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EXAMINING PROPOSALS ON

INSURANCE REGULATORY REFORM

HEARING

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS,

INSURANCE, AND GOVERNMENT

SPONSORED ENTERPRISES

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

APRIL 16, 2008

Printed for the use of the Committee on Financial Services

Serial No. 110–107

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED

ENTERPRISES

PAUL E. KANJORSKI, Pennsylvania, Chairman

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

DEBORAH PRYCE, Ohio 

JEB HENSARLING, Texas 

CHRISTOPHER SHAYS, Connecticut 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

SHELLEY MOORE CAPITO, West Virginia 

ADAM PUTNAM, Florida 

J. GRESHAM BARRETT, South Carolina 

GINNY BROWN-WAITE, Florida 

TOM FEENEY, Florida 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

(V)

C O N T E N T S 

Page 

Hearing held on: 

April 16, 2008 ................................................................................................... 1

Appendix: 

April 16, 2008 ................................................................................................... 45

WITNESSES 

WEDNESDAY, APRIL 16, 2008

Arricale, Frances, Executive Director, Interstate Insurance Product Regulation Commission ................................................................................................... 31

Dinallo, Hon. Eric, Superintendent, Department of Insurance, State of New 

York, on behalf of the National Association of Insurance Commissioners 

(NAIC) ................................................................................................................... 13

Minkler, Thomas J., CIC, President, Clark-Mortenson Agency, Inc., on behalf 

of the Independent Insurance Agents and Brokers of America ....................... 29

Mirel, Lawrence H., Partner, Wiley Rein LLP, on behalf of the Self-Insurance 

Institute of America (SIIA) .................................................................................. 25

Nason, Hon. David G., Assistant Secretary for Financial Institutions, U.S. 

Department of the Treasury ................................................................................ 10

Pile, Donna, CIC, CPIW, CPIA, Managing Partner, A.G. Perry Insurance 

Agency, on behalf of the National Association of Professional Insurance 

Agents (PIA) ......................................................................................................... 33

Shore, Alastair, Senior Vice President and Chief Underwriter, CUNA Mutual 

Group, on behalf of the American Council of Life Insurers and the American Insurance Association .................................................................................. 27

APPENDIX 

Prepared statements: 

Kanjorski, Hon. Paul E. ................................................................................... 46

Bachus, Hon. Spencer ...................................................................................... 48

Arricale, Frances .............................................................................................. 50

Dinallo, Hon. Eric ............................................................................................. 69

Minkler, Thomas J. .......................................................................................... 86

Mirel, Lawrence H. ........................................................................................... 98

Nason, Hon. David G. ...................................................................................... 106

Pile, Donna ........................................................................................................ 110

Shore, Alastair .................................................................................................. 114

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Kanjorski, Hon. Paul E.: 

Statement of Eric D. Gerst, Esq. ..................................................................... 124

Statement of the National Association of Mutual Insurance Companies .... 136

NIPR PowerPoint presentation for PIA .......................................................... 146

(1)

EXAMINING PROPOSALS ON 

INSURANCE REGULATORY REFORM 

Wednesday, April 16, 2008

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT

SPONSORED ENTERPRISES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 3:36 p.m., in room 

2128, Rayburn House Office Building, Hon. Paul E. Kanjorski 

[chairman of the subcommittee] presiding. 

Members present: Representatives Kanjorski, Ackerman, Meeks, 

Moore of Kansas, McCarthy, Scott, Bean, Murphy; Pryce, 

Hensarling, Manzullo, Royce, Barrett, Price, and Davis. 

Chairman KANJORSKI. This hearing of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises 

will come to order. Without objection, all members’ opening statements will be made a part of the record. 

Good afternoon, and I apologize for the delay in getting this 

hearing started today, but unfortunately intervening business on 

the Floor required us to be away. We meet today to examine proposals on insurance regulatory reform. Today’s hearing is the third 

in our subcommittee’s series on these matters. I would like to 

thank Ranking Member Pryce for again joining me in inviting today’s witnesses. 

At our hearings last fall, we heard about the need for reform 

from key participants of the insurance industry, consumer groups, 

regulators, and legislators. Today we will consider specific proposals to solve some of the problems that we learned about at those 

prior hearings. I firmly believe that the Congress should take some 

action on insurance regulation. 

