```

[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]

 
IMPROVING INSURANCE FOR CONSUMERS--INCREASING UNIFORMITY AND EFFICIENCY 
                        IN INSURANCE REGULATION

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                    FINANCE AND HAZARDOUS MATERIALS

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 20, 2000

                               __________

                           Serial No. 106-152

                               __________

            Printed for the use of the Committee on Commerce

                    U.S. GOVERNMENT PRINTING OFFICE
65-908CC                    WASHINGTON : 2000

                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

            Subcommittee on Finance and Hazardous Materials

                    MICHAEL G. OXLEY, Ohio, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     EDOLPHUS TOWNS, New York
  Vice Chairman                      PETER DEUTSCH, Florida
PAUL E. GILLMOR, Ohio                BART STUPAK, Michigan
JAMES C. GREENWOOD, Pennsylvania     ELIOT L. ENGEL, New York
CHRISTOPHER COX, California          DIANA DeGETTE, Colorado
STEVE LARGENT, Oklahoma              THOMAS M. BARRETT, Wisconsin
BRIAN P. BILBRAY, California         BILL LUTHER, Minnesota
GREG GANSKE, Iowa                    LOIS CAPPS, California
RICK LAZIO, New York                 EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois               RALPH M. HALL, Texas
HEATHER WILSON, New Mexico           FRANK PALLONE, Jr., New Jersey
JOHN B. SHADEGG, Arizona             BOBBY L. RUSH, Illinois
VITO FOSSELLA, New York              JOHN D. DINGELL, Michigan,
ROY BLUNT, Missouri                    (Ex Officio)
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)

                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Breslin, Hon. Neil, Senator, State of New York...............    30
    Nichols, Hon. George, Commissioner, Kentucky Department of 
      Insurance..................................................    10
    Williams, Julie L., First Senior Deputy Comptroller and Chief 
      Counsel, Office of the Comptroller of the Currency.........    23

                                 (iii)

  

IMPROVING INSURANCE FOR CONSUMERS--INCREASING UNIFORMITY AND EFFICIENCY 
                        IN INSURANCE REGULATION

                              ----------                              

                        THURSDAY, JULY 20, 2000

                  House of Representatives,
                             Committee on Commerce,
           Subcommittee on Finance and Hazardous Materials,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:51 a.m. in 
room 2123, Rayburn House Office Building, Hon. Michael G. Oxley 
(chairman) presiding.
    Members present: Representatives Oxley, Gillmor, Ganske, 
Shimkus, Towns, Barrett, Luther, and Dingell (ex officio).
    Staff present: Robert Gordon, majority counsel; Yong Choe, 
legislative clerk; and Bruce Gwinn, majority counsel.
    Mr. Oxley. The subcommittee will come to order and the 
Chair would recognize himself for an opening statement.
    Today's hearing is on Improving Insurance for Consumers--
Increasing Uniformity and Efficiency in Insurance Regulation. 
We are fortunate to have before us today three distinguished 
witnesses: George Nichols, Kentucky Insurance Commissioner and 
President of the National Association of Insurance 
Commissioners; Julie Williams, First Senior Deputy Comptroller 
and Chief Counsel of the Office of the Comptroller of the 
Currency; and the Honorable Neil Breslin, State Senator for New 
York, on behalf of the National Conference of Insurance 
Legislators.
    This committee has a long history of scrutinizing State 
insurance regulation. Last term, as a part of the financial 
modernization legislation, this Congress enacted a provision 
called NARAB, the National Association of Registered Agents and 
Brokers. Under our current system of State regulation, a broker 
trying to sell insurance for a shipment of goods being 
transported from Ohio to New York has to be licensed in every 
State the vehicle passes through, with each State not only 
imposing licensing fees, but also separate continuing education 
requirements, registration requirements, and other potential 
barriers such as fingerprinting requirements.
    Since an insurance license is required for each line of 
insurance sold, trying to meet each State requirement can be 
extremely burdensome. NARAB would require a majority of the 
States within 3 years to have uniform or reciprocal agent 
licensing laws. If the States do not reach this goal, then a 
self-regulating organization would be established to set 
uniform national criteria for agent licensing.
    NARAB was a critical first step toward uniformity in 
insurance regulation, to bring lower prices and more 
availability for consumers. Now we need to take the next step, 
to establish more uniformity for insurance underwriting.
    Under our current system of regulation, an insurer wanting 
to provide a new product to consumers nationwide has to get the 
product approved by 50 different State insurance commissioners. 
This is a process that can take years. In addition to product 
approval delays, insurers must undertake extensive rate filings 
and policy form approvals which not only cause additional 
delay, but often result in significantly reduced willingness by 
insurers to provide coverage, leaving consumers in some areas 
with few or no insurance companies willing to insure their 
risks.
    Our committee has received a proposal from one banking 
insurance association to create an optional Federal charter for 
insurers, based on the 140-year-old dual banking system. This 
approach is not my first preference. But in the absence of 
significant uniformity reforms at the State level, it is 
something I believe Congress may consider in the future.
    We have also received a statement of intent from the NAIC 
signed by all the insurance commissioners regarding their 
commitments to achieving uniformity. They have demonstrated now 
that they can talk the talk; if they can also walk the walk, 
then insurance consumers and producers can fully benefit from 
uniformity without the need for a new Federal system.
    There are several other approaches to achieving uniformity 
which this committee will be considering. State Senator Breslin 
will discuss the possibility of interstate compacts. Various 
trade associations have suggested an approach similar to NARAB, 
giving the States a certain period of time to achieve a level 
of uniformity, with certain Federal uniform standards 
established after that time if the States fail in their effort.
    I am going to convene a second hearing in early September, 
after the NAIC completes a series of task force meetings, to 
assess what progress has been made and whether there is a 
sufficient continuing commitment to uniformity. I hope that the 
NAIC working groups will not only be able to come up with 
specific proposals for achieving their goals, but to attach 
specific timeframes to implement those proposals in the 50 
States.
    I have asked President Nichols to join us today to talk 
about the NAIC's commitment to uniformity and what he thinks 
his organization will be able to accomplish during his tenure. 
I applaud the strong leadership he has shown to date, and look 
forward to working with him, the NAIC, and the States, on any 
Congressional reforms that are needed to facilitate and 
strengthen the State-based system. New York State Senator Neil 
Breslin will provide us with an additional State perspective, 
and hopefully enlighten us as to what reforms and support 
Congress can reasonably expect from the State legislatures.
    I appreciate that Julie Williams, First Senior Deputy 
Comptroller and Chief Counsel of the Office of the Comptroller 
of the Currency, has agreed to join us to provide us with her 
expertise on the optional Federal chartering system that 
governs the dual banking system. Hopefully we can draw some 
insight into the advantages and disadvantages of this system 
from her experience. Ms. Williams will also give us an update 
on how the OCC is proceeding in its communication with the 
insurance regulators in developing bank insurance consumer 
protections as required by the Gramm-Leach-Bliley Act.
    While I have asked Ms. Williams here to testify on her 
experience with the dual banking system and the OCC's ongoing 
coordination efforts with the NAIC, I would like to take this 
opportunity to express my grave concerns about the OCC's 
consideration of preempting State consumer protection laws. 
Many of these laws fall squarely within the consumer 
protections that Congress specifically safe-harbored in the 
Gramm-Leach-Bliley Act last year. Others are clearly the result 
of a past consensus among the affected parties with the strong 
support of the State legislatures.
    I am not convinced that any of the State laws in question 
significantly interfere with the authorized powers of banks per 
se, although I am concerned about how they might be implemented 
over time. Congress pushed financial services reform through in 
part as a response to some questionable legal reinterpretations 
of the National Bank Act by past comptrollers.
    I would hope that instead of embarking on another collision 
course with Congress, the OCC will work with the insurance 
regulators to develop an appropriate range of standards 
governing bank insurance activities. I think that the OCC has 
done an excellent job so far of working with the insurance 
regulators on other areas of the Gramm-Leach-Bliley Act, and I 
hope that this communication and cooperation could extend to 
consideration of the West Virginia and Massachusetts petitions.
    I again thank Ms. Williams for agreeing to provide us with 
her insight on the dual banking regulatory system, and 
President Nichols and Senator Breslin for joining us today to 
talk about improving the efficiency of insurance regulation for 
all consumers.
    That ends the statement of the Chair and I now recognize 
the ranking member, the gentleman from New York, Mr. Towns.
    Mr. Towns. Let me thank you first, Mr. Chairman, for 
holding this important hearing. It is about time we put the 
interests of consumers first. It is also about time we 
recognize that the consumer is the one who suffers the most 
when regulations break down.
    That National Association of Insurance Commissioners 
estimates that the average family may easily spend $3,000 each 
year for auto, home, life, and health insurance coverage. That 
family's only contact with the insurance company, however, may 
be the premium it pays periodically. Consumers have no way of 
knowing whether the insurance companies invest their premium 
dollars wisely or whether they are rogues, thieves, crooks. 
Consumers cannot hold companies accountable. Instead, they have 
to rely on regulators to perform this essential task to protect 
them.
    We are here to find out whether regulators are, in fact, 
doing their job. If they are not doing their job, it is our job 
to find out why they are not doing their job. I don't think we 
will be successful in one hearing in terms of completing the 
assessment today, but as with any undertaking, a journey of a 
thousand miles starts with a single step.
    Mr. Chairman, I look forward to hearing from the witnesses 
today and to working with you and the members of this committee 
on this very important matter to make certain that the 
consumers are protected, that the obligation that is our 
responsibility--and I am certain you agree with me that we will 
carry it out.
    Mr. Oxley. I thank the gentleman.
    Are there further opening statements?
    The gentleman from Illinois?
    Mr. Shimkus. Just briefly, Mr. Chairman.
    This is my first term on this subcommittee and one of the 
things I have learned is that it doesn't take you long to jump 
in the middle of issues. It didn't take long for Financial 
Services Modernization to get passed on the floor and here we 
are talking about insurance in the national scope, and probably 
appropriately so, as we start debating a lot of the different 
issues.
    I have a good friend, Nat Shapo, who is the insurance 
commissioner from Illinois--who you have met with during the 
Financial Services Modernization debate. I just want to 
highlight the importance of what work is done by the State 
commissioners and the issue in Illinois and in my district. I 
would like to submit for the record two small articles from the 
State Journal-Register about a 21-year-old constituent of mine 
who was diagnosed with testicular cancer.
    Like Lance Armstrong, the Tour de France winner--who is 
actually pedalling right now, I am sure--trying to recapture 
that, Travis Hopkins of Girard, Illinois is still fighting for 
his life. The insurance company wasn't going to pay for his 
treatment. He didn't have Lance Armstrong's endorsements and 
his ability to fight.
    But it was Nat Shapo, the Illinois State Insurance 
Commissioner, who went to bat for him. Working with the 
company, he was able to get treatment for a constituent of 
mine. While it is still a tough battle, at least he is in the 
ring now trying to fight cancer.
    My point is that as we examine what States are doing to 
achieve uniformity in insurance regulation and what Congress 
and State legislators need to do to help realize this goal, we 
need to be sensitive to the State governing bodies that assist 
citizens, like Travis Hopkins, on a daily basis.
    As we juggle these issues, I will be looking at protecting 
the consumers and the consumer products, making sure there is 
safety and soundness, and also making sure that our citizens 
are being served.
    With that, Mr. Chairman, I yield back my time.
    [The prepared statement of Hon. John Shimkus and referenced 
articles follow:]
 Prepared Statement of Hon. John Shimkus, a Representative in Congress 
                       from the State of Illinois
    Thank you, Mr. Chairman, for holding this hearing today to discuss 
the issues of improving insurance for consumers and increasing 
uniformity and efficiency in insurance regulation.
    I would like to welcome and thank the distinguished panel for 
taking their time to be here this morning and for sharing their 
perspective with us.
    This issue is important to me. Not long ago, there were two 
articles in the State Journal-Register about a 21-year-old constituent 
of mine who, like the Tour de France winner Lance Armstrong, is 
fighting testicular cancer. Armstrong beat the disease before going on 
to win cycling's biggest race this summer. Travis Hopkins of Girard, 
Illinois, is still fighting for his life.
    Unfortunately, Travis does not have Armstrong's considerable 
endorsements to fall back on to pay for the treatment he needs. 
Travis's insurance company also refused to pay for his treatments.
    Recently, I talked to Nathaniel Shapo, head of the Illinois 
Department of Insurance and a good friend of mine. He found that there 
was a complaint file on the insurance company and decided to call the 
CEO himself. This resulted in the insurance company deciding to pay for 
Travis's $200,000 treatment.
    My point is that, as we examine what the States are doing to 
achieve uniformity in insurance regulation and what Congress and State 
legislators need to do to help realize this goal, we need to be 
sensitive to these state governing bodies that assist citizens like 
Travis Hopkins on a daily basis.
    I ask that I can submit the two newspaper articles for the record. 
Thank you, Mr. Chairman for yielding me time and again for holding this 
hearing. I yield back the balance of my time.
                                 ______
                                 

              [Copyright 1999, The State Journal-Register]

                    When Insurance Rejects Treatment
                     By Tony Cappasso, Staff Writer
    Thomas Travis Hopkins is an ordinary guy.
    He doesn't race bicycles, the way Tour de France winner Lance 
Armstrong does.
    But Hopkins, a 21-year-old Girard resident, and Armstrong do have 
something in common--they both got testicular cancer. Armstrong beat 
the disease before going on to win cycling's biggest race this summer. 
Hopkins is still fighting for his life.
    And just when he needs it the most, Hopkins' health insurance 
company is denying coverage for the only treatment that has a shot at 
curing him.
    Called stem cell transplant, it's credited by Armstrong's doctors 
with saving his life, at a cost of around $200,000. Those same doctors 
are treating Travis Hopkins.
    But Travis Hopkins doesn't have Armstrong's considerable 
endorsements to fall back on in order to pay for the treatment at 
Indiana University Hospital in Indianapolis.
    Hopkins' insurance company, Fortis Health, has told him in no 
uncertain terms that it is not paying for a stem cell transplant to 
treat his testicular cancer. It told Indiana University Hospital, as 
well, according to copies of letters obtained from Hopkins' mother, 
Kathy.
    ``The diagnosis of germ cell tumor is not an approved diagnosis for 
an autologous peripheral stem cell transplant according to Mr. Hopkins' 
policy,'' the company informed the hospital on July 28. ``No benefits 
are available for the transplant and related charges.''
    Company spokeswoman Cathy Quirk declined to comment.
    ``Since this involves patient confidentiality, we can't comment on 
the case,'' Quirk said.
    Hopkins' nightmare began earlier this year, when he awoke one 
morning in pain, feeling too weak even to get out of bed.
    Hopkins' adult life had barely begun. He had a job, installing 
cable for Greene County Cable, and had moved into his own apartment. He 
was never sick. But the pain and weakness convinced him something was 
wrong. He went to his doctor in Auburn.
    ``He examined me and sent me immediately to Memorial in 
Springfield,'' said Hopkins.
    There, doctors took X-rays, performed lab tests. The test results 
were ominous. Something was growing in Hopkins' right testicle, the 
doctors told him, and it had to come out. No one said the word 
``cancer,'' but it was on everyone's mind.
    Hopkins was worried but not especially scared.
    ``I figured they'll take it out and in a couple of weeks I'll go 
back to work,'' he said.
    It didn't work out that way.
    The following week, Hopkins and his parents got hit with both 
barrels of bad news. The growth in his testicle was cancer, in medical 
jargon choriocarcinoma, stage three.
    At first, the reality didn't sink in, said Hopkins.
    ``I asked, `What do we do?' '' Hopkins said. ``I didn't ask, `What 
are my chances?' ''
    More tests and X-rays followed, yielding more bad news.
    Hopkins' cancer specialist, Dr. Mary Bretscher of Springfield 
Clinic, spotted something on a chest X-ray. The cancer had spread.
    Lab tests had revealed that Hopkins' cancer was growing fast. The 
doctors figured they'd gotten all of it out of his testicle and nearby 
tissue. They had to get it out of his chest. That meant more surgery.
    First, though, he needed chemotherapy to shrink the tumor. 
Bretscher put him on chemo for 12 weeks.
    ``It was just like a big roller coaster ride,'' recalled Hopkins. 
``One day I'd be up, the next day I'd be down.''
    Hopkins' employers tried to help. When chemo left him too weak for 
his usual cable installation job, they found office work for him to do.
    Eventually, though, the combined effects of cancer and chemo left 
him too weak even for that. Unable to work, out of money, Hopkins gave 
up his apartment and moved back into his parents' Girard home.
    In late June, surgeons opened his chest and tried to remove the 
cancer. Tendrils of choriocarcinoma had spread into his left lung, 
coiled around his aorta and sent tentacles up into his shoulder and 
neck.
    Despite surgery and chemo, Hopkins' cancer was not responding to 
treatment the way his doctors had hoped. But they still had one trick 
up their sleeves. Bretscher picked up the phone and called a colleague 
at Indiana University Hospital.
    Dr. Lawrence Einhorn, distinguished professor of medicine at 
Indiana University School of Medicine, is one of the world's 
authorities on treatment of testicular cancer. He treated Armstrong 
with high-dose chemo followed by stem cell transplant. According to 
Hopkins, Einhorn told him he needs the same treatment. But the Hopkins 
family still has to come up with some way to pay for it.
