment of an optional federal charter is intended to provide 
for a strong, efficient, and effective insurance regulatory system. 
Providing for Federal oversight of the insurance industry will lead to 
a healthy regulatory competition that can enhance efficiency, spur 
innovation and expand consumer protection in a way that will benefit 
both the insurance industry and its customers.
  Mr. Speaker, the current, state-based system of insurance regulation 
is inadequate--and it is in the best interests of insurers and their 
consumers that it be augmented. Failure to enhance insurance regulation 
will keep in place a system that could threaten the viability of the 
insurance industry in an increasingly competitive global marketplace. I 
urge my colleagues to join with me in taking this important step toward 
facilitating the modernization of the insurance industry. It is decades 
long overdue.

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