Our first panel today features a spokesperson of the State regulators and a representative of the would-be Federal regulator of insurance. 

Superintendent Eric Dinallo will discuss the most recent plans of 

the National Association of Insurance Commissioners for modernizing insurance regulation. Assistant Secretary David Nason will 

review the insurance reform proposals contained in the Treasury 

Department’s ‘‘Blueprint for a Modernized Financial Regulatory 

Structure.’’

This Blueprint is an important discussion document for us to 

consider. It makes a number of short-term and long-term recommendations, some of which I like, and some of which concern 

2

me. The Blueprint’s ideas on changing insurance regulation, however, merit our careful consideration. I am especially pleased that 

the Treasury Department recommends the creation of an Office of 

Insurance Oversight—an idea that I have discussed for a number 

of years and incorporated into the Financial Services Committee’s 

oversight plan for the 110th Congress. 

Shortly after September 11th, it became very clear to me that the 

Federal Government lacks the expertise it needs on insurance policy. Our experiences after Hurricane Katrina and the ongoing problems in the bond insurance marketplace have only reinforced my 

views. 

Moreover, a simple online search of the term ‘‘insurance’’ using 

the Legislative Information System yields 87 bills introduced in 

this Congress and referred to the Financial Services Committee. 

Regardless of whether or not the Federal Government directly regulates insurance, we must educate ourselves on insurance policy 

and build a knowledge base in the Federal Government on these 

matters. 

Therefore, tomorrow, I will introduce legislation to establish an 

Office of Insurance Information within the Treasury Department. 

This legislation builds on my ideas and includes the functions envisioned in the Blueprint for this office. I look forward to a substantive debate on this proposal in the weeks ahead. 

On today’s second panel, each witness will discuss one option for 

insurance regulatory reform, its merits, and what problems the solution seeks to solve. As part of the ground rules for today’s proceedings, I have asked everyone to refrain from criticizing another 

proposal in his or her written and oral testimony. 

The reasons for this request are two-fold. First, insurance is a 

complicated issue. Direct testimony about one proposal at a time 

should help us to understand each of them better. Second, I do not 

view these reforms as mutually exclusive of one another. We will 

likely work cooperatively on many of them moving forward. For example, we could ultimately consider my legislation on forming an 

Office of Insurance Information in conjunction with a bill to 

streamline agent and broker licensing. 

As we proceed today, the members of the Capital Markets Subcommittee should remain open to considering all reform ideas. The 

status quo on insurance regulation, however, no longer works. We 

live in an increasingly global marketplace and insurance policy 

must keep pace. We have lost many manufacturing jobs overseas, 

and we must ensure that jobs in the insurance industry do not suffer a similar fate. 

We must move swiftly, but we also need to be smart about it. We 

will need the help of the experts from the States, and I urge those 

here today to work cooperatively with us. 

I would like to recognize the ranking member, Ms. Pryce, for 5 

minutes for her opening statement. 

Ms. PRYCE. Thank you, Mr. Chairman. I won’t take all the time. 

This is the third hearing that we have held in this Congress focusing on insurance regulatory reform. The previous hearings in October focused on the need for reform. I am pleased that today we 

have moved on to discussing concrete ideas for actual reform, and, 

in particular, I would like to welcome the Treasury Department; 

3

their recently released Blueprint for a Modernized Financial Regulatory Structure is a bold departure from the piecemeal approach 

at regulatory reform that we have come to depend on. 

While I don’t necessarily endorse every policy recommendation 

included in the Blueprint, it provides a clear starting place for our 

discussions and it will facilitate a broader debate as we move forward. I share the chairman’s interest in exploring the Treasury’s 

recommendation that Congress create an Office of Insurance Oversight within Treasury to lead America’s international insurance interests. 

One of the most salient arguments for an optional Federal charter could be the disadvantage the current State structure presents 

for the United States in the global insurance marketplace. The 

world has changed very much since World War II, but over the 

same period, the Federal Government has left our insurance regulations largely untouched. Now, in many respects, that has worked 

well in some lines in some places. But, European competitors are 

moving to regional and global standards for insurance oversight 

and the Federal oversight office would at least give us one national 

voice. 