    Fortis' decision left Travis Hopkins and his parents in a bind. 
There's no way they or he can pony up tens or even hundreds of 
thousands of dollars for stem cell transplant therapy.
    For now, doctors are treating Hopkins with chemotherapy. Each 
treatment kills cancer cells, but also knocks out his immune system for 
a week or so. Hopkins spent most of last week in Memorial Medical 
Center, recovering from an infection picked up after his last round of 
chemo.
    Indiana University Hospital is considering a request that Hopkins 
be treated as a charity patient, said Kathy Hopkins. And the church the 
Hopkins family attends, First Christian in Girard, is raising funds on 
Travis' behalf.
    It's a wonderful gesture and appreciated deeply, she said, but she 
resents the need for appeals to charity. Her son bought health 
insurance against just such an event. Now, when he needs it, the 
company has begged off.
    ``Fortis specifically targeted young adults in their advertising 
pitches,'' she claims.
    Travis Hopkins' friends and neighbors are raising money to help him 
pay for cancer treatment. They've started a benefit account at the 
Girard branch of the First National Bank of Raymond. Donations may be 
mailed to The Benefit Account, First National Bank of Raymond, P.O. Box 
78, Girard, 111. 62640. First National Bank of Raymond branches in 
Virden, Morrisonville, Pawnee and Raymond will also accept donations to 
the benefit account.
                                 ______
                                 

              [Copyright 1999, The State Journal-Register]

                 Girard Man to Receive Cancer Treatment
    insurer decides to cover procedure after flood of negative calls
                     By Tony Cappasso, Staff Writer
    Travis Hopkins is in Indiana University Hospital in Indianapolis 
preparing for a stem cell transplant.
    Fortis Health, Hopkins' health insurance company, changed its 
corporate mind last week about paying for the procedure.
    How this turn of events came about is an object lesson on the 
influence wielded by politicians and bureaucrats, when they choose to 
exercise it.
    Hopkins, 21, is a Girard resident. His plight was detailed in a 
State Journal-Register article last Sunday, which triggered an 
avalanche of telephone calls. Eventually, those calls made it into the 
office of Fortis chief executive officer Ben Cutler, who ultimately 
worked out the policy change.
    Hopkins learned of the company's decision on Thursday, according to 
his mother, Kathy Hopkins.
    ``Mr. Cutler called me and told me the company was going to change 
the (insurance) contract,'' she said.
    By all accounts, state Rep. Gwenn Klingler, R-Springfield, got 
things rolling after reading the account of Hopkins' troubles in The 
State Journal-Register. Klingler was traveling Friday and couldn't be 
reached for comment. But state Sen. Vince Demuzio, D-Carlinville, 
confirmed that she was on the phone to him early.
    ``She was very concerned about it,'' said Demuzio.
    Demuzio agreed to contact U.S. Sen. Dick Durbin, D-Illinois, to see 
if there were any federal options for the youngster. Klingler, 
meanwhile, pursued the matter with the Illinois Department of 
Insurance.
    On Monday, Klingler made the extent of her concern clear to 
Nathaniel Shapo, head of the Illinois Department of Insurance.
    ``I checked with our staff and found we had a (complaint) file open 
on the case,'' Shapo said.
    After familiarizing himself with the facts, Shapo told his claims 
workers to pick up the pace in their negotiations with Fortis. On 
Wednesday, Shapo called Fortis CEO Cutler himself.
    ``He said this was a very difficult case, a very tough situation,'' 
recalled Shapo.
    Cutler did not return repeated phone calls Friday requesting 
comment.
    Shapo said Cutler emphasized that the company was within its legal 
rights in refusing to pay for stem cell transfer for Hopkins' 
testicular cancer.
    ``He said they did have `specific contractual language,' '' Shapo 
said.
    The insurance policy spells out the types of illnesses for which 
Fortis will pay for treatment, and testicular cancer is not one of 
them, Cutler told Shapo.
    But insurance executives don't take lightly phone calls from the 
head of the agency that regulates their business. Cutler said he'd 
review the denial and get back to Shapo.
    In the meantime, Shapo fielded a phone call from U.S. Rep. John 
Shimkus, R-Collinsville, an old friend of Shapo's, who also agreed to 
push Fortis.
    By Thursday, Cutler had worked out a compromise. The insurance 
company's contract with employees of Greene County Cable was changed to 
cover stem cell transplant as a treatment for testicular cancer.
    Cutler himself called Kathy Hopkins late Thursday to let her know 
of the decision. He also called Indiana University Hospital to start 
the wheels rolling for Travis Hopkins' therapy. By nightfall, the 
Hopkinses were driving to Indianapolis.
    Shapo praised Cutler for his handling of the affair.
    ``He was very responsive and very cooperative,'' said Shapo.
    Starting next week, Travis Hopkins will get a round of high-dose 
chemotherapy, followed by an IV packed with his own stem cells, to help 
his immune system recover, said Indiana University Hospital transplant 
nurse Alison Morgan.
    A week later, he'll get another round of high-dose chemo, then more 
stem cells, she said. After that, it's a waiting game to see if the 
treatment succeeded in killing off the cancer cells.
    Based on past cases, Hopkins has a 60 percent chance of being cured 
of the illness, she said.

    Mr. Oxley. The gentleman yields back.
    The gentleman from Minnesota?
    Mr. Luther. Thank you very much, Mr. Chairman. I will be 
very brief.
    I am glad that this committee is deliberating on this 
particular issue and looking at how we can improve the current 
regulatory framework that is, of course--as we all know--based 
on State oversight.
    As my colleagues have already mentioned, I think it is 
important that the hearing not lead to a wholesale erosion of 
strong consumer protection measures at the State level that 
have been enacted there on behalf of citizens. In particular, 
my State of Minnesota has some of the best pro-consumer 
legislation in the entire country. I, of course, would not want 
to see those laws jeopardized by any action here in Washington.
    I am particularly concerned by the recent OCC final privacy 
rule that exempts national banks from complying with 
Minnesota's privacy law when Section 505, better known as the 
Sarbanes Amendment of the Financial Services Modernization Act, 
specifically allows States to enact stricter privacy laws that 
apply to financial institutions. I will be interested to hear 
how the OCC can justify its rule, given Section 505 of that 
Act.
    Beyond that, I think we need to be very, very careful when 
it comes to taking away the authority of States and giving it 
to a Federal entity, unless it is accompanied by very strong 
protections on behalf of consumers.
    So again, Mr. Chairman, thank you for holding the hearing 
and I look forward to the testimony.
    Mr. Oxley. The gentleman's time has expired.
    Are there further opening statements?
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    Last November, this Congress made history by achieving something 
that no Congress in the previous 66 years had been able to accomplish--
agreeing to comprehensive financial services modernization. The Gramm-
Leach-Bliley Act was a critical first step towards uniformity in 
insurance regulation. It created a uniform licensing system for 
insurance agents and brokers. It established uniform redomestication 
provisions for mutual insurance companies. And it ensured a more 
uniform level playing field for insurance.
    These were important steps to begin modernizing the regulation of 
insurance. But they are only first steps.
    Now that we have successfully integrated the financial services 
marketplace, the floodgates of competition are about to open. Compared 
to other financial services providers, insurers have more expensive 
capital costs, higher transaction costs, and significantly lower rates 
of return on shareholder equity. It can also take insurers ten to 
twenty times as long as their competitors to get regulatory approval to 
bring new products to market. Under the current regulatory structure, 
insurers will have a hard time successfully, competing over the long 
haul in crossover markets. This harms the industry and harms consumers.
    Particularly troubling is that over the last ten years, many 
insurers have suffered very poor returns on their insurance 
transactions, relying for their profitability on investment gains from 
surplus capital in the booming American economy. With insurers already 
30% less profitable than other industries, if the economy slows down 
and insurers continue to be handicapped by their regulatory structure, 
capital will flow out of the system, resulting in more bankruptcies and 
even more industry consolidation.
    Iowa Commissioner Terri Vaughan stated on behalf of the National 
Association of Insurance Commissioners that ``passage of the Gramm-
Leach-Bliley Act and our increasing interaction with Federal banking 
regulators means that State insurance regulators can no longer meet 
public expectations with outdated procedures that overly favor 
homestate autonomy at the expense of efficient interstate commerce.'' 
NAIC President George Nichols, who is testifying before us today, has 
stated that modernizing the State regulatory system is his top 
priority.
    I am pleased to see that the State insurance commissioners are now 
active leaders in reforming the regulation of insurance. I fully 
support their efforts. They have committed to modernizing some of the 
Greatest inefficiencies in the system, including rate filings, market 
conduct examinations, and speed to market for new consumer products. If 
the commissioners achieve their goals, it may be the most significant 
set of reforms in the history of the NAIC.
    However, I am concerned that if the commissioners goals are not 
achieved, pressure will continue to grow for an optional Federal 
insurance charter. While I do not at this time favor such an approach, 
I believe that the current system stifles innovation and competitive 
opportunities that could advantage consumers. One way or another, 
insurance regulation will be reformed.
    I appreciate the willingness of our distinguished panel of 
witnesses to join us today to give us their perspectives on financial 
services regulation, as well as to update us on the implementation of 
the Gramm-Leach-Bliley Act, and I look forward to continue supporting 
their efforts at regulatory coordination and reform.
                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    Mr. Chairman, I want to thank you for holding this hearing on 
``Improving Insurance for Consumers.'' Had we given more attention to 
consumers in the debate on financial modernization legislation over the 
last few years, we might very well have avoided the need for this 
hearing altogether. But, despite efforts of this Committee, protecting 
consumers was never to become the guiding principle of last year's 
financial modernization legislation.
    As a result, the problems plaguing insurance regulation today are 
fundamentally the same as those that have tormented consumers, the 
industry, regulators, and public officials for many years: muddled 
lines of regulatory responsibility; the absence of consistent standards 
and requirements; inadequate resources and enforcement; and open 
conflicts between regulators that, at times, have turned the federal 
regulator into nothing more than a ``doorman'' for the banking industry 
and have made state regulators despondent and overly cautious in their 
protection of consumers.
    I honestly do not know what it will take to address the fundamental 
reforms needed in insurance regulation. We do know, however, that 
nothing really changes when we fail to deal with the fundamentals. Last 
year's financial modernization legislation has graphically demonstrated 
that, and this hearing is proof that is the case. Today, as in so many 
hearings before, we are joined by representatives of the Office of the 
Comptroller of the Currency (OCC) and of the state insurance 
commissioners, and why? Unfortunately, the answer to that question is 
simply that nothing has really changed to resolve their relationship in 
any positive and affirmative manner.
    The OCC says it does not want to regulate insurance. It says 
insurance regulation is the responsibility of the states. Yet, the OCC 
continues to intervene at the behest of banks who want to prevent the 
states from applying tough consumer protections to bank insurance 
activities. In fact, the OCC is currently considering a request from 
the banks, which if approved, may be used by national banks in the 
States of West Virginia and Massachusetts to avoid complying with 
insurance consumer protections that must be honored by every other 
seller of insurance in those two states.
    Banks have also secured protection in the OCC's final rule 
implementing the privacy provisions of last year's financial 
modernization legislation. In that recently issued rule, the OCC said 
that a bank does not have to comply with tougher privacy laws many 
states have adopted, if the bank sells insurance directly and not 
through a subsidiary. At least 16 states have adopted the National 
Association of Insurance Commissioners' (NAIC) model privacy law that 
says insurance information cannot be shared with anyone, affiliates or 
third parties, unless consumers give their affirmative permission. The 
OCC rule, on the other hand, lets insurance companies share information 
freely with affiliated entities and even lets them share information 
with third parties unless the consumer objects. The OCC rule, 
therefore, will deny privacy protections to consumers just because they 
buy insurance directly from a bank rather than from non-bank sources.
    The OCC may say it does not want to regulate insurance; but make no 
mistake about it, it is regulating insurance. There is nothing 
``functional'' about this kind of regulatory intervention, and it must 
stop in order for real insurance regulators to do the job that needs to 
be done.
    The situation at the state level is also far from perfect. 
Resources committed to insurance regulation vary dramatically from 
state to state. And, there is a dangerous lack of coordination among 
state insurance regulators and between state insurance regulators and 
other financial regulators. These coordination problems are 
dramatically revealed by the insurance fraud case of Martin R. Frankel. 
In that case, several states knew or should have known a fraud was 
being committed but kept this information from other states.
    Mr. Chairman, there can be no real doubt that insurance regulation 
continues to be in need of fundamental reform. For many of us, that 
need has been evident for a long time. However, I hope that as we 
embark on yet another attempt to address these problems, Members will 
prepare themselves for more than a Sunday afternoon ``stroll-in-the-
park.'' This is truly a dense woods into which few have ventured, and 
even fewer have emerged. My advice is: ``Be Prepared'' and ``Follow 
Me.''
    Mr. Chairman, again, I thank you for holding this hearing, and I 
look forward to the testimony of the witnesses.

    Mr. Oxley. The Chair now turns to our distinguished panel, 
which I have already introduced. Welcome to all of you.
    Mr. Nichols, we will begin with you.

   STATEMENTS OF HON. GEORGE NICHOLS, COMMISSIONER, KENTUCKY 
DEPARTMENT OF INSURANCE; JULIE L. WILLIAMS, FIRST SENIOR DEPUTY 
COMPTROLLER AND CHIEF COUNSEL, OFFICE OF THE COMPTROLLER OF THE 
  CURRENCY; AND HON. NEIL BRESLIN, SENATOR, STATE OF NEW YORK

    Mr. Nichols. Thank you, Mr. Chairman. Good morning to the 
chairman and the members of the committee. It is a pleasure to 
be back before you. I am happy to be before you with a good 
message in terms of where insurance commissioners have come 
across the country.
    Again, my name is George Nichols. I am the commissioner in 
the Commonwealth of Kentucky and president of the NAIC. I bring 
you greetings on behalf of all the insurance commissioners from 
across the country.
    I want to take an opportunity to thank the Commerce 
Committee and its members for your efforts on H.R. 10 during 
the deliberations. You stood up for strong consumer protections 
as it related to the business of insurance. It is your work to 
preserve functional regulation in the State rule of insurance 
commissions that I believe was the impetus and the door-opener 
for us to develop our statement of intent and to also assure 
compliance with the Gramm-Leach-Bliley Act.
    Second, I would like to thank you for holding this hearing. 
It gives us an opportunity to come before you and tell our 
story about what we have set out on what I consider to be a 
very ambitious path to create uniformity and efficiency for 
insurance regulation. It also gives us an opportunity to share 
with you the achievements to date, in a very, very short period 
of time since the passage of the Act.
    There are three main points I want to touch on. First of 
all, we are currently on track to implement all provisions of 
the Gramm-Leach-Bliley Act that related to insurance 
regulation. Second, we have taken the bold step to spearhead 
national initiatives that go far beyond those minimum 
requirements set in the Gramm-Leach-Bliley Act that I want to 
share with you.
    We believe that they satisfy the larger goals that will 
create the appropriate uniformity and efficiency in the system 
that we think are necessary that will alleviate any desires to 
have insurance regulated at the Federal level. It is an 
approach that is based in looking at where it is appropriate 
that we have national standards and national approaches to 
insurance regulations, but not take away the independent 
jurisdiction to address the specific consumer needs for people 
in Illinois, people in Ohio, Kentucky, and any other State in 
the country.
    Third, we think that in these larger goals that we want to 
achieve, it will require a partnership, a partnership that is 
made up of insurance regulators, of State legislators and 
Governors, Federal counterparts, Congress, consumers, and 
insurers.
    Our No. 1 priority is to protect consumers. We recognize 
the financial impact of buying insurance. We understand that 
when it is used they feel vulnerable. And we also recognize 
that oftentimes in the subjective areas of insurance coverage 
it will require good, strong, and balanced regulation to make 
sure that consumers are adequately protected.
    In 1998, we had over 12,500 individuals across the country 
that worked to preserve insurance regulation to protect 
consumers. We have spent some $853 million on a yearly basis in 
terms of budgets to provide strong regulation for insurance 
consumers.
    The Gramm-Leach-Bliley Act mandates three primary functions 
for us that we were to address. First was to coordinate and 
cooperate with Federal regulators. I am happy to announce that 
we have been working for a long time in working with the 
Federal regulators--our Federal counterparts--and since the 
passage of the bill there have been numerous meetings we have 
had to attempt to coordinate our efforts. There are areas in 
which I think we need to continue to improve in terms of that 
coordination. However, I have found a commitment on the part of 
all our counterparts at the Federal level to work clearly with 
the NAIC and State insurance commissioners across the country.
    We have been working closely to develop information sharing 
agreements in terms of the OTS, which we already have a formal 
agreement that is being signed by the States. We are developing 
one with the OCC which I am sure Julie will be mentioning 
later. We are working on one with the Federal Reserve and the 
OTS. So we believe that we are well on our way to developing 
that relationship not only in a formal setting but an informal 
setting as well.
    Second was to address the issue of privacy rules as it 
relates to insurance. As you may know, in 1980 we had a model 
act that was passed related to the protection of privacy 
information for all insurance. Some 17 States across the 
country have now passed a privacy provision related to the 1980 
model that goes far beyond any of the protections provided to 
any set of consumers related to the Gramm-Leach-Bliley Act.