While I am not convinced that replacing 50 regulatory bureaucracies with 51 will necessarily accomplish this, I do think we need 

an open airing of all proposals. 

And, on our second panel, I look forward to hearing from our witnesses today. The efforts of myself and Congressman Moore—we 

are working towards strengthening and expanding the Liability 

Risk Retention Act. Risk retention groups often act as the insurer 

of last resort for unique or hard-to-insure risks. They were first 

used by Congress to ease the crisis and product liability reform, 

and later to meet needs for medical malpractice insurance. Today, 

they are used by doctors, universities, and even public housing authorities to provide liability insurance where it is either unavailable or unaffordable. 

So, H.R. 5792, which was introduced yesterday, closes some of 

the loopholes identified by the GAO and the NAIC improving corporate government standards and general disclosures, while expanding the Act to allow risk purchasing groups to procure commercial property insurance with their members. With commercial 

property insurance becoming increasingly expensive, consumers 

would be benefitted if risk retention groups could be expanded to 

provide additional coverage for their needs. This is just one of 

many reform proposals that we will hear about today, and I look 

forward to all our witnesses’ testimony. 

Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you, Ms. Pryce. 

And now, we will hear from the gentleman from New York, Mr. 

Ackerman, for 3 minutes. 

Mr. ACKERMAN. Thank you very much, Mr. Chairman. 

There seems to be general agreement that insurance regulation, 

which is principally tasked to State governments, is in need of reform. Insurance products have undoubtedly evolved since many 

State insurance laws were enacted, and, insurance regulation in 

some cases needs to catch up with the industry. 

4

And, while I understand the burden that comes with having 50 

different sets of regulations, some of which are outdated, I am not 

certain that an optional Federal charter is the most responsible solution, either for insurers or consumers. 

Accordingly, I am pleased that the subcommittee has taken this 

issue up, and I want to thank the chairman for his leadership. If 

the recent troubles in the housing sector have taught us any lesson, it is that we probably don’t know as much as we think we do 

about how our markets work and what the proper regulatory environment should be. In the same way that a diversified portfolio 

acts as a shield against loss, I wonder if the diversity of regulatory 

systems among the States might not have a similar effect on the 

insurance market. 

I look forward to hearing from all of our expert witnesses this 

afternoon, and I am particularly pleased to once again welcome 

New York State Superintendent of Insurance Eric Dinallo to our 

witness stand. Mr. Dinallo has proven to be an articulate voice 

since he was sworn in as Superintendent of Insurance in New York 

last year, and he is here today representing the National Association of Insurance Commissioners. 

I welcome him as well as Secretary Nason. I thank you, Mr. 

Chairman, for scheduling this hearing and I yield back the balance 

of my time. 

Chairman KANJORSKI. Thank you, Mr. Ackerman. 

We will now hear from our good friend from California, Mr. 

Royce, for 3 minutes. 

Mr. ROYCE. Thank you very much, Mr. Chairman. And I would 

like also to thank you not just for your continued leadership on regulatory reform for insurance, but for your comments today, that tomorrow you will be introducing this legislation for an Office of Insurance Information, because I think such a concept really would 

solve many of the problems experienced throughout the sector. 

I think it especially would address some of the global competitiveness issues that a lot of us are worried about. Certainly, from 

my view, it would be a step closer to establishing the concept of an 

optional Federal charter for insurance, which would provide a 

much needed regulatory alternative to what has become a very tangled, bureaucratic web of State-based insurance regulators. 

I would like to share with you also, Mr. Chairman, that this is 

the third hearing on insurance regulatory reform that we have had 

in the past 6 months or so and with each of those hearings, I believe, we seem to gain a better and better understanding of this 

very complex, yet very vital industry, as well as the difficulties resulting from the regulatory structure currently overseeing this industry. 

And, I would like to commend Assistant Secretary Nason for his 

work on the Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure. As that Blueprint notes, we have a 

regulatory structure that very closely resembles the models which 

existed in the 1930’s—4 generations ago—and overseeing the financial services sector that has evolved greatly since then really demands some action on our part. 

The time has come to begin the debate on the best way to restructure our regulatory model, and I really want to commend the 

5

Treasury for taking this vital step. As I pointed out in my op-ed 

in the Wall Street Journal today, nowhere is redundant and anticompetitive regulation more apparent than in the 51 regulators 

currently overseeing our Nation’s insurance industry. 