    We have also worked in 1998 to pass a model privacy rule 
related to health information. As we had focused on this 
initiative since the passage of the bill, we have primarily 
focused to develop financial-related privacy rules for 
insurance similar to the regulations completed by our Federal 
counterparts. We also felt it was important to separate the 
issue of health insurance information from financial 
information because of the overall impact and private nature of 
that information that is being shared.
    The third area that we were to focus on was the 
establishment of a national licensing system for agents and 
brokers to avoid the establishment of NARAB. I am happy to 
announce that as of today we have had three States that have 
passed a producer model act that addresses the issue of setting 
out uniform procedures and reciprocity to comply with the 
provisions of the Gramm-Leach-Bliley Act. Kentucky was 
fortunate enough to be the first State to produce a producer 
model act to comply with those provisions. Three States now 
have done so and we have 31 States scheduled to propose the 
legislation in their sessions in the upcoming year.
    We have also publicly stated--and it is also in my written 
testimony--that we believe we should go further than the 
minimum standards set in the Gramm-Leach-Bliley Act. Without 
full and complete, appropriate rule across the country in all 
50 States and the District of Columbia, we think we would be 
doing an injustice to the insurance industry. So we are now 
working to assure that that is in full compliance across the 
country.
    Additionally, we have gone much further than you had 
requested us to do in the legislation. In my role as president, 
my platform was established to modernize insurance regulation. 
We developed a statement of intent--which you have a copy of--
and it was passed at our March meeting in Chicago. You will 
also note that it is signed individually by each State and the 
District of Columbia. Our purpose was to personally and jointly 
commit our goals of achieving national uniform standards for 
insurance regulation.
    We recognize the importance of working with legislators and 
Governors in this initiative. We feel that we have been able to 
establish the rapport and the support from those bodies in 
terms of the initiative we have set forth. I want to share with 
you the areas in which we have gone further than the Gramm-
Leach-Bliley Act.
    One is speed to market, developing a system whereby we can 
review and approve products that will be delivered to consumers 
in the most expedient manner possible and done in the most 
efficient manner across the country, where appropriate. We 
continue to support the commercialized deregulation among the 
States, which would reduce many of the regulatory burdens that 
employers are having to deal with as it relates to insurance 
policies.
    Third, the development of a national treatment of insurance 
companies whereby we could establish a national licensing 
process for companies whereby they would actually deal with a 
single regulatory body, whether it be a group of States or some 
other entity, that would allow them to get licenses in a much 
easier fashion. We have already worked--related to the speed to 
market products and the national treatment--on developing 
electronic initiatives, one being that form filings could be 
filed electronically and the other to be a unified, uniform 
application process for licensing of insurance companies. Our 
goal is to have all 50 States up on the electronic format and 
uniform application for company licenses by the end of the 
year.
    We also are developing the appropriate tools necessary to 
facilitate electronic commerce among insurance companies, 
agents, and the consumers, all with the goal to make sure that 
the appropriate protections are there for consumers in an 
electronic environment.
    And last but not least, we have begun to take the necessary 
steps to develop what we believe will be an appropriate 
mechanism for market conduct. If we are able to achieve 
efficiency and uniformity across the country and fail to put in 
the appropriate standards and tools necessary to protect 
consumers in a market conduct approach--similar to what we have 
done with the financial solvency--then we would have failed in 
our initiatives.
    We have put forth a great number of efforts. During the 
debate of H.R. 10, we came to Congress and asked for additional 
things, things that we would like for Congress to consider in 
assisting the commissioners in carrying out our job. One, as we 
move to develop a unified national system for agent licensing, 
we would like to have access to the National Criminal 
Information Data base. If we are to protect consumers related 
to agents, it is important that we have access to the 
information that will allow us to determine if we have bad 
apples--criminals or others--who have taken actions that would 
not be in the best interest of consumers.
    Second, we would like to see the granting of Federal 
immunity and liability for the NAIC and the State insurance 
departments as we relate to transferring information with our 
Federal regulators. There is a likelihood that the current laws 
are broad enough to protect those relationships between Federal 
regulators and State insurance commissioners. However, the 
national data bases that we have created and we at the State 
departments depend on, is established at the NAIC level. In 
order for us to continue to do that job, we believe that the 
NAIC should have the same protections as we do as we work with 
our Federal counterparts.
    In conclusion, I want to share with you that I firmly 
believe that we have worked very hard to achieve the objectives 
and the overall goals of the Gramm-Leach-Bliley Act and we have 
shown our commitment to the insurance world to go further than 
the what the Gramm-Leach-Bliley Act established for us. The 
insurance commissioners--all 50 of them and the District of 
Columbia--are very focused, very committed, and have shown 
their commitment in how we have coordinated our efforts in 
making sure that we meet the minimum requirements.
    We are prepared in our September meeting to outline not 
only our overall goals but the time lines and milestones to 
achieve those. One of the things I think is important to note 
is that in this new era in which we are committed to improving 
the uniformity and efficiency of insurance regulation, we have 
committed that every option will be considered as we move 
forward. And in those options, it includes laws being passed by 
the States individually, an interstate compact, and lo and 
behold we even considered coming to Congress and asking for 
assistance if that is what we felt was necessary to make sure 
that we could maintain insurance regulation closest to the 
consumer at the State level, but assure the appropriate 
uniformity across the country.
    Thank you, sir, for allowing me to be here this morning.
    [The prepared statement of Hon. George Nichols follows:]
   Prepared Statement of Hon. George Nichols, Commissioner, Kentucky 
   Department of Insurance on Behalf of the National Association of 
                        Insurance Commissioners
Introduction
    My name is George Nichols. I am the Commissioner of Insurance in 
Kentucky, and this year, I am serving as President of the National 
Association of Insurance Commissioners (NAIC). This is a particularly 
challenging time as we work to improve State insurance supervision to 
better meet the demands of consumers and a global insurance industry.
    Let me start by thanking the Commerce Committee and its Members for 
the important work you did in preserving the role of State insurance 
supervision during Congressional consideration of HR 10. Although HR 10 
was originally intended to modernize Federal banking and securities 
laws, its negative side impact on State laws governing the solvency and 
market conduct of insurance providers could have been devastating. Your 
insistence that HR 10 be amended to fully protect insurance consumers 
was a critical step in opening the door for State regulators to meet 
and exceed the financial modernization goals of the Gramm-Leach-Bliley 
Act (GLBA).
    Today, I would like to make three points regarding the response of 
State insurance regulators to financial modernization and the Gramm-
Leach-Bliley Act--

 First, the NAIC and State insurance regulators are currently 
        on track to implement all provisions of GLBA as intended by 
        Congress.
 Second, the NAIC is spearheading a bold set of national 
        initiatives that will move State insurance regulation far 
        beyond the minimum requirements of GLBA in order to satisfy 
        larger goals of regulatory uniformity and efficiency.
 Third, meeting the requirements of GLBA and the larger goals 
        of regulatory uniformity will demand prompt action by several 
        interested groups in addition to State insurance regulators, 
        including State legislators and governors, Congress, and 
        insurance industry participants.
Protecting Consumers is the First Priority of State Insurance 
        Regulation
    Paying for insurance products is one of the largest consumer 
expenditures of any kind for most Americans. Figures compiled by the 
NAIC show that an average family can easily spend a combined total of 
$3,000 each year for auto, home, life, and health insurance coverage. 
This substantial expenditure--often required by law or business 
practice--is typically much higher for families with several members, 
more than one car, or additional property to insure. Consumers clearly 
have an enormous financial and emotional stake in making sure that the 
promises made by insurance providers are kept.
    Protecting American insurance consumers in a world of hybrid 
institutions and products must start with a basic understanding that 
insurance is a different business than banking and securities. 
Insurance is a commercial product based upon subjective coverage 
decisions, subjective product pricing, subjective claims 
determinations, and subjective figuring of claims payment amounts. All 
of these business subjectives add up to one big certainty--Insurance 
products can generate a high level of consumer backlash and customer 
dissatisfaction that requires a high level of regulatory resources and 
responsiveness.
    As regulators of insurance, State governments are responsible for 
making sure the expectations of American consumers--including those who 
are elderly or low-income--are met regarding financial safety and fair 
treatment by insurance providers. State insurance commissioners are the 
public officials who are appointed or elected to perform this consumer 
protection function. Nationwide in 1998, we employed 12,500 regulatory 
personnel and spent $853 million to be the watchful eyes and helping 
hands on consumer insurance problems. State insurance departments 
presently handle approximately four million consumer complaints and 
inquiries each year.
    The States also maintain a system of financial guarantee funds that 
cover personal losses of consumers in the event of an insurer 
insolvency. The costs of this financial guarantee system are borne 
entirely at the State level, with no assistance from the Federal 
government.
State Insurance Regulators Are Strongly Committed to Implementing GLBA
    The Gramm-Leach-Bliley Act establishes a new order of functional 
financial regulation that will depend upon the active cooperation of 
many Federal and State agencies to be effective. Although this approach 
is novel at the national level, it is well known among State insurance 
regulators who have been working together cooperatively for more than a 
century. We have found from experience that organized cooperation 
through the NAIC produces strong supervision results overall, yet we 
are also know that extraordinary effort, hard work, and constant 
attention are needed to achieve such results.
    The regulatory framework established by GLBA designates the States 
as the appropriate functional regulators of insurance products in the 
United States, including those provided by Federally-supervised banking 
and securities firms. This most recent Federal statutory affirmation of 
State insurance authority is wise because it recognizes our successful 
record over the years in meeting the special consumer protection 
requirements of insurance products. For example, all 50 commissioners 
joined together to end the use of race-based insurance premiums and 
obtain rightfully-owed insurance payments for victims of the Holocaust.
    In addition to recognizing general State authority over insurance, 
GLBA mandates specific State regulatory action in three areas--

a) Coordinating and cooperating with Federal functional regulatory 
        agencies for banks and securities firms;
b) Issuing privacy rules to protect the non-public financial 
        information given by consumers to insurance providers; and
c) Establishing a national licensing system for insurance agents and 
        brokers in order to avoid the creation of the National 
        Association of Registered Agents and Brokers (NARAB).
    Working through the NAIC, State insurance departments are strongly 
committed to implementing all requirements of GLBA promptly. 
Furthermore, State regulators are committed to uniform insurance 
regulation by eradicating outdated procedures that overly favor home-
state autonomy at the expense of efficient interstate commerce. Our 
ultimate goal of a national regulatory system based upon existing State 
authority goes well beyond the requirements of GLBA.
Going Beyond GLBA--NAIC's Regulatory Modernization Program
    I was elected President of NAIC in December 1999, just one month 
after GLBA was signed into law. My first action as President was to 
announce that modernizing the State regulatory system would be my top 
priority for NAIC during the year 2000. To achieve this goal, I 
immediately began working with my fellow commissioners to develop a 
plan that will get us there.
    The critical first step was the acknowledgement of insurance 
commissioners in every State that common progress cannot occur without 
common agreement on our objectives. To that end, we began collectively 
drafting a regulatory modernization mission statement. After careful 
discussions, the commissioners from each of the 50 States and the 
District of Columbia individually signed a document entitled 
``Statement of Intent: The Future of Insurance Regulation'' (Attachment 
One). A copy is appended to the end of my testimony.
    The insurance commissioners' Statement of Intent is a major 
breakthrough toward regulatory modernization. We are personally and 
jointly committed to achieving the same specific objectives on a set 
schedule. These are now the shared goal of insurance commissioners 
throughout the United States.
    The Statement of Intent sets forth the following mission 
objectives--

 Working with our governors and State legislatures, we will 
        undertake a thorough review of our respective laws and 
        regulations to determine needed changes that accomplish 
        functional regulation as contemplated by the Gramm-Leach-Bliley 
        Act.
 We are committed to streamlined licensing for producers, and 
        will work to implement effective uniform licensing standards.
 Building on initiatives already underway, we will review our 
        financial reporting, analysis, and examination processes to 
        address market changes that demand consideration of the 
        national and international impact of insurance industry 
        operations.
 We will continue to use the NAIC process to develop and 
        implement effective regulatory cooperation agreements with 
        other Federal and State regulatory agencies regarding the 
        sharing of financial monitoring and enforcement information.
 Working with our governors and State legislatures, we will 
        take steps to improve the speed to market for new insurance 
        products.
 We will evaluate the experience of specific States with regard 
        to reforming the system of rate forms and filings for certain 
        insurance lines in order to achieve greater uniformity and 
        eliminate unnecessary requirements.
 We will review the current focus, structure, and 
        implementation of market conduct programs to determine the 
        merits of voluntary uniform national standards as a basis for 
        market conduct examinations and enforcement that will protect 
        local consumers.
 We have endorsed the Uniform Electronic Transactions Act 
        (UETA), and will continue to identify necessary reforms that 
        will facilitate e-commerce while maintaining important consumer 
        protections.
 We are committed to exploring all options that could offer 
        greater uniformity within the State-based system of insurance 
        regulation, and we will explore the development of a proposal 
        for a State-based system that could provide the same 
        efficiencies as a Federal charter for insurance companies.
Insurance Regulators Are on Schedule to Meet All Modernization 
        Objectives
    Prior to final approval of the commissioners' Statement of Intent 
in March, the NAIC began a series of actions to implement GLBA 
requirements and lay the groundwork for larger improvements. The 
implementation schedule set by Congress for certain parts of GLBA is 
quite tight for Federal and State regulators, especially the provisions 
that will require State legislative action. The NAIC and its members 
have approached this implementation effort with urgency and 
determination, and have committed to meet the same deadlines as Federal 
agencies even where GLBA does not require us to do so.
    In December 1999, I sent letters to the heads of all Federal 
functional regulatory agencies seeking to meet with them in order to 
establish a process for cooperation. At mid-July, I can report that I 
have met personally with the Comptroller of the Currency (OCC), the 
Director of the Office of Thrift Supervision (OTS), and Governor 
Laurence Meyer who oversees insurance matters for the Federal Reserve 
Board. The NAIC and several State regulators have also met with 
officials at the Federal Deposit Insurance Corporation (FDIC). These 
meetings and communications have been very successful in getting the 
process of cooperative functional regulation off to a good start.
    Within NAIC, we created nine special working groups and assigned 
them particular tasks to accomplish the GLBA mandates and mission 
objectives in our Statement of Intent. The activities of these working 
groups have dominated our time and attention at NAIC since then.
    As a result of exceptional efforts, the NAIC and State insurance 
regulators are on target to meet the objectives set by GLBA and our 
Statement of Intent. We have a lot of work yet to do, but we are well 
on the way to attaining our goal. Furthermore, I am confident that 
State insurance regulators will continue to do whatever it takes to get 
the job done right.
Cooperating with Federal Regulators under GLBA
    Establishing sound working relationships with Federal regulators is 
absolutely essential for State insurance departments under GLBA. In 
fact, it is so important that NAIC was actively engaged in meeting with 
our Federal counterparts more than a year before GLBA became law. After 
enactment of GLBA, we decided to consolidate our efforts under a new 
Coordinating with Federal Regulators Working Group given broad 
responsibility to stimulate cooperation at all levels.
    There are two basic ingredients for making regulatory cooperation a 
success. The first is negotiating and signing written agreements 
between Federal and State agencies that lay out the ground rules for 
sharing information and keeping it confidential when necessary. The 
second is establishing personal contacts at other agencies to promote 
mutual understanding, education, and practical cooperation on 
monitoring and enforcement matters.
    The NAIC is currently involved in achieving acceptable written 
cooperation agreements with the Federal Reserve, OCC, OTS, and FDIC. We 
are farthest along with OTS and OCC. Our model consumer complaint 
sharing agreement with OCC has been signed by 28 State insurance 
departments, and our broad information sharing agreement with OTS has 
been signed by 21 States to date. While we continue to encourage State 
departments to sign these existing model agreements, we are 
simultaneously working to improve all cooperation agreements with 
Federal agencies to better reflect the final provisions in GLBA.
    The process of establishing personal working contacts between State 
and Federal regulators is also going very well. Attached to my 
testimony is a chart summarizing the most important meetings held by 
NAIC so far (Attachment Two), however there have been many additional 
contacts with Federal regulators through the NAIC and directly with 
State department personnel. Generally, these are high-level meetings 
that have focused on exchanging information and viewpoints regarding 
regulatory jurisdiction, supervision methods, and specific cases such 
as the Citigroup merger. Federal banking agencies have also started 
sending regular attendees to NAIC national meetings held four times 
each year, which is an excellent way for them to meet State regulatory 
staff and observe how we make our policy decisions.
    NAIC has an extensive schedule of insurance supervision training 
classes and materials which we have made available to Federal 
regulators. In exchange, Federal agencies are beginning to open their 
training programs to State insurance regulators. Taking part in these 
classes develops professional expertise in other financial industries 
and facilitates the process of making personal contacts.
Meeting GLBA Consumer Privacy Requirements
    The Title V consumer privacy requirements in GLBA create a quandary 
for State insurance regulators. Section 501 of GLBA directs us to 
implement the same privacy rules for consumer financial information as 
those prescribed by Federal agencies, while Section 507 permits States 
to implement stronger privacy standards. This dual charge sets up a 
conflict between what State insurance authorities MUST do under GLBA 
and what States MAY do regarding consumer privacy. In neither case does 
it appear that Congress gave full consideration to the privacy needs of 
insurance consumers, as opposed to consumers of other financial 
products.
    Protecting the privacy of insurance consumers is an important area 
where NAIC is 20 years ahead of Congress. NAIC issued a consumer 
privacy model law in 1980 that gives insurance consumers far greater 
privacy rights than those in GLBA. Our records indicate that 17 States 
have adopted all or part of the NAIC model. In those States, consumers 
are presently enjoying a high level of privacy protection, and 
insurance providers are complying without problems as far as we know. 
We believe State laws based on the NAIC model exceed GLBA, which means 
they will remain in force under Section 507 of GLBA.
    NAIC issued a newer model law in 1998 to protect the privacy of 
consumer health information. While offering protections similar to the 
1981 model, this newer model is specifically tailored for States 
wishing to focus on health information. We expect this model will 
receive consideration as legislators have more time to consider the 
model or public attention becomes more focused on keeping personal 
health information under the control of consumers.
    In addition to these existing models, the NAIC's Privacy Issues 
Working Group is moving swiftly to construct model insurance consumer 
privacy regulations intended to serve as guidance for States not 
presently having privacy regulations that satisfy Title V of GLBA. The 
purpose of these interim regulations is to help State insurance 
authorities comply with the minimum requirements of GLBA quickly and 
give essential interim guidance to insurers. In addition, the NAIC will 
consider how to achieve stronger privacy protections across-the-board 
for all consumers of financial services, including insurance.
    The Working Group started in February by requesting public comments 
from interested parties regarding how NAIC should implement the privacy 
provisions in GLBA. After evaluating many comment letters and hearing 
public witnesses at NAIC meetings in March, May, and June, the Working 
Group circulated a draft of proposed regulations that mirror the 
Federal GLBA privacy rules as much as possible, while addressing 
specific insurance issues such as medical information. Additional 
public comments are still being received, and the Working Group will 
consider these at the next NAIC meeting scheduled for late August.
    Although final GLBA privacy rules are not completed, by unanimous 
vote all 51 commissioners endorsed making the date for enforcing State 
insurance privacy rules under GLBA the same as the July 1, 2001 date 
set in the Federal rules. We hope to finish the NAIC's model GLBA rules 
at our national meeting in September.
Satisfying NARAB--Starting with Reciprocity and Moving toward 
        Uniformity
    The message from NARAB is clear: fix and make more uniform the 
system for agent licensing. That is what we are doing. We 
wholeheartedly support the licensing goals endorsed by Congress in 
NARAB. We do not, however, support the creation of NARAB itself as a 
separate organization. NARAB would cast a cloud of uncertainty over the 
legal authority of State insurance departments to protect consumers 
throughout the United States. If NARAB were to prevent States from 
exercising their full range of powers to regulate insurance for the 
benefit of consumers, there would be nobody to perform this vital 
function.
    Prior to passage of GLBA, the NAIC was working on an improved 
Producer Licensing Model Act that would promote uniformity and 
efficiency among the States. We moved quickly to amend this model 
legislation to comply fully with the NARAB provisions in GLBA when they 
became final. The revised version of the Producer Licensing Model Act 
was completed in February 2000 in order to make it available in time 
for consideration by several State legislatures which were just 
beginning their sessions. At this point, three States--Kentucky, New 
Hampshire, and Missouri--have enacted the model, two States have a bill 
pending, and 31 States are expected to introduce the bill during their 
next session in 2001.
    The NAIC's Producer Licensing Model Act is the primary vehicle for 
States to satisfy the statutory requirements of GLBA because it fully 
implements the requirements for licensing reciprocity among States. 
Adoption of the Model Act by a majority of States will assure full 
compliance with the NARAB provisions by November 2002.
    Adoption and implementation of this model law, however, does much 
more than simply satisfy the minimum requirements of GLBA. It provides 
for significant uniformity in licensing and goes a long way toward 
achieving our ultimate goal of uniformity among the States in agent 
licensing. Although our immediate goal is minimum compliance with GLBA, 
our ultimate goal is for all 50 States to be operating under a national 
system of unified standards and procedures.
    The NAIC expects that States will meet and exceed the NARAB 
provisions in GLBA within the three-year time allotted by the statute. 
We plan to accomplish this goal by making necessary changes to the 
existing system of State insurance supervision so that NARAB will never 
be created as a separate organization. This approach will satisfy the 
objectives of NARAB sponsors who want to see State regulation improved 
without additional Federal action.
    The NAIC is taking several additional steps to improve agent 
licensing. In partnership with the National Insurance Producer Registry 
(NIPR), a non-profit affiliate of the NAIC, we have been aggressively 
investing over the past three years in modernizing our technical 
infrastructure to develop a more centralized producer licensing 
processing center. At present, the NAIC maintains a regulatory network 
and centralized database of 2.6 million of the Nation's 3 million 
producers. This information is available to regulators and insurance 
companies over the Internet, and is updated daily by automated 
processes at the State insurance departments.
    Currently, 32 States are online with the Producer Database and the 
target is to have all 50 States contributing to PDB between December 
2000 and June 2001. Because PDB is a mirror of the State licensing 
database, NIPR is creating a single system to automatically process 
appointments, terminations, and uniform non-resident license 
applications on behalf of individual State insurance departments 
against data in PDB within 24 hours of receiving the electronic data 
from an insurance company or producer. Approximately 110,000 producer 
appointments and terminations are being processed by 24 States through 
NIPR monthly right now, and we expect to have all 50 States 
participating in 2001.
    The next key step in this process will be the implementation of a 
single electronic licensing application. These system improvements will 
bring about regulatory efficiencies that far exceed the expectations in 
NARAB and set the stage for uniformity.
State Regulators Need Help from Others to Comply with NARAB
    The key to State compliance with the NARAB provisions in GLBA is 
adoption of the NAIC's Producer Licensing Model Act by a large majority 
of States. As regulators, we have started the process at the NAIC by 
developing the Model Act and revising it to meet the requirements of 
GLBA.
    The next step will be for State legislatures and governors to 
consider the Producer Licensing Model Act, and hopefully adopt it 
without substantial changes. NAIC members will be urging our 
legislators and governors to act as quickly as possible because the 
clock is ticking toward the November 2002 deadline for State compliance 
with NARAB provisions.
    NAIC officers and members have also been reaching out to insurance 
industry trade groups and companies to seek their support for adopting 
the Producer Licensing Model Act in each State. Industry 
representatives are active and influential in State government affairs. 
Having them join with regulatory officials in pushing the Model Act 
would be very helpful to getting it enacted into law.
    Many industry groups participated in drafting the modernization 
reforms contained in the Model Act. These include: Council of Insurance 
Agents and Brokers, National Association of Insurance Financial 
Advisors, Independent Insurance Agents of America, Professional 
Insurance Agents, National Association of Professional Surplus Lines 
Offices, Consumer Credit Insurance Association, National Association of 
Life Companies, American Council of Life Insurers, Alliance of American 
Insurers, American Bankers Association Insurance Group, Association of 
Banks in Insurance, National Association of Independent Insurers, and 
the American Insurance Association.
    Some commercial firms have complained to Congress and others that 
State regulation needs to be modernized. We hope industry 
representatives will actively support the modernization efforts which 
are now the top priority of the NAIC and State insurance regulators. 
Now is the time for all of us to replace words with actions.
    There is also a role for the Congress with respect to giving NAIC 
access to NCIC, which I will discuss later.
NAIC Initiatives Go Beyond Federal Requirements
    There are three key NAIC program initiatives in our regulatory 
modernization plan that go far beyond the requirements in GLBA and 
other Federal laws. To make them happen, NAIC has created special 
working groups, whose activities are described below--
               national treatment of insurance companies
    The National Treatment of Companies Working Group is responsible 
for identifying regulatory procedures that will treat eligible 
insurance companies the same across the Nation. Already, 29 states are 
participating in the NAIC's Uniform Certificate of Authority 
Application (UCAA), and one more is in transition. The Working Group's 
goal is to encourage all 50 states and the District of Columbia to use 
the UCAA by December 2000.
    Another goal is standardizing the licensing review process. While 
the UCAA provides a uniform application, the Working Group is looking 
to expand this effort to also include standardized review criteria 
nationwide. We also plan to develop a streamlined operating structure 
that would give certain companies ``national treatment'', including 
regulatory procedures related to solvency monitoring, holding company 
supervision, approval of mergers and acquisitions, market conduct 
reviews, and corporate re-organizations. A draft model to accomplish 
this goal is currently underway, and will be discussed during the 
Working Group's next meetings in August and September.
    The importance of this national effort is set forth in our 
Statement of Intent--
          ``We are committed to exploring all options that could offer 
        greater uniformity within the state-based system of insurance 
        regulation.
          ``An initial step toward this streamlined system is already 
        available through the Accelerated Licensure Evaluation and 
        Review Techniques (ALERT) program, which is a streamlined 
        insurer licensing procedure. We will encourage all states to 
        join ALERT and initiate use of the newly developed expansion 
        application process. This will allow streamlined admissions for 
        those companies already admitted in one ALERT state simply 
        through the filing of an expansion application in another ALERT 
        state. The expansion application process introduces elements of 
        reciprocal reliance on the more detailed work of the state 
        reviewing the complete application. We will pursue development 
        of an e-repository for company applications to facilitate one-
        stop filing.
          ``In addition, we will evaluate the broad range of regulatory 
        issues and concerns and develop a proposal for a state-based 
        system that could provide the same efficiencies as a federal 
        charter for insurance companies.''
                            speed-to-market
    The Speed-to-Market Working Group is responsible for identifying 
one-stop product filing procedures and a more efficient product 
approval process. The Working Group is considering domestic regulatory 
approval in conjunction with some form of oversight or the formation of 
a single-source entity that is charged with filing review. They are 
considering a centralized electronic filing repository as a key 
objective, and have discussed methods for implementing long-range 
speed-to-market plans. Still on the table are development of an 
interstate compact and reciprocal agreements.
    There is widespread support among the States to pass legislation 
regarding commercial lines de-regulation. Just as we revised our 
producer licensing model law to respond to NARAB, we will similarly 
revisit our rate and form filing procedures to assure they promote true 
speed to market.
    Much progress has already been made on speed-to-market through the 
NAIC's System for Electronic Rate and Form Filing (SERFF) program. 
SERFF is an electronic process for insurers to file required rates and 
policy forms with State regulators. The current monthly total of such 
filings is 300 to 400, which has been increasing steadily since the 
beginning of this year. There are 34 States approved for SERFF, with 20 
of those States currently active in receiving and reviewing SERFF 
filings. Of the 287 companies eligible, about 150 are active in making 
SERFF filings.
    Version 2.0 of SERFF is set to roll-out around Labor Day. It offers 
the advantage of being available through the Internet, and will provide 
many enhancements such as improvements in multi-state filing and a more 
user-friendly interface. Version 2.0 should greatly boost interest in 
SERFF and rapidly increase the numbers of licenses, active 
participants, and electronic filings transmitted.
                         market conduct issues
    Along with solvency, consumer protection is the hallmark of the 
State insurance regulatory system. Our goal is to address national 
market conduct to make it as strong as our coordinated solvency 
monitoring system. The Market Conduct Issues Working Group is 
responsible for streamlining regulatory procedures dealing with 
coordination or duplication, uniform procedures, philosophy, focus of 
examinations, self-audits and assessments, training, costs, and uniform 
legal standards. Streamlining insurance supervision is a top priority, 
but assuring consumers of fair treatment in the marketplace will always 
be our highest priority.
Congress Can Help Improve State Regulation
    Improvements in several Federal laws affecting State insurance 
regulation would help give us all the tools we need to meet the 
challenges of the modern marketplace. During Congressional 
consideration of GLBA, the NAIC suggested several amendments to Federal 
laws that would be useful.
    The primary benefit of making the following changes to Federal laws 
is to achieve uniform regulatory procedures and national enforcement 
quickly by using the existing system of State regulation. The NAIC 
proposes that Congress--

 Provide State insurance regulators with access to the national 
        criminal information database (NCIC) through the NAIC or its 
        affiliates for regulatory purposes and for checking criminal 
        histories as required by the Federal Insurance Fraud Prevention 
        Act. (18 USC 1033)
 Grant Federal immunity from liability for NAIC and NIPR 
        database activities related to creating a national licensing 
        and enforcement system.
 Protect the confidentiality of regulatory communications among 
        NAIC, State regulators, and Federal agencies.
    NAIC and its members will be pleased to provide additional 
information and assist Congress in adopting Federal legislation to 
achieve these goals.
Conclusion--State Regulators Are Meeting the Challenge of Modernization
    The NAIC and State insurance regulators are well on the way to 
implementing the provisions of GLBA as intended by Congress. More 
importantly, we are also well on the way to doing far more than 
Congress or industry representatives have asked us to do regarding 
uniformity, efficiency, and modernization. We will need help from other 
State officials, industry, and Congress to complete the job expected by 
consumers, policyholders, and claimants as we begin the 21st century.
    We look forward to working with Congress and other interested 
parties as State insurance regulators continue to develop and implement 
our modernization programs.
                             Attachment One
        statement of intent: the future of insurance regulation
    Our primary goal is to protect insurance consumers, which we must 
do proactively and aggressively. We also recognize that consumers as 
well as companies are well served by efficient, market-oriented 
regulation of the business of insurance.
    Insurance is unique in the world of financial services. 
Historically, insurance markets have developed from state to state 
reflecting the differences in population, geography, weather patterns 
and delivery systems. State regulation has addressed that marketplace 
efficiently and effectively.
    Fueled by enhanced technology and globalization, the world 
financial markets are undergoing rapid changes. In order to protect and 
serve more sophisticated but also more exposed insurance consumers of 
the future, insurance regulators are committed to modernize insurance 
regulation to meet the realities of an increasingly dynamic, and 
internationally competitive financial services marketplace. This will 
include working with all parties to combat and reduce the incidence of 
fraud, thereby providing a safer environment for consumers and lower 
costs.
    We pledge to work cooperatively with all our partners--governors, 
state legislators, federal officials, consumers, companies, agents and 
other interested parties--to facilitate and enhance this new and 
evolving marketplace as we begin the 21st Century.
               i. implementing the gramm-leach-bliley act
Proposed Amendments of State Laws
    Working with our governors and state legislators, we will undertake 
a thorough review of our respective state laws to determine needed 
regulatory or statutory changes to achieve functional regulation as 
contemplated by the Gramm-Leach-Bliley Act. Anti-affiliation statutes, 
licensure laws, demutualization statutes, and various essential 
consumer protections, including sales and privacy provisions, will be 
part of this review. We will move forward quickly to both promulgate 
regulations and suggest statutory changes to facilitate implementation 
of the new law.
Streamlined Licensing for Producers
    We are committed to uniformity in producer licensing and will work 
to implement effective uniform producer licensing standards. As a 
necessary interim step, the NAIC adopted the Producer Licensing Model 
Act for consideration by state legislatures. This Model Act provides 
specific multi-state reciprocity provisions to comply with the 
requirements of the Gramm-Leach-Bliley Act.
    While reciprocity is a short-term answer, uniformity is the 
efficient, long-term solution. As a result, we have empowered the 
NAIC's non-profit affiliate Insurance Regulatory Information Network 
(IRIN) to develop recommendations for a streamlined, national producer 
licensing process that will reduce the cost and complexity of 
regulatory compliance related to the current multi-state process. We 
believe that by leveraging work already done on the Producer Database 
and the Producer Information Network and by using IRIN as a central 
clearinghouse for non-resident licensing information, efficiencies will 
be realized that exceed expectations outlined in the National 
Association of Registered Agents and Brokers (NARAB) provisions of the 
Gramm-Leach-Bliley Act.
Financial Examinations and Reviews of National Companies
    We will consider the implications of the Gramm-Leach-Bliley Act on 
the regulatory authority, focus, and procedures provided by the NAIC 
Insurance Holding Company System Model Act and accompanying Model 
Regulation and will recommend changes for consistency with the 
functional regulatory scheme set forth in the Gramm-Leach-Bliley Act 
and related federal regulations.
    Building on initiatives already underway, we will review our 
financial reporting and financial analysis and examination processes in 
light of the new law and changes occurring in the market place. We will 
refine our risk-based approach to examining the insurance operations of 
financial holding companies to place greater emphasis on a company's 
unique risk exposures and how it manages those risks.
    We will recommend mechanisms to enhance communication and 
coordination among all functional regulators, and we will review the 
role of the NAIC resources in supporting such communication and 
coordination.
    We will pursue development of a group-wide approach to regulating 
insurer groups and enhancing coordination among states. As a part of 
this initiative, we will consider consolidated financial statements for 
the insurance operations of groups.
Implementing Functional Regulation and Sharing Regulatory Information
    We will continue to use the NAIC process for the development of 
model agreements, and we will build on our progress to date. We will 
actively encourage the execution of information sharing agreements 
between the individual states and each of the key federal functional 
regulators.
    In addition, we will develop a comprehensive agreement for the 
sharing of information among states.
    The NAIC adoption of the model confidentiality law provisions 
demonstrates its commitment to break down barriers to sharing 
information between the States. We will work with state legislators to 
support such confidentiality legislation. We will pledge to form 
coalitions with interested parties to promote uniform and consistent 
enactment of the confidentiality provisions.
              ii. year 2000 national regulatory priorities
``Speed to Market''
    Working with our governors and state legislators, we will take 
steps to improve speed to market for insurance products. This will 
include development and implementation of a system of deference to the 
state of domicile using one-stop filing for products issued on a multi-
state basis, where appropriate. To support this system, we will develop 
and implement state-based uniform standards for policy form and rate 
filings for appropriate product lines. In pursuing this evaluation, we 
will keep in mind the need for flexibility to allow local treatment of 
conditions produced by local markets. For lines that do not lend 
themselves to uniform standards, we are committed to reviewing market 
barriers for further efficiencies. We will take steps to shift the 
focus of states away from a prior approval system, where appropriate. 