Price controls and bureaucratic delays are rampant at the State 

level. They punish American consumers. They also punish our industry and frankly the cost of this, as the nonprofit American Consumer’s Institute recently found, the net cost to the consumers 

themselves of the excessive overlapping duplicative regulation that 

we struggle under is $13.7 billion annually, and that is in the form 

of higher premiums that our constituents have to bear as a result 

of these lack of economies of scale as a result of not having a national market. 

Above and beyond the tangled bureaucratic web controlling the 

U.S. marketplace, events which have occurred over the past few 

years have highlighted the limited insurance expertise at the Federal level. Whether it is in response to a financial shock, like what 

we have seen in the municipal bond insurance sector or responding 

to a national crisis or formulating tax policy or negotiating free 

trade agreements, where we are trying to open up markets overseas for our industry, there is no formal representation for insurance carriers or their holders currently within the Federal Government. 

The National Insurance Act, which I have co-authored with Congresswoman Melissa Bean, would establish an optional Federal 

charter for insurance, thereby creating an effective alternative to 

the State-based system, and establishing a world class regulator 

better equipped to represent America’s insured and insurers in 

Washington and throughout the world. 

And again, I would like to thank you, Mr. Chairman, for holding 

this series of hearings, which I think have been so effective, and 

I look forward to hearing from our witnesses on the panel. 

Chairman KANJORSKI. Thank you very much, Mr. Royce. 

Now, we will hear from the gentleman from Kansas, Mr. Moore, 

for 3 minutes. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman, for convening 

this important hearing today. Yesterday, Ranking Member Pryce—

as she indicated—and I introduced bipartisan legislation that could 

have a modest but very important effect on increasing capacity in 

the commercial property insurance marketplace for those who need 

access the most. 

H.R. 5792, the Increasing Insurance Coverage Options for Consumers Act, would do this by allowing risk retention groups and 

risk purchasing groups to expand their insurance offerings to include commercial property coverage. Currently, they are limited to 

offering liability coverage. To break down a product liability tort 

law led to an insurance availability crisis in the mid-1970’s. The insurance industry responded to the product liability risk crisis by increasing rates, not renewing coverage, and avoiding policyholders 

that sold products the underwriters considered hazardous. 

In response to recurring shortages of liability insurance, Congress enacted the Products Risk Retention Liability Act of 1981. 

This Act authorized a group of similar businesses with similar risk 

exposures to form risk retention groups to self-insure those risks 

6

on a group basis and it also created risk purchasing groups to allow 

insurers to market on a group basis. 

The Act was amended in 1986 into its present form as the Liability Risk Retention Act. In addition to expanding the scope of the 

Act beyond just product liability to all kinds of liability, the 1986 

amendments also provided that risk retention groups would be regulated primarily by the domiciliary States with only limited regulatory oversight by non-domiciliary States in which the risk retention groups operate. 

At the request of Mike Oxley, the former chairman of the Financial Services Committee, the GAO conducted a study on the regulation of risk retention groups. On August 15, 2005, the GAO filed 

a report and concluded that risk retention groups have had an important effect on increasing the availability and affordability of 

commercial liability insurance. In addition, the GAO found that the 

LRRA’s partial pre-emption of State insurance laws has resulted in 

a regulatory scene characterized by widely divergent State standards. 

As a result, the GAO believes risk retention groups would benefit 

from uniform, baseline, regulatory standards, and corporate government standards. First and foremost, our legislation would address the shortcomings identified in the GAO report for these 

groups by codifying the National Association of Insurance Commissioner’s proposed corporate government standards for risk retention 

groups into law. This important change will ensure that the interests of the management of these groups and the members will be 

aligned. 

Additionally, recent catastrophic events such as Hurricane 

Katrina and the 9/11 attacks led to affordability and availability 

crises in the property insurance marketplace in certain areas similar to the problems we saw with product liability in the 1980’s. I 

believe the time is now, before we experience another hard market 

for commercial property insurance to expand the Liability Risk Retention Act to include property coverage. This will add much-needed capacity to the commercial insurance marketplace by improving 

competition, which relates to more affordable and available coverage. This legislation not only enjoys bipartisan support on this 

committee, but it also has the support of a broad swath of the insurance industry, consumer groups, public housing authorities, and 

Realtors, among others. 