We will also develop an e-repository for filings, a system for tracking 
data, and a state certification process.
    In addition, we will take steps to shift the focus of states away 
from a prior approval system, where appropriate.
Regulatory Re-engineering
    The benefits of uniform regulatory procedures for insurers selling 
products to large, sophisticated commercial policyholders are 
compelling. Many states have adopted and are implementing laws to re-
engineer their commercial lines regulatory functions.
    We will evaluate the progress of specific states with respect to 
commercial lines reform, and compare those actions with the Property 
and Casualty Model Rate and Policy Form Law. Based on this evaluation, 
we will consider amending the Model and taking other appropriate steps 
to achieve greater uniformity and consistent application of rate and 
form requirements with our members.
    We will continue to explore avenues to reduce unnecessary 
requirements for policies sold to insurance purchasers with insurance 
knowledge and market power. Where appropriate, we will explore 
increased reliance on the benefits of open competition.
Market Conduct Reform
    Market conduct is an essential regulatory tool. Its importance to 
regulators, producers and consumers will increase as the ``Speed to 
Market'' reforms are implemented and the marketplace evolves.
    We will examine the current focus, structure and implementation of 
market conduct programs in the states to identify the issues and 
concerns that currently exist in this area. This examination will help 
us determine the merits of voluntary uniform national standards as a 
basis for market conduct examinations and enforcement actions. In 
pursuing this evaluation, we will keep in mind the need for flexibility 
to allow local treatment of conditions produced by local markets.
Facilitating Electronic Commerce that Protects Consumers
    The insurance-buying public and industry must be allowed to benefit 
from the broad range of opportunities that e-commerce offers. As a 
result, we adopted the recommendations of the Electronic Commerce and 
Regulation Working Group and endorsed the Uniform Electronic 
Transactions Act (UETA) for consideration and enactment in each of the 
states. As e-commerce evolves, we will continue to identify necessary 
reforms that will facilitate e-commerce while maintaining important 
consumer protections.
Treatment of National Insurance Companies
    We are committed to exploring all options that could offer greater 
uniformity within the state-based system of insurance regulation.
    An initial step toward this streamlined system is already available 
through the Accelerated Licensure Evaluation and Review Techniques 
(ALERT) program, which is a streamlined insurer licensing procedure. We 
will encourage all states to join ALERT and initiate use of the newly 
developed expansion application process. This will allow streamlined 
admissions for those companies already admitted in one ALERT state 
simply through the filing of an expansion application in another ALERT 
state. The expansion application process introduces elements of 
reciprocal reliance on the more detailed work of the state reviewing 
the complete application. We will pursue development of an e-repository 
for company applications to facilitate one-stop filing.
    In addition, we will evaluate the broad range of regulatory issues 
and concerns and develop a proposal for a state-based system that could 
provide the same efficiencies as a federal charter for insurance 
companies.
                             Attachment Two

                                       NAIC Meetings with Federal Agencies
----------------------------------------------------------------------------------------------------------------
            Federal Agency                       Date               Key Participants              Notes
----------------------------------------------------------------------------------------------------------------
Federal Reserve Board................  April 9, 1998..........  Governor Susan Philips/  Initial meeting to open
                                                                 George Nichols,          a cooperation dialogue
                                                                 Elizabeth Costle.        at the Federal Reserve
                                                                                          Building in DC.
Federal Reserve Board................  May 8, 1998............  Rich Spillenkothen, Fed  Day-long meeting
                                                                 supervision chief/       between NAIC and
                                                                 Commissioner Terri       Federal Reserve
                                                                 Vaughan.                 experts to explore
                                                                                          regulatory methods at
                                                                                          the Federal Reserve
                                                                                          Building in DC.
Federal Reserve Board................  June 20, 1998..........  Roger Cole, Fed          Discussion of RBC and
                                                                 financial chief/         other Accounting/
                                                                 Commissioner Terri       Financial Issues at
                                                                 Vaughan.                 NAIC national meeting
                                                                                          in Boston.
Federal Reserve Board................  December 5, 1999.......  Connecticut and Federal  NAIC/Federal Reserve
                                                                 Reserve experts          regulator-only meeting
                                                                 handling Citigroup       re Citigroup at NAIC
                                                                 merger.                  national meeting in
                                                                                          San Francisco.
Federal Reserve Board................  January 10, 2000.......  Governor Laurence        Meeting of top leaders
                                                                 Meyer, Rich              from Federal Reserve
                                                                 Spillenkothen/           and NAIC to discuss
                                                                 Commissioners George     GLBA cooperation--Held
                                                                 Nichols and George       at the Federal Reserve
                                                                 Reider.                  Building in DC.
Federal Reserve Board................  February 24, 2000......  Rich Spillenkothen and   Domestic Joint Forum
                                                                 numerous Federal and     regarding GLBA
                                                                 State regulators.        compliance issues--
                                                                                          Regulators only--Held
                                                                                          at Federal Reserve
                                                                                          Building in DC.
Federal Reserve Board................  March 12, 2000.........  Rich Spillenkothen/      Discussion of GLBA
                                                                 Commissioner Terri       issues at NAIC
                                                                 Vaughan.                 national meeting in
                                                                                          Chicago.
Office of the Comptroller of the       November 17, 1998......  Sam Golden, OCC          Visit with OCC
 Currency.                                                       Ombudsman/Commissioner   Ombudsman at OCC's
                                                                 Donna Lee Williams.      Houston office to
                                                                                          review consumer
                                                                                          complaint procedures.
Office of the Comptroller of the       February, 1999.........  Jerry Hawke,             Addressed NAIC
 Currency.                                                       Comptroller.             commissioners
                                                                                          conference in DC.
Office of the Comptroller of the       March 8, 1999..........  Sam Golden, OCC          Addressed NAIC FSM
 Currency.                                                       Ombudsman.               Committee at national
                                                                                          meeting in DC.
Office of the Comptroller of the       June 7, 1999...........  Sam Golden, OCC          Addressed NAIC FSM
 Currency.                                                       Ombudsman.               Committee at national
                                                                                          meeting in Kansas
                                                                                          City.
Office of the Comptroller of the       October 1999...........  Senior OCC officers      Met with insurance
 Currency.                                                       from DC and regional     commissioners at their
                                                                 offices.                 regional zone meetings
                                                                                          at NAIC national
                                                                                          meeting in Atlanta.
Office of the Comptroller of the       October 4, 1999........  Leann Britton, OCC       Addressed NAIC FSM
 Currency.                                                       supervision chief.       Committee at national
                                                                                          meeting in Atlanta.
Office of the Comptroller of the       November 1, 1999.......  Leann Britton/           Day-long meeting of
 Currency.                                                       Commissioner Terri       senior NAIC and OCC
                                                                 Vaughan.                 officials to discuss
                                                                                          regulatory cooperation
                                                                                          at OCC office in
                                                                                          Kansas City.
Office of the Comptroller of the       December 6, 1999.......  Delora Jee, OCC deputy   Addressed NAIC FSM
 Currency.                                                       supervision chief.       Committee at national
                                                                                          meeting in San
                                                                                          Francisco.
Office of the Comptroller of the       February 11, 2000......  Leann Britton, Julie     Day-long meeting of
 Currency.                                                       Williams/Commissioners   senior NAIC and OCC
                                                                 George Nichols and       officials to discuss
                                                                 Terri Vaughan.           regulatory cooperation
                                                                                          at OCC office in DC.
Office of Thrift Supervision.........  February 27, 1998......  Ellen Seidman, OTS       Initial meeting of OTS
                                                                 Director/Commissioners   and NAIC leaders to
                                                                 Glenn Pomeroy and        promote regulatory
                                                                 George Nichols.          cooperation.
Office of Thrift Supervision.........  June 1998..............  Ellen Seidman, OTS       Addressed NAIC Banks
                                                                 Director.                and Insurance
                                                                                          Committee at national
                                                                                          meeting in Boston.
Office of Thrift Supervision.........  October 14, 1998.......  Mary Jane Cleary/Jack    Discuss next steps in
                                                                 Chesson.                 promoting regulatory
                                                                                          cooperation between
                                                                                          OTS and state
                                                                                          regulators.
Office of Thrift Supervision.........  November 3-4, 1998.....  Rick Riccobono, OTS      Two-day meeting in
                                                                 Deputy Director/         Kansas City between
                                                                 Commissioner Terri       senior experts at NAIC
                                                                 Vaughan.                 and OTS to explore
                                                                                          regulatory methods and
                                                                                          cooperation issues.
Office of Thrift Supervision.........  December 16, 1998......  Scott Albinson, OTS      Discuss OTS-NAIC
                                                                 Deputy/NAIC Staff.       regulatory cooperation
                                                                                          agreement at NAIC DC
                                                                                          office.
Office of Thrift Supervision.........  December 1998..........  Senior OCC officers      Met with insurance
                                                                 from DC and regional     commissioners at their
                                                                 offices.                 regional zone meetings
                                                                                          at NAIC national
                                                                                          meeting in Orlando.
Office of Thrift Supervision.........  April 6, 2000..........  Ellen Seidman, OTS       Meeting of leaders at
                                                                 Director/Commissioner    OTS office in DC to
                                                                 George Nichols.          discuss GLBA
                                                                                          implementation issues
                                                                                          and promote signing of
                                                                                          regulatory cooperation
                                                                                          agreements.
Office of Thrift Supervision.........  June 29, 2000..........  NAIC's Nat Shapo/Eric    Consultation meeting
                                                                 Nordman and senior       regarding
                                                                 attorneys from Federal   implementation of
                                                                 banking agencies.        Section 305 insurance
                                                                                          sales rules for banks.
Federal Deposit Insurance Corporation  February 8, 2000.......  FDIC staff and Jack      Initial meeting at FDIC
                                                                 Chesson.                 office in DC to
                                                                                          discuss regulatory
                                                                                          cooperation under
                                                                                          GLBA.
Federal Deposit Insurance Corporation  June 11, 2000..........  FDIC staff/Commissioner  Meeting of FDIC
                                                                 Terri Vaughan.           officials and state
                                                                                          regulators to explore
                                                                                          regulatory cooperation
                                                                                          under GLBA at NAIC
                                                                                          national meeting in
                                                                                          Orlando.
Federal Deposit Insurance Corporation  June 28, 2000..........  FDIC staff and Jack      Meeting regarding
                                                                 Chesson/John Fielding.   development of model
                                                                                          regulatory cooperation
                                                                                          agreement between FDIC
                                                                                          and State insurance
                                                                                          departments.
----------------------------------------------------------------------------------------------------------------

    Mr. Oxley. Thank you, Mr. Nichols.
    Ms. Williams?

                 STATEMENT OF JULIE L. WILLIAMS

    Ms. Williams. Mr. Chairman and members of the subcommittee, 
thank you for inviting the Office of the Comptroller of the 
Currency to participate in this hearing. The significant 
changes to the financial services industry effected by the 
implementation of the Gramm-Leach-Bliley Act make cooperation 
and coordination between regulators at the Federal and State 
levels more important than ever before to achieve effective and 
efficient regulation of the industry we supervise. I am pleased 
to have the opportunity to provide an update on these matters.
    My testimony today addresses the subjects in which the 
subcommittee indicated a particular interest: the dual banking 
system and our coordination with State insurance regulators.
    Turning first to the dual banking system, this term refers 
to the fact that banks may be chartered by either a State or 
the Federal Government. The development of the system may be 
traced back to the early years of our Nation. Beginning in 
1863, two separate and independent banking systems were 
operating in this country--the State and National Banking 
systems. Today, our dual banking system is far more complex and 
can best be described as two interrelated systems in which most 
State chartered banks are subject to a significant degree of 
Federal supervision and regulation. Indeed, the largest 
component of State bank supervision and regulation today comes 
from the Federal level. On the other hand, Federal law also 
makes State laws applicable, to a varying extent, to federally 
chartered banks.
    The dual banking system, however, is not without its 
detractors. Some have criticized the system as overly complex 
and burdensome, imposing conflicting standards on equivalent 
banking organizations, and encouraging laxity in supervision by 
having the State and Federal regulatory agencies compete with 
each other for chartering business.
    Others have defended the dual banking system as 
representing federalism in practice, by providing a uniform 
national system while permitting experimentation and innovation 
at the State level. It has been argued that the dual banking 
system provides checks and balances against over-regulation by 
a single body. Finally, many would say that despite its 
complexity, our banking system has functioned with notable 
success in fostering economic opportunity and our Nation's 
prosperity.
    The OCC's oversight of national banks has been interrelated 
with State insurance regulation for some time and will be even 
more so following the Gramm-Leach-Bliley Act, which establishes 
a system of functional regulation. Both before and after 
enactment of the Act, we have taken a number of actions to 
coordinate and work with State insurance regulators.
    First, the OCC and the NAIC jointly developed a model 
agreement to share information about consumer complaints with 
respect to national banks involved in insurance sales 
activities. We have entered into such complaint sharing 
agreements with 28 State insurance regulators. These agreements 
facilitate banks' compliance with consumer safeguards by 
ensuring that the regulator with the appropriate jurisdiction 
to resolve the complaint will receive and process the 
complaint.
    Second, we are working to develop a broader agreement that 
will significantly expand the types of information shared by 
the OCC and the State insurance regulatory agencies. We are 
also exploring ways to better share information with State 
insurance regulators about individuals who have committed fraud 
or have otherwise been subject to OCC enforcement actions.
    Third, in an effort to further develop working 
relationships between the OCC and the State insurance 
regulators, we also have been engaged in a continuing and 
productive dialog with the NAIC and with individual State 
regulators. To date, regional representatives of the OCC have 
met with 43 State insurance regulators, and OCC staff regularly 
consults with NAIC staff and the staffs of the State insurance 
regulators regarding Gramm-Leach-Bliley Act implementation 
issues.
    Finally, we and the other Federal banking agencies have had 
very productive discussions with the NAIC regarding the 
development of Federal regulations implementing the provisions 
of the Act that address consumer protection concerns in 
depository institution sales of insurance. The banking agencies 
have provided a working draft of the proposed rule to the NAIC, 
and on June 29, representatives of the OCC and the other 
agencies met with NAIC representatives to discuss the proposal. 
We expect the proposal, reflecting these consultations, to be 
issued for public comment later this summer.
    Again, I appreciate the opportunity to testify before the 
subcommittee this morning, and I will be happy to try to 
respond to any questions the subcommittee may have.
    [The prepared statement of Julie L. Williams follows:]
     Prepared Statement of Julie L. Williams,* First Senior Deputy 
    Comptroller and Chief Counsel, Office of the Comptroller of the 
                                Currency
---------------------------------------------------------------------------
    * The views expressed herein are those of the Office of the 
Comptroller of the Currency and do not necessarily represent those of 
the President.
---------------------------------------------------------------------------
                              introduction
    Mr. Chairman and members of the Subcommittee, thank you for 
inviting the Office of the Comptroller of the Currency (OCC) to 
participate in this hearing. The significant changes to the financial 
services industry effected by the implementation of the Gramm-Leach-
Bliley Act (GLBA) make cooperation and coordination between regulators 
at the Federal and State levels more important than ever before. We 
appreciate this opportunity to share with you the OCC's experience 
working with State insurance regulators.
    As the Subcommittee requested, today I will provide a short 
overview of the dual banking system. I will then discuss how the OCC is 
implementing GLBA both through the formal development of supervisory 
policies together with State insurance regulators, and through our less 
formal, but equally important, efforts to strengthen and maintain the 
productive working relationships we have established with our State 
insurance regulator colleagues. I will conclude my remarks by reporting 
to you about the status of our work to prepare, in consultation with 
State insurance regulators, the insurance consumer protection 
regulations required by section 305 of GLBA.
                 the dual system of banking regulation
    ``The dual banking system'' refers to the fact that banks may be 
chartered by either a State or the Federal Government. The development 
of the system may be traced back to the early years of our Nation, when 
popular, and especially agrarian, animosity towards the establishment 
of banks by the National Government was very strong. 1 The 
opposition was based on the widely accepted belief that banks 
encouraged usury, diverted funds from agriculture, increased 
speculation, and were responsible for a host of other social and 
economic evils.2 Nonetheless, a permanent Federal banking 
system was established in 1863, when the financial demands of the Civil 
War, and the need for the consistency and uniformity of a national 
system, made such action exigent.3 However, the animus 
against banks did not prevent the establishment of State chartered 
banks, and during the period between 1837 and 1863 many banks were 
formed under State authority. By the time the national banking system 
began in 1863, State chartered banking was an established presence in 
the United States.
---------------------------------------------------------------------------
    \1\ J. White, Banking Law 7 (1976).
    \2\ Id.
    \3\ B. Hammond, Banks and Politics in America from the Revolution 
to the Civil War 721-727 (1957). Hackley, Our Baffling Banking System, 
52 Va. L. Rev. 565, 570 (1966). Two Federal banks were chartered prior 
to 1863--the First and Second Bank of the United States, each for a 
period of 20 years. In 1832 President Jackson vetoed legislation 
renewing the charter of the Second Bank of the United States, 
effectively ending Federal chartering activity until the Civil War. J. 
White, Banking Law 16 (1976).
---------------------------------------------------------------------------
    Thus, beginning in 1863, two separate and independent banking 
systems were operating in the country--the State and National Banking 
systems. In the nineteenth century, a bank could be chartered and 
regulated by either authority without interference from the other.
    Today, our dual banking system is far more complex. Starting with 
the Federal Reserve Act in 1913, Federal regulatory involvement with 
the affairs of State chartered banks began to grow. This involvement 
was accelerated by the advent of Federal deposit insurance in 1933, so 
that today virtually all State banks are subject to substantial Federal 
oversight. At the same time, Federal provisions began to incorporate 
certain State laws into the Federal regulatory framework, and made 
these laws applicable to federally chartered banks. Further, a bank may 
elect (with regulatory approval) to convert at any time from State to 
Federal charter, or Federal to State charter. Thus, instead of having 
two independent banking systems, the dual banking system today can best 
be described as two interrelated systems in which most State chartered 
banks are subject to a significant degree of federal supervision and 
regulation, and where State laws are made applicable, to a varying 
extent, to federally chartered banks.4 Indeed, the largest 
component of State bank supervision and regulation is Federal.
---------------------------------------------------------------------------
    \4\ For a more detailed description about the dual banking system, 
see Scott, The Patchwork Quilt: State and Federal Roles in Bank 
Regulation, 32 Stan. L. Rev. 687 (1980); Scott, The Dual Banking 
System: A Model of Competition in Regulation, 30 Stan. L. Rev. 1 
(1977); Brown, The Dual Banking System in the United States (1968).
---------------------------------------------------------------------------
    Some have criticized the dual banking system as an overly complex 
and burdensome institution that imposes conflicting standards on 
equivalent banking organizations, and which encourages laxity in 
supervision by having the State and Federal regulatory agencies compete 
with each other for chartering business.5 This complexity is 
highlighted by the fact that the dual banking system actually consists 
of one Federal system and 50 State systems, since each State is free to 
construct its own regulatory framework.
---------------------------------------------------------------------------
    \5\ See, e.g., Redford, Dual Banking: A Case Study in Federalism, 
31 Law and Contemp. Probs. 749, 770-773 (1966).
---------------------------------------------------------------------------
    On the other hand, others have defended the dual banking system as 
representing Federalism in practice by permitting individual States the 
flexibility necessary to provide for the banking services needed by 
their local communities, and encouraging experimentation and innovation 
at the State, as well as Federal, level.6 Further, some have 
argued that by providing an alternative chartering mechanism, the dual 
system provides ``checks and balances'' against over-regulation by a 
single monolithic body.7
---------------------------------------------------------------------------
    \6\ Id.
    \7\ Id. See also, Golembe, Our Remarkable Banking System, 53 Va. L. 
Rev. 1091 (1967).
---------------------------------------------------------------------------
    One key aspect of the current system of bank regulation for 
purposes of the Subcommittee's inquiry today, however, is that the 
OCC's oversight of national banks has been interrelated with State 
insurance regulation for some time. Since 1916, national banks have 
been expressly permitted to sell insurance directly pursuant to the so-
called ``place of 5,000'' provision at 12 U.S.C. Sec. 92.8 
After the enactment of GLBA, national banks may also sell insurance 
through financial subsidiaries without regard to these geographic 
restrictions.
---------------------------------------------------------------------------
    \8\ Before GLBA, an estimated 50% to 65% of all banking 
associations and virtually all banks with assets of more than $10 
billion were selling some form of insurance. Larry LaRocco, ``Banks' 
Role in Insurance to Grow After Gramm-Leach-Bliley Act,'' National 
Underwriter, Nov. 15, 1999, at 7.
---------------------------------------------------------------------------
                  glba's functional regulation regime
    GLBA establishes a system of functional regulation that requires 
each financial regulator to defer to the regulator primarily 
responsible for supervising particular entities. Thus, in general, 
State insurance regulators will oversee insurance agencies and 
companies, securities regulators will oversee registered securities 
firms, and banking regulators will oversee banking organizations.
    The functional regulation provisions in GLBA restrict the OCC's 
ability to require reports, examine and take remedial actions against 
functionally regulated national bank subsidiaries and affiliates. For 
example, GLBA requires the OCC to rely, to the fullest possible extent, 
on reports provided by national bank insurance subsidiaries to their 
functional regulator. In addition, GLBA permits the OCC to examine a 
functionally regulated subsidiary or affiliate of a national bank only 
if: (1) we have reasonable cause to believe that the subsidiary is 
engaged in activities that pose a material risk to the national bank; 
(2) we reasonably conclude--after reviewing reports obtained from the 
functional regulator--that the examination is necessary in order for us 
to be adequately informed about the systems for monitoring and 
controlling operational and financial risks that could pose a threat to 
the safety and soundness of the national bank; or (3) based on reports 
or other information, we have reasonable cause to believe that the 
subsidiary is not in compliance with laws that we have the jurisdiction 
to enforce. Other statutory standards substantially limit the ability 
of the OCC to take enforcement actions against functionally regulated 
entities.
    These provisions effectively place the functional supervisor--State 
insurance regulators in the case of functionally regulated national 
bank insurance subsidiaries, for example--in a pivotal position to 
identify activities conducted by a national bank's insurance subsidiary 
that could compromise the safety and soundness of its parent national 
bank (or other parent depository institution). Close cooperation with 
State insurance authorities is thus not only statutorily required, but 
is essential for us to fulfill the OCC's primary mission of ensuring 
the safety and soundness of the National Banking System.
    To achieve this goal, the OCC will continue to monitor the impact 
of subsidiaries' insurance activities on the safety and soundness of 
parent national banks, by examining banks' systems and procedures for 
monitoring and controlling risks arising from those activities and by 
reviewing carefully the information we receive from State insurance 
regulators. Moreover, the GLBA functional regulation provisions 
highlight the importance of developing processes to share appropriate 
information between the OCC and the State insurance regulators and 
establishing close working relationships with State insurance 
regulators. The OCC has taken several actions in furtherance of these 
goals.
                          information sharing
    The exchange of appropriate and meaningful information not only 
assists the OCC and State insurance supervisors in identifying 
individual and systemic risks, but also establishes the foundation for 
prompt and effective action to address consumer concerns. The OCC 
recognized the need for cooperative efforts to address consumer 
concerns well before passage of GLBA. In 1996, the OCC invited State 
insurance commissioners to the OCC to open a dialogue between two 
historically distant regulatory systems and to begin exploring ways to 
better coordinate our efforts. As a result, the OCC and the National 
Association of Insurance Commissioners (NAIC) jointly developed a model 
agreement to share information about consumer complaints with respect 
to national banks involved in insurance sales activities. The OCC then 
worked with individual State insurance regulators to ``customize'' the 
agreement to be consistent to unique features of a particular State's 
law. To date, the OCC has entered into consumer complaint sharing 
agreements with 28 State insurance regulators.
    These agreements require the OCC to send to the appropriate State 
insurance regulator copies of all complaints that the OCC receives 
relating to insurance sales in that State by a national bank. Likewise, 
the State insurance regulator will send to the OCC copies of all 
complaints it receives involving a national bank. The agreement also 
provides that the OCC and the State insurance regulator communicate 
with each other to the fullest extent possible on matters of common 
interest, such as regulatory and policy initiatives.
    These agreements enhance consumers' ability to remedy their 
complaints and facilitate banks' compliance with consumer safeguards by 
ensuring that the regulator with the appropriate jurisdiction and 
authority to resolve the complaint will receive and process the 
complaint. Complaints received from the States also will assist the OCC 
in focusing its examination resources with respect to national banks 
that sell insurance directly. Information about consumer complaints 
will help examiners spot trends in insurance sales practices among 
national banks that sell insurance and in the banking industry in 
general and enable them to take appropriate supervisory steps if any 
particular bank generates complaints with more than normal frequency.
    The OCC's Customer Assistance Group (CAG), located in Houston, 
Texas, is primarily responsible for implementing these agreements in 
coordination with the State insurance regulators. The CAG is fully 
staffed with banking compliance professionals who log, track and 
resolve national bank customer complaints with the assistance of a call 
center employing modern call center technology. As of June 30, 2000, 
the CAG has referred 70 complaints to those States that have signed the 
agreement and received 3 referrals from State insurance regulators. All 
referrals received by CAG are processed and sent to the bank for 
responsive action, and the information is shared with the appropriate 
State insurance regulator.
    In light of the heavy reliance on State insurance regulation that 
GLBA requires, we are currently working to develop a broader agreement 
that will significantly expand the types of information shared by the 
OCC and the State insurance regulatory agencies. We anticipate that 
these agreements will provide for the sharing of various types of 
supervisory information in addition to incorporating the existing 
consumer complaint sharing provisions. For example, we expect the 
agreement to follow the GLBA provisions and permit each agency to 
request from the other information regarding: (1) the material risks to 
the operations or financial condition of a regulated entity; (2) the 
insurance activities of a regulated entity; or (3) other matters 
necessary to disclose fully the relations between a regulated entity 
supervised by the OCC and a regulated entity supervised by the State 
insurance regulator, provided the information requested is in 
furtherance of the agency's lawful examination or supervision of the 
regulated entity. The agreement is intended to cover the exchange of 
information involving national banks, national bank subsidiaries, 
Federal branches or agencies, companies engaged in insurance activities 
subject to the supervision of the State insurance regulator, and other 
entities over which the OCC or the State insurance regulator has 
examination or supervisory authority.
    These new, more comprehensive agreements are also intended to cover 
information relating to enforcement actions. This provision will permit 
each agency to assess whether the enforcement action poses risks to an 
entity it regulates that is not subject directly to the enforcement 
action, and put the agency on notice of possible violations of law or 
unsafe and unsound practices that may require independent investigation 
and follow up with the entity it does not regulate. Over the next few 
months, we expect to work with the NAIC to develop our draft into a 
model supervisory information sharing agreement that will serve as the 
basis for agreements between the OCC and each State insurance 
regulator.
    The OCC also is exploring ways to better share information with 
State insurance regulators about individuals who have committed fraud 
or have otherwise been subject to OCC enforcement actions. The OCC 
currently makes this information publicly available through it Web 
site. For example, the OCC currently lists on its Web site the names of 
individuals that are the subject of formal enforcement actions, 
including removals from the industry, orders to make reimbursement, and 
assessments of civil money penalties.9
---------------------------------------------------------------------------
    \9\ This information is available on the OCC's Web site at http://
www.occ.treas.gov/enforce/enforce.htm.
---------------------------------------------------------------------------
    The OCC has also recently amended its rules relating to national 
bank corporate activities to include new procedures for sharing with 
State insurance departments appropriate information relating to initial 
and continuing affiliations between national banks and companies 
engaged in insurance activities. The OCC included these procedures 
following discussions with, and at the request of, NAIC members that 
they receive some notification when a national bank applies to the OCC 
to commence insurance operations in a particular State. Under the new 
procedures, a national bank must describe in its notice or application 
to the OCC to establish a financial subsidiary or an operating 
subsidiary, or to make a non-controlling investment in an entity that 
will engage in insurance activities, the type of insurance activities 
that the bank is engaged in or will engage in and the lines of business 
for which the company holds or will hold an insurance license. The OCC 
will then forward this information to the appropriate State insurance 
regulator.
          maintaining intergovernmental working relationships
    As I have described, our original consumer complaint sharing 
agreement grew out of the contacts we initiated with the NAIC in 1996. 
In an effort to further develop working relationships between the OCC 
and the State insurance regulators, we have been engaged in a 
continuing and productive dialogue with the NAIC and with individual 
State regulators. To date, regional representatives of the OCC have met 
with 43 State insurance regulators to identify implementation issues 
arising from the GLBA functional regulation system. Senior OCC 
representatives attend NAIC quarterly meetings on a regular basis. 
These meetings have provided a valuable means for the OCC and State 
insurance regulators to exchange information about their respective 
regulatory priorities and supervisory approaches.
    OCC staff also has regularly consulted with NAIC staff and the 
staffs of the State insurance regulators regarding GLBA implementation 
issues. Senior NAIC and OCC staff have met on several occasions over 
the past year to discuss the new functional regulation framework. The 
OCC and the NAIC held an introductory meeting on November 1, 1999. On 
February 11, 2000, senior OCC, NAIC staff and several State insurance 
commissioners met to discuss issues such as consultation about 
affiliations between banks and companies engaged in insurance 
activities, privacy, consumer protections, a national insurance 
licensing system, supervision methodologies, and a mechanism for 
coordination on emerging issues. Also in February, the OCC, the Federal 
Reserve Board, the FDIC, the OTS, the CFTC, the SEC, the State 
insurance commissioners, and the State banking commissioners met to 
discuss Gramm-Leach-Bliley implementation issues.
    Going forward, the OCC will build on these relationships as we 
coordinate our oversight of insurance activities conducted by national 
banks and their subsidiaries with that of the functional insurance 
regulators. To this end, the OCC and NAIC are planning a follow-up 
meeting in August, that I will attend. Among the issues on the 
tentative agenda for this meeting are: the supervisory information 
sharing agreement, privacy regulations, insurance complaint resolution 
procedures, and continuing joint training and outreach opportunities.
               insurance consumer protection regulations
    The OCC, as well as the other Federal banking agencies, also has 
had productive discussions with the NAIC regarding the development of 
federal regulations to address consumer protection concerns relating to 
depository institution sales of insurance. Section 305 of GLBA requires 
the OCC, the Federal Reserve Board, the FDIC, and the OTS jointly to 
issue consumer protection regulations that apply to retail sales 
practices, solicitations, advertising, or offers of any insurance 
product by a bank (or other depository institution) or by any person 
engaged in such activities at an office of the institution or ``on 
behalf of'' the institution. Among other things, the rules must 
address: (1) specific disclosures that must be made to the consumer 
before completion of the insurance sale; (2) the physical segregation 
of the area of insurance activity from the area where retail deposits 
are routinely accepted; (3) limitations on referrals by persons 
accepting deposits in the area where such transactions are routinely 
conducted; and (4) prohibitions on misrepresentations. The agencies are 
required to publish final regulations no later than 1 year after the 
enactment of the GLBA.
     The banking agencies have provided a working draft of the proposed 
rule to the NAIC. On June 29, 2000, representatives of the OCC and the 
other agencies met with NAIC representatives to discuss the proposal. 
We expect that the agencies' proposal, which will be issued this 
summer, will reflect the comments and suggestions provided by the NAIC 
at that time.
                               conclusion
    The notion of ``duality'' suggested by the designation ``dual 
banking system'' does not, either under the law or in practice, mean 
that today Federal and State banking regulators operate independently 
of one another within their respective jurisdictional spheres. In the 
insurance area, the growing involvement of national banks in insurance 
activities has required a cooperative relationship with State 
regulators since well before GLBA was enacted. After GLBA, however, the 
Federal/State relationship assumes greater importance for the safety 
and soundness of the National Banking System because of the reliance 
that the GLBA functional regulation framework places on the first-line 
supervision of insurance activities by the States. The OCC is committed 
to continuing to work closely with State insurance authorities not only 
to implement the express requirements of the statute but also to foster 
regular, open lines of communication that will facilitate the 
achievement of both Federal and State regulatory objectives.

    Mr. Oxley. Thank you, Ms. Williams.
    And our final witness is the Hon. Neil Breslin from New 
York State.

                 STATEMENT OF HON. NEIL BRESLIN

    Mr. Breslin. Thank you, Mr. Chairman and my fellow New 
Yorker, Congressman Towns, and members of the subcommittee. As 
was indicated, my name is Neil Breslin and I represent some 
300,000 people in and around the city of Albany, the State 
capitol. I also serve as the Ranking Member of the Senate 
Committee on Insurance.
    But I am here today in my capacity as Chair of the State-
Federal Relations Committee of the National Conference of 
Insurance Legislators.
    As many of you know, the National Conference of Insurance 
Legislators, known as NCOIL, is an organization of State 
legislators, most of whom are bankers or participants in the 
insurance committees in their various States. They bring back 
information and participate in many of our conferences to 
facilitate and coordinate in the uniformity of insurance across 
this country.
    On behalf of the legislators active in NCOIL, let me 
express my appreciation for this opportunity to testify on 
issues related to financial modernization, globalization and 
the enactment of GLBA. I would like to point out that with the 
exception of redomestication and National Association of 
Registered Agents and Brokers--NARAB--provisions, NCOIL 
supported the financial modernization legislation that 
eventually became GLBA. However, the enactment of GLBA has 
raised questions as to what States are doing to comply with the 
new law and to respond to marketplace realities.
    Against a backdrop of GLBA and of increasingly globalized 
insurance markets, the National Association of Insurance 
Commissioners--NAIC--has developed a Statement of Intent: The 
Future of Insurance Regulation. That statement identifies, 
among the NAIC's goals, the need for one-stop shopping for 
insurance products, for national chartering of insurers within 
a State-based system, and for more expeditious regulatory 
approval of insurance products.
    NCOIL not only supports this statement, it actively 
supports these goals.
    At the same time, NCOIL opposes any proposal that would 
require amendment of McCarran-Ferguson, the landmark law that 
authorized the States to regulate the business of insurance. 
Congress has reaffirmed that authorization in GLBA.
    My testimony today will address three specific areas of 
concern to you and to State legislators. Those areas relate to: 
NARAB provisions of Gramm-Leach-Bliley, national chartering, 
and privacy.
    As relates to NARAB, since the enactment of GLBA, State 
legislators have focused on the new law's provision that would 
lead to establishment of NARAB. GLBA would begin implementing 
NARAB by November 12, 2002 if at least 28 states have not 
enacted uniform or reciprocal laws and regulations governing 
the licensing of resident and non-resident producers.
    NARAB would serve as a national licensing authority that 
would draw on existing State laws to devise uniform licensing 
requirements. It would serve as the mechanism for agents and 
brokers to obtain licenses in any State where they want to do 
business. Unfortunately, it would create yet another regulatory 
bureaucracy, one that would significantly undermine the ability 
of States to regulate insurance.
    In its wisdom, however, Congress has given the States time 
to enact the kind of uniform laws and rules that will make 
NARAB unnecessary. I am here to tell you that the States can 
and will do that. And, I am here to tell you that the States 
will do it within the deadline.
    As has been indicated by Commissioner Nichols, the States 
have already begun. I might add that Kentucky, being the first, 
moved quicker than their basketball team.
    The Kentucky legislation provides, among other things, for 
a single producer license for residents and non-residents of 
the State. It would also bar the Insurance Commissioner from 
assessing a greater fee for an insurance license to a non-
resident based solely on the fact of non-residency. It would 
also allow an individual surplus lines broker's license in 
Kentucky if reciprocal arrangements existed in other states.
    In addition, Missouri and New Hampshire have also enacted 
similar laws, both of which meet the NARAB test. I have 
introduced legislation that will meet the same test in New 
York, which I have every confidence will be passed in our 
upcoming session.
    All these initiatives have a solid, well-thought-out 
foundation. Their essential basis is a model law developed by 
the NAIC. The NAIC adopted its model earlier this year, 
following 2 years of testimony from all segments of the 
insurance industry, consumer groups, and other interested 
parties, many of whom are here today listening.
    The NAIC model responds to the reality that more efficient 
and uniform insurance producer licensing is needed to maintain 
a U.S. competitive edge in an increasingly global economy. At 
the same time, the model preserves the strong features of State 
regulation of insurance as authorized under McCarran-Ferguson. 
It encourages uniformity in areas such as non-resident 
licensing, exemptions, commissions, appointments, and 
reciprocity.
    Over the last several months, NCOIL has provided State 
legislators with appropriate information regarding GLBA and 
NARAB. NCOIL will continue to do so.
    In response to a request from NCOIL's President, Deputy 
Speaker Clare Farragher of New Jersey, several insurance 
industry trade associations submitted comments to the NCOIL 
State-Federal Relations Committee regarding their stance on the 
model. The comments, while acknowledging minor imperfections in 
the model, demonstrated overall support. Those submitting 
comments included the American Insurance Association, the 
American Council of Life Insurers, the National Association of 
Insurance and Financial Advisors, the National Association of 
Mutual Insurance Companies, the Independent Insurance Agents of 
America, and the National Association of Independent Insurers.
    Two weeks ago, in Burlington, Vermont, at a National 
Conference of Insurance Legislators meeting, the model act was 
adopted unanimously by the National Conference of Insurance 
Legislators. We have begun to coordinate our efforts aimed at 
educating legislators and expediting enactment of the model in 
the States. NCOIL legislators will sponsor the model and work 
with legislative leadership and the insurance commissioners in 
their respective states.
    On national chartering, certain insurance organizations 
have proposed to alter the State-based system by amending 
McCarran-Ferguson. That could be a profound mistake. Under 
McCarran, the domestic U.S. insurance industry has grown to a 
market of more than 5,000 companies, which compete in terms of 
price and service.
    One such proposal would establish a system of nationally 
chartered insurers. It would allow those insurers to operate 
free of State insurance rating laws. It would free them to cut 
prices and seize markets. It would leave consumers protected 
only by the uneven and prolonged vagaries of antitrust law.
    Another proposal would threaten to establish a dual-
regulatory system. It would allow for the regulation of large 
multi-State companies, in part, by a Federal bureaucracy. It 
would have smaller single-State and regional companies remain 
under State regulation. Essentially, it would mean that 
insurers would play by two sets of rules--one for the big guys, 
one for the little guys. One set of rules would let big 
national insurers roam free in a universe of opportunity. The 
other would keep smaller companies corralled in local and State 
markets. These ideas stem from the frustration of insurers in 
their efforts to obtain meaningful access to U.S. and multi-
State markets.
    Admittedly, the process of obtaining a license or policy 
form approval in several, let alone 51 jurisdictions, can take 
a prohibitive amount of time. It costs too much money. It 
impedes innovation.
    The essential question is this: Is there a way to preserve 
the system of State-based regulation and at the same time 
accommodate the need for national licensing or, as some have 
called it, national chartering?
    NCOIL believes there is a way. That way is through an 
interstate compact. Under a compact, States could enact 
licensing and chartering rules that would have the full force 
of law in each of the compact jurisdictions and across State 
lines.
    The establishment of an interstate compact for insurance 
regulation would require a single uncomplicated legislative act 
in each compacting State. States that wish to join the compact 
would enact that legislation. The compact agency would have 
legal standing in State laws and in courts. It would be 
accountable to the governments of the compacting States.
    The momentum for a compact has started to build. The NAIC 
National Treatment Working Group has begun to address the issue 
of interstate compacts. It has issued several memoranda on the 
legality and practicality of implementing an interstate 
compact.
    NCOIL developed a comprehensive interstate compact nearly a 
decade ago. That compact evolved into the Interstate Insurance 
Receivership Compact, which is now law in Illinois, Michigan, 
and Nebraska. States can expand on that prototype. It spells 
out the rules and procedures for governance of the compact, for 
access to information, and for confidentiality. Former Acting 
Illinois State Insurance Director James Schacht told a recent 
NCOIL meeting that extending the Receivership Compact to 
include agents licensing and national chartering would be 
entirely feasible.
    I have asked the NCOIL staff to prepare language to that 
effect for examination by the NCOIL State-Federal Relations 
Committee. Support for exploration of the idea of an interstate 
compact applicable to insurance regulation came from former 
House Member J. Alex McMillan of North Carolina in 1993.
    Privacy--the States are addressing issues of privacy in the 
context of GLBA. The NCOIL president has created an Executive 
Committee Task Force on Privacy. The Task Force consists of the 
NCOIL president, who will serve as its Chair; myself, as Chair 
of the NCOIL State-Federal Relations Committee; and the Chairs 
of the NCOIL Life Insurance, Health Insurance, and Property-
Casualty Insurance Committees. The Task Force will review 
current State legislative proposals on privacy, hold several 
meetings, including a public hearing, and will recommend a 
definitive course of action for approval by NCOIL by mid-
November.
    In summary, let me say that State legislators are, I 
believe, working to meet both the legal requirements of GLBA as 
well as the demands of a globalized marketplace. We are working 
with the NAIC and the National Conference of State 
Legislatures, probably in a way that we never have before, 
which in part is because of GLBA. At the same time, we continue 
to remain proactive in our defense of State primacy under 
McCarran.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Hon. Neil Breslin follows:]
  Prepared Statement of Hon. Neil Breslin, Senator, State of New York
    Chairman Oxley and members of the Subcommittee, my name is Neil 
Breslin. It is my privilege to represent 300,000 residents of the City 
and County of Albany in the New York Senate. I also serve as Ranking 
Minority Member of the Senate Committee on Insurance.
    I appear before you today in my capacity as Chair of the State-
Federal Relations Committee of the National Conference of Insurance 
Legislators (NCOIL).
    NCOIL is a non-partisan organization of state legislators whose 
primary area of public policy concern is insurance legislation and 
regulation. Many NCOIL legislators chair or serve as members of the 
committees responsible for insurance in their respective legislative 
houses across the country.
    On behalf of the legislators active in NCOIL, let me express my 
appreciation for this opportunity to testify on issues related to 
financial modernization, globalization and the enactment of the Gramm-
Leach-Bliley Act (GLBA). I would like to point out that with the 
exception of redomestication and National Association of Registered 
Agents and Brokers (NARAB) provisions, NCOIL supported the financial 
modernization legislation that eventually became GLBA. However, the 
enactment of GLBA has raised questions as to what states are doing to 
comply with the new law and to respond to marketplace realities.
    Against a backdrop of GLBA and of increasingly globalized insurance 
markets, the National Association of Insurance Commissioners (NAIC) has 
developed a ``Statement of Intent: The Future of Insurance 
Regulation.'' That statement identifies, among the NAIC's goals, the 
need for one-stop shopping for insurance products, for national 
chartering of insurers within a state-based system, and for more 
expeditious regulatory approval of insurance products.
    NCOIL supports that statement.
    NCOIL supports those goals.
    At the same time, NCOIL opposes any proposal that would require 
amendment of McCarran-Ferguson, the landmark law that authorized the 
states to regulate the business of insurance.
    Congress has reaffirmed that authorization in GLBA.
    My testimony today will address three specific areas of concern to 
you and to state legislators. Those areas relate to:

 NARAB provisions of Gramm-Leach-Bliley,
 national chartering, and
 privacy.
                                 narab
    Since enactment of GLBA, state legislators have focused on the new 
law's provision that would lead to establishment of NARAB. GLBA would 
begin implementing NARAB after three years--by November 12, 2002--if at 
least 28 states have not enacted uniform or reciprocal laws and 
regulations governing the licensing of resident and non-resident 
producers.
    NARAB would serve as a national licensing authority that would draw 
on existing state laws to devise uniform licensing requirements. It 
would serve as the mechanism for agents and brokers to obtain licenses 
in any state where they want to do business. It would create yet 
another regulatory bureaucracy, one that would significantly undermine 
the ability of states to regulate the business of insurance.
    In its wisdom, however, Congress has given the states time to enact 
the kind of uniform laws and rules that will make NARAB unnecessary.
    I am here to tell you that the states can and will do that.
    And, I am here to tell you that the states will do it within the 
three-year deadline set by Congress in GLBA.
    The fact of it is that several states have already enacted the 
required legislation.
    Kentucky, under the leadership of its Insurance Commissioner, 
George Nichols III, has led the way. The Kentucky legislation provides, 
among other things, for a single producer license for residents and 
non-residents of the state. It would also bar the Insurance 
Commissioner from assessing a greater fee for an insurance license to a 
non-resident based solely on the fact of non-residency. It would also 
allow an individual surplus lines broker's license in Kentucky if 
reciprocal arrangements existed in other states.
    In addition two other states--Missouri and New Hampshire--have 
enacted similar laws, both of which meet the NARAB test. I have 
introduced legislation that will meet the same test in New York.
    All these initiatives have a solid, well-thought-out foundation. 
Their essential basis is a model law developed by the NAIC. The NAIC 
adopted its model earlier this year, following two years of testimony 
from all segments of the insurance industry, consumer groups, and other 
interested parties.
    The NAIC model responds to the reality that more efficient and 
uniform insurance producer licensing is needed to maintain a U.S. 
competitive edge in an increasingly global economy. At the same time, 
the model preserves the strong features of state regulation of 
insurance as authorized under McCarran-Ferguson--state authority and 
state accountability.
    It encourages uniformity in areas such as non-resident licensing, 
exemptions, commissions, appointments, and reciprocity.
    Over the last several months, NCOIL has provided state legislators 
with appropriate information regarding GLBA and NARAB. NCOIL will 
continue to do so.
    In response to a request from NCOIL's President, Deputy Speaker 
Clare Farragher of New Jersey, several insurance industry trade 
associations submitted comments to the NCOIL State-Federal Relations 
Committee regarding their stance on the model. The comments, while 
acknowledging minor imperfections in the model, demonstrated overall 
support. Those submitting comments included the American Insurance 
Association, the American Council of Life Insurers, the National 
Association of Insurance and Financial Advisors, the National 
Association of Mutual Insurance Companies, the Independent Insurance 
Agents of America, and the National Association of Independent 
Insurers.
    Less than two weeks ago, on July 8, 2000, at the NCOIL Summer 
Meeting in Burlington, Vermont, state legislators from across the 
country voted unanimously to approve a resolution in unequivocal 
support of the uniformity and reciprocity provisions of the model. That 
vote followed several presentations and public discussions on the model 
in the NCOIL State-Federal Relations Committee. It culminated nearly 
two years of discussion at NCOIL meetings.
    We have begun to coordinate our efforts aimed at educating 
legislators and expediting enactment of the model in the states. NCOIL 
legislators will sponsor the model and work with legislative leadership 
and the insurance commissioners in their respective states.
                          national chartering
    Certain insurance organizations have proposed to alter the state-
based system by amending McCarran-Ferguson. That could be a profound 
mistake. Under McCarran, the domestic U.S. insurance industry has grown 
to a market of more than 5,000 companies, which compete in terms of 
price and service.
    One such proposal would establish a system of nationally chartered 
insurers. It would allow those insurers to operate free of state 
insurance rating laws. It would free them to cut prices and seize 
markets. It would leave consumers protected only by the uneven and 
prolonged vagaries of antitrust law.
    Another proposal would threaten to establish a dual-regulatory 
system. It would allow for the regulation of large multi-state 
companies, in part, by a federal bureaucracy. It would have smaller 
single-state and regional companies remain under state regulation. 
Essentially, it would mean that insurers would play by two sets of 
rules--one for the big guys, one for the little guys. One set of rules 
would let big national insurers roam free in a universe of opportunity. 
The other would keep smaller companies corralled in local and state 
markets.
    These ideas stem from the frustration of insurers in their efforts 
to obtain meaningful access to U.S. and multi-state markets.
    Admittedly, the process of obtaining a license or policy form 
approval in several, let alone 51 jurisdictions, can take a prohibitive 
amount of time. It costs too much money. It impedes innovation.
    The essential question is this: Is there a way to preserve the 
system of state-based regulation and at the same time accommodate the 
need for national licensing or, as some have called it, national 
chartering?
    NCOIL believes there is a way.
    That way is through an interstate compact.
    Under a compact, states could enact licensing and chartering rules 
that would have the full force of law in each of the compact 
jurisdictions and across state lines.
    The establishment of an interstate compact for insurance regulation 
would require a single uncomplicated legislative act in each compacting 
state. States that wish to join the compact would enact that 
legislation. It would provide for the establishment of a compact agency 
that would act through a governing body. The governing body could 
include the insurance commissioners of each compacting state. The 
compact agency would have legal standing in state laws and in courts. 
It would be accountable to the governments of the compacting states.
    The momentum for a compact has started to build. The NAIC National 
Treatment Working Group has begun to address the issue of interstate 
compacts. It has issued several memoranda on the legality and 
practicality of implementing an interstate compact.
    NCOIL developed a comprehensive interstate compact nearly a decade 
ago. That compact evolved into the Interstate Insurance Receivership 
Compact, which is now law in Illinois, Michigan, and Nebraska.
    States can expand on that prototype. It spells out the rules and 
procedures for governance of the compact, for access to information, 
and for confidentiality. Former Acting Illinois State Insurance 
Director James Schacht told a recent NCOIL meeting that extending the 
Receivership Compact to include agents licensing and national 
chartering would be entirely feasible.
    I have asked the NCOIL staff to prepare language to that effect for 
examination by the NCOIL State-Federal Relations Committee.
    Support for exploration of the idea of an interstate compact 
applicable to insurance regulation came from former House Member J. 
Alex McMillan of North Carolina in 1993.
    Under a compact, the state insurance regulators could meet the 
widely acknowledged need for national licensing of agents, brokers and 
companies.
                                privacy
    The states are addressing issues of privacy in the context of GLBA. 
The NCOIL President has created an Executive Committee Task Force on 
Privacy. The Task Force consists of the NCOIL President, who will serve 
as its chair; myself, as Chair of the NCOIL State-Federal Relations 
Committee; and the Chairs of the NCOIL Life Insurance, Health 
Insurance, and Property-Casualty Insurance Committees. The Task Force 
will review current state legislative proposals on privacy, hold 
several meetings, including a public hearing, and will recommend a 
definitive course of action for approval by NCOIL by mid-November. 
NCOIL will vote on the Task Force recommendation at its Annual Meeting 
in November.
                                summary
    State legislators are, I believe, working to meet both the legal 
requirements of GLBA as well as the demands of a globalized market 
place. We are working with the NAIC and the National Conference of 
State Legislatures (NCSL) to accomplish this.
    At the same time, we continue to remain proactive in our defense of 
state primacy under McCarran.

    Mr. Oxley. Thank you, Senator Breslin, and all our 
panelists.
    Let me begin my line of questioning with you, Senator 
Breslin.
    I am an alumnus of what was known as COIL back then--they 
added an N somewhere along the line after I left--but I am sure 
the charge is pretty much the same and the activities are 
pretty much the same. It was a fascinating experience for me 
during my tenure in the General Assembly in Ohio to be 
participating in that organization and have maintained some 
friendships over that period of time.
    You had indicated that NCOIL believes that a solution to 
uniformity is to establish a series of interstate compacts. I 
am not aware of the States incorporating or passing any 
interstate compacts for as long as I can remember. And if that 
is the case, are interstate compacts necessarily an alternative 
to the NAIC proposals? Or can they be part of a two-track 
system toward achieving uniformity?
    Mr. Breslin. I think they can be part of that system. I 
know the NAIC is also working on chartering. The chartering, it 
seems to us, would eliminate the possibility of an additional 
bureaucracy. The chartering could work on a regional basis. It 
simply would pass laws which, as you know, would be between and 
among the States. It would probably identify insurance 
commissioners as the contact persons within each State. They 
would meet and develop regulations under those laws that would 
be effective in the charter States.
    Could either act independently or in concert? I think 
probably the objective would be more independently.
    Mr. Oxley. You have testified that the process of obtaining 
an insurance license or policy form approval in 51 
jurisdictions can ``take a prohibitive amount of time, cost too 
much money, and appease innovation,'' which I agree with. But 
you also state that an optional Federal regulatory system would 
allow large insurers to ``roam free in a universe of 
opportunity''. What is wrong with that?
    Mr. Breslin. I think that in that situation they would have 
a considerable and distinctive advantage over one-State and 
regional operators who are operating under specific State laws 
at the same time. I think it would be ineffective and 
discriminatory.
    Mr. Oxley. It would be discriminatory against the smaller 
companies?
    Mr. Breslin. Absolutely.
    Mr. Oxley. Even though perhaps those companies would be 
niche players and finding particular markets to deal in and not 
necessarily directly competitive with the larger company?
    Mr. Breslin. I believe that would be the case.
    Mr. Oxley. That it would still be discriminatory?
    Mr. Breslin. Yes.
    Mr. Oxley. And what effect would that have on the consumer? 
Just lessen his choice?
    Mr. Breslin. I think it would lessen his choice. I think 
what would happen is you would run the risk of driving out the 
smaller companies and leaving the possibility of major 
companies directing the marketplace in an inappropriate 
fashion.
    Mr. Oxley. Does the advent of the Internet perhaps make all 
this argument somewhat moot? That is, won't the larger 
companies at some point be able to market their products 
through every jurisdiction on the Internet and essentially have 
the same effect?
    Mr. Breslin. It would depend upon the particular laws they 
are adhering to. If they are adhering to a different set of 
rules than the locals, I would still have the same objections.
    Mr. Oxley. But it does present some potential issues, 
obviously, with this new technology that we find so 
fascinating.
    Do you see any inconsistencies--and if so, what are they--
between the McCarran-Ferguson statute and Gramm-Leach-Bliley?
    Mr. Breslin. Not specifically, no. I think Gramm-Leach-
Bliley has still outlined the import of McCarran-Ferguson.
    Mr. Oxley. Thank you.
    Ms. Williams, in your testimony you state that the Gramm-
Leach-Bliley Act requires each financial regulators to defer to 
the regulator primarily responsible for supervising particular 
entities and that in general State insurance regulators will 
oversee insurance agencies and companies, securities regulators 
will oversee registered securities firms, and banking 
regulators will oversee banking organizations.
    Let me read Section 301 of the Gramm-Leach-Bliley Act, 
particularly since there is a lot of my blood in this. ``The 
insurance activities of any person, including a national bank, 
shall be functionally regulated by the State subject to Section 
104.''
    Functional regulation has never been the supervision of 
entities. It has always been of activities. That clearly was 
the legislative intent. Thus, even if the entity is a national 
bank, the insurance activities of the national bank are 
expressly required under the Act to be functionally regulated 
by the States, not the comptroller.
    Is this provision or congressional intent in some way 
ambiguous?
    Ms. Williams. No, I don't think so, Mr. Chairman. I agree 
with what you said.
    What I was trying to do in the testimony is provide a 
shorthand description of how functional regulation works. But 
the section you quote and our understanding of the whole thrust 
of Gramm-Leach-Bliley is that insurance activities, even if 
they are conducted by the bank directly, are subject to 
oversight and regulation by the appropriate State insurance 
regulatory authority.
    Mr. Oxley. Thank you.
    You testified, starting with the Federal Reserve Act in 
1913, the Federal Government started to get involved with the 
regulation of State chartered banks. In hindsight, was this 
Federal involvement necessary, or were there other ways of 
preserving a purely State-based option?
    Ms. Williams. You are entering into an area where you will 
get a lively debate from the scholars that look at the 
structure of the banking industry. They would probably say that 
if you were starting from scratch, you wouldn't build the 
system this way, that there would be other more efficient ways 
to handle supervision and regulation of the banking industry. I 
think there could have been other choices made. But the way the 
system has evolved, it has worked.
    Mr. Oxley. I applaud the efforts of the OCC to work with 
the NAIC and the States to develop model agreements for the 
sharing of information. In fact, I hope that these joint 
efforts can serve as a model to resolve other insurance 
disputes down the road. But do you have any concerns about the 
confidentiality of information shared among the agencies? Is 
there any need for congressional action to authorize or ensure 
that an agency or association be given additional power to keep 
information confidential?
    Ms. Williams. I think the issue here, which Commissioner 
Nichols has referred to, is that the Gramm-Leach-Bliley Act 
does envision sharing of confidential examination and 
supervisory information between the Federal banking regulatory 
agencies and the State insurance regulatory agencies. But there 
is no particular provision made for information sharing with 
the NAIC.
    The way the information and data systems have been 
established in the insurance industry, a lot is centralized 
through the NAIC. That is not covered in current legislation. 
So there are issues about confidentiality and issues about 
waivers of privileges that might exist with respect to 
information if it were shared with the NAIC. These are issues 
you have dealt with in the Gramm-Leach-Bliley Act with respect 
to agency-to-agency sharing. So I think the area that might 
require additional attention is with respect to sharing with 
the NAIC.
    Mr. Oxley. Commissioner Nichols, would you care to comment 
on that?
    Mr. Nichols. Again, I think that is an important element, 
from our perspective. We think that the NAIC has to have that 
protection.
    In trying to create this uniform system, obviously, which 
State is going to keep it. Through the association, we have 
been able to establish the appropriate data bases that maintain 
the financial information on companies, the issues of disparate 
actions against agents. The whole process of complying with 
NARAB will be used through an automated system that is 
maintained by an affiliate of the NAIC.
    So we think it is very, very critical for that protection 
because that is sort of the entity that we as the States have 
been empowered to maintain the information on a national level.
    Mr. Oxley. Thank you.
    Ms. Williams, in your written testimony, you stated that 
the OCC was working on regulations addressing the physical 
segregation of bank deposits taking activity from insurance 
solicitation.
    I am aware that the OCC has been requested to unilaterally 
preempt State insurance consumer protection laws. While many of 
these laws probably fall within the safe harbors provisions of 
the Gramm-Leach-Bliley Act, Congress is unable to reach a 
resolution on the proper separation of bank loan activities 
from bank insurance activities. Congress did, however, 
establish an expedited dispute resolution process for resolving 
bank insurance disputes and included numerous requirements for 
the regulators to consult and coordinate with each other.
    Do you believe that the intent of Congress regarding the 
expedited court process and required coordination with the 
State commissioners has changed? And don't you agree that an 
agreement among the regulators would be preferable to reduce 
litigation and long-term legal uncertainty than the unilateral 
preemption of State law?
    Ms. Williams. Mr. Chairman, I think it is important for me 
to clarify at the outset that we don't preempt State law. We 
get requests to issue legal opinions, and we respond to many of 
them and express our views. But those legal opinions that are 
issued by the Comptroller of the Currency's Office don't 
preempt State law. It is only when that issue is taken to the 
courts by private parties--an affected regulated entity or an 
affected industry trade group--that the Judiciary makes the 
decision as to whether or not a particular Federal provision 
preempts State law.
    We are not preempting. We are just providing a view as to 
how we think the Federal law interacts with State law.
    The Gramm-Leach-Bliley Act provides that in a situation 
where there is a disagreement between a view that we have 
expressed and a view that a State insurance regulator has 
expressed, there is an expedited dispute resolution to take 
that to the Court of Appeals to get a determination. But there 
is no preemption of the State law until the court reaches a 
decision.
    Mr. Oxley. But you do take a position. How is that 
evidenced in the judicial proceeding? In other words, do you 
file an amicus? What is your role?
    Ms. Williams. We could.
    Mr. Oxley. Have you done so in the past?
    Ms. Williams. We have filed amicus briefs in the insurance 
area in connection with cases dealing predominantly with 
annuities. We filed an amicus brief a number of years ago in 
connection with the litigation that gave rise, ultimately, to 
the Supreme Court's decision in the Barnett case.
    Mr. Oxley. So there is a history of that?
    Ms. Williams. Of participating in the litigation, yes, sir.
    Mr. Oxley. As a party?
    Ms. Williams. Technically, not as a party but as an amicus 
or friend of the court.
    Mr. Oxley. Thank you.
    Mr. Nichols, we appreciate your leadership to provide for 
uniformity initiatives in areas like national treatment of 
companies, speed to market, market conduct reviews. Clearly, 
without your leadership the States would be well behind the 
curve in this effort.
    Have you established a timeframe for the goals that you set 
in your statement? How many months can we expect to wait to see 
what happens? Just give us a crystal ball view of what you 
might want to do.
    Mr. Nichols. First, thank you for your kind comments.
    The time element we have operated on--when we initially 
approved the statement of intent, we said that we would like to 
have the actual proposals that would outline what this national 
chartering system would look like as of December of this year. 
Recognizing that many things are moving very quickly, we 
actually decided to move that back to September of this year.
    So our objective is that through our September meeting and 
the end of the month we would have the final proposals that 
would be available on the statement of intent so that everyone 
would have public comment and the States could begin to have 
discussions with their legislatures going in to the 2001 
sessions.
    So the first part of the statement of intent in terms of 
the actual proposals and what we think should happen would be 
the end of September.
    Mr. Oxley. It might even dovetail with our efforts to have 
a second hearing on this subject with interested parties, 
particularly from the industry.
    In your written testimony you stated that the NAIC has a 
working group that is developing a model law to give certain 
companies national treatment.
    How would you propose that that work? And what obstacles do 
you expect at the State and industry level?
    Mr. Nichols. What we have looked at in the development of 
the proposal is to identify what would be the requirements for 
a company to be eligible for such a license. For example, do 
you say that you have to have a certain premium volume? Do you 
say that you have to already be licensed in a number of States? 
Do we ask the question of, Do you have a product that could 
roll out to every State?
    So we are actually going through the process of identifying 
the various options one could consider that makes one eligible 
for a national license. Then we are also going to look at the 
process of the requirements for the regulatory agent. So if I 
have a company in Kentucky that would be eligible by product, 
by premium volume, and by already being licensed in a certain 
number of States, does Kentucky have the qualifications in 
terms of our staffing? Are we accredited? Do we meet certain 
standards for regulating that entity on behalf of all the other 
States? Or should we look at a group of States that oversee 
that.
    We are trying to get down to--the company would have a 
single place to go. That organization then would be responsible 
for working with all the States across the country to make sure 
that they are complying with the laws and that there is a 
uniform system.
    We have also talked about the need for companies to meet 
certain financial requirements in terms of their overall 
financial condition. When we have talked about how to implement 
that, there are again three options. We could ask that all the 
States pass the model, where we would have the same in all and 
would sort of give deference to certain regulators. You could 
achieve it in that direction.
    As Senator Breslin has said, we have also recognized the 
issue of an interstate compact. Would that be an appropriate 
tool for us to use?
    I wanted to note that there is only one interstate compact 
that I am aware of in insurance and I am not even sure about 
the States. I think it is Nebraska, Michigan, and Illinois who 
initially talked about an interstate compact regarding 
receivership. I am not sure if that has truly been confirmed by 
their legislative bodies, but I know there was some activity in 
that regard. So we have looked at that being an option.
    But we have also--and this is what I would call a slippery 
slope and you may have ice skates on with it--we are looking at 
whether there is some role that Congress would have to play in 
assisting us in creating this national system. Obviously, there 
is legal discussion. If you had an interstate compact, would 
you even have to come back to Congress to have Congress approve 
that in order for it to be implemented?
    So we recognize that as we go down this road we are going 
to have to clarify clearly the role Congress would have to 
play. But we think it is feasible and achievable that we could 
create a national license for an insurance company that 
outlines what the requirements are. We do that to take into 
consideration a single-State company or a regional company to 
make sure that they are not put at a competitive disadvantage. 
But we think we can do that by overlaying it on the State 
system as long as the State and the company both meet certain 
very high, stringent standards.
    Mr. Oxley. Finally, you indicated in your testimony that 
you would need Congress' help, particularly in getting access 
to the FBI's NCIC computer. In your estimation, would that 
require specific congressional legislation to accomplish that 
goal?
    Mr. Nichols. To my understanding, it would require your 
approval.
    Mr. Oxley. Thank you.
    I now recognize the gentleman from New York, the ranking 
member, Mr. Towns.
    Mr. Towns. Mr. Chairman, you did a thorough job. I want you 
to know that.
    Let me begin by asking a couple of quick things.
    Mr. Nichols, I understand the NAIC State insurance privacy 
law provides stronger protection for the consumer than the 
privacy provision of the Gramm-Leach-Bliley Act. Is that 
correct?
    Mr. Nichols. That is correct. If you would allow me to 
elaborate, the 1980 model act regarding privacy information, 
which addresses all insurance information, including health--
from our perspective, it provides much broader protection. Here 
is how it does it. One, the standard to be met is an opt-in 
versus an opt-out requirement. Second, it also applies to 
affiliates where that the Gramm-Leach-Bliley Act allows 
affiliates to be treated within the family. Third, it allows a 
consumer to have access to that information and the opportunity 
to correct information that may be incorrect. Again, it goes 
further because it actually addresses the issue of health 
insurance.
    Mr. Towns. How many States have adopted it?
    Mr. Nichols. Sir, 17 States have adopted that.
    Mr. Towns. Thank you.
    Does the OCC final privacy rule enable banks to avoid 
complying with the privacy laws in these 17 States?
    Mr. Nichols. From our perspective, we feel like the reading 
of the Gramm-Leach-Bliley Act says that States can go further 
in terms of consumer protection. Where it talks about 
specifically related to State insurance regulators that want to 
address privacy issues for insurance, there are provisions 
where it looks like to me if the State itself, through its 
legislative body, were to pass stronger actions for all 
participants that possibly a State could require additional 
protections, even including banks.
    I say that, not being a lawyer, even though I have probably 
tried to practice for years. But there is a question that there 
is a potential that a State could pass laws that would go 
farther than the Gramm-Leach-Bliley Act and require it of all 
financial institutes.
    Mr. Towns. Hon. Breslin, would you like to comment on that?
    Mr. Breslin. I would agree with the commissioner.
    Ms. Williams. If I could clarify one point, the privacy 
regulation is not just an OCC privacy regulation. It is a 
privacy regulation that has been adopted by all the Federal 
banking agencies, the Securities and Exchange Commission, and 
the Federal Trade Commission. All the agencies that were 
required by Gramm-Leach-Bliley to adopt privacy rules adopted 
uniform standards.
    I agree that for the areas that Gramm-Leach-Bliley covers, 
it clearly says that States may enact laws that provide 
enhanced protection.
    Mr. Towns. Thank you very much.
    Mr. Chairman, I yield back.
    Mr. Gillmor. Thank you very much, Mr. Towns.
    Ms. Williams, OCC has a web page listing names of 
individuals subject to enforcement actions. NAIC is developing 
a similar system. What do we need to do to get the various 
financial regulators' data bases to coordinate with each other 
to automatically perform a search and cross-check to alert a 
regulator that we have a bad actor out there?
    Ms. Williams. Congressman, I think you will find different 
levels of issues in the coordination and information sharing 
between the Federal financial regulatory agencies and the State 
insurance regulatory agencies versus the NAIC. This was the 
issue we referred to earlier, that there may be a need for some 
additional Federal legislation to facilitate broader 
information sharing among the Federal regulatory agencies and 
the NAIC because it is not typically viewed as a regulatory 
agency, as compared to the individual State insurance 
regulators.
    Mr. Gillmor. If we do that, one of the concerns is 
unauthorized release of information privacy. If Congress moves 
in that direction, do you have any thoughts at what we ought to 
do to protect leaks, basically, out of the data base? You are 
adding a large number of additional people that are going to 
have access.
    Ms. Williams. I think any time you are envisioning the 
creation of a significant data base that has negative 
information about individuals, you want to proceed carefully to 
make sure that there are standards for the kind of information 
that goes into the data base and that everybody participating 
in it is subject to very strong safeguards controlling the 
circumstances under which information can be released.
    Mr. Gillmor. Senator Breslin, I applaud your work on 
privacy with the insurance legislators group. We took a stab 
last year, as part of Gramm-Leach-Bliley, at providing some 
privacy protection. Many people think it didn't go far enough, 
but at least it was a first step.
    Can you give us any indication where you think you are 
going to end up with your task force?
    Mr. Breslin. I think it has heightened the awareness. As 
Commissioner Nichols said, 17 States passed legislation under 
the 1980 model act. I know in New York State we have already 
begun to talk about legislation which would opt in for health-
related information and to be more specific and hopefully more 
uniform in terms of opting out in other areas.
    Mr. Gillmor. As a general rule, do you think that we need 
to substantially strengthen privacy protection from where we 
are now?
    Mr. Breslin. Yes, I do. That is a personal opinion.
    Mr. Gillmor. It happens to be one I share.
    Very well, I have no further questions.
    I would like to ask unanimous consent for all members to 
submit statements for the record and to submit follow-up 
written questions to the witnesses. If Mr. Towns doesn't 
object, we have unanimous consent.
    Mr. Towns. Without objection.
    Mr. Gillmor. I want to thank members of our panel for 
participating. You have been very helpful. Thank you.
    [Whereupon, at 11:33 a.m., the subcommittee was adjourned.]
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