I look forward to hearing the testimony of the witnesses, and I 

hope that we can quickly move this important legislation through 

the committee. 

Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you, Mr. Moore. 

We will now hear from the gentleman from Kentucky, Mr. Davis, 

for 2 minutes. 

Mr. DAVIS. Thank you, Chairman Kanjorski, and Ranking Member Pryce, for holding this hearing today on the various proposals 

for insurance reform. 

In March, I was honored to collaborate once again with my good 

friend from Georgia, Representative David Scott, on H.R. 5611, the 

National Association of Registered Agents and Brokers Reform Act. 

We both introduced this bipartisan bill with 14 original cosponsors, 

7

and are now up to 30 cosponsors. As you all know, the GrammLeach-Bliley Act would have created NARAB in the event that the 

States did not satisfy the producer licensing reform requirements 

outlined in the underlying bill, but because the States were perceived to have a level of licensing reciprocity, NARAB was never 

created. 

Nearly 10 years since the passage of Gramm-Leach Bliley, we 

are still in need of progress on this issue. H.R. 5611 mandates the 

creation of NARAB. The board will operate generally in the same 

way as the provision in Gramm-Leach Bliley. In short, agents and 

brokers licensed in good standing in their home State and meeting 

NARAB member criteria will be able to join NARAB. 

NARAB members would still pay the appropriate fees required 

by each State in which they are licensed. NARAB would not have 

any Federal regulatory authority. I have a number of outstanding 

concerns about creating a Federal regulatory. NARAB II is, in my 

view, a meaningful contribution to the broader debate over how to 

go about reforming the various aspects of insurance regulations. 

I look forward to hearing from the witnesses today, in particular 

about targeted reform measures like NARAB II, and whether or 

not these reforms will be helpful in simplifying the process while 

maintaining the current State-based system. 

Thank you, Mr. Chairman, and I yield back. 

Chairman KANJORSKI. Thank you very much, Mr. Davis. 

We will now hear from Mr. Scott of Georgia for 3 minutes. 

Mr. SCOTT. Thank you, Mr. Chairman. I, too, want to congratulate you and the ranking member for having this important hearing examining proposals to reform insurance regulation. 

As the insurance industry continues to be primarily regulated at 

the State level, with many involved wanting increased Federal 

oversight, I am interested in hearing the views and concerns of our 

distinguished witnesses as we work towards some sort of consensus 

on how to proceed. I believe we all agree on this—that regulatory 

reform is indeed necessary, but like with any type of reform it will 

take time—it will take discussions and compromise on how we may 

move forward. 

We certainly want to take into account the actual operations of 

these businesses—how to ensure whatever action we do take does 

not deter competition, and does not lessen efficiency or increase 

costs of operating. From the development of global markets to the 

various and detailed policy rationales towards pursuing regulatory 

reforms, we must take all into account, and we must listen to both 

sides of the issue before taking any further action. 

I want to comment very briefly, and just expand for a moment 

on a bill that I recently introduced with my good friend Geoff Davis 

from Kentucky, and that is the National Association of Registered 

Agents and Brokers Reform Act, H.R. 5611, that Representative 

Davis spoke to a moment ago. It is very important to show that 

this is a very strong bipartisan effort, a great start towards reform 

which would help ensure adequate agent and broker licensing as 

well as increase competition and great choices for consumers, 

which is the most important thing. 

Our legislation will help reform and modernize a very important 

part of State insurance regulation, which is the agent and broker 

8

licensing. The legislation will further benefit consumers through increased competition among agents and brokers, which leads to 

greater consumer choice. This legislation is straightforward. Insurance agents and brokers who are licensed in good standing in the 

home States can apply for membership in the National Association 

of Registered Agents and Brokers or NARAB, which would allow 

them to operate in multiple States, which is a very, very important 

and necessary feature as we move forward with this reform. 

A private, nonprofit NARAB entity consisting of State insurance 

regulators and marketplace representatives will serve as a portal 

for agents and brokers to obtain non-resident licenses in additional 

States. And this is, of course, provided that they pay the required 

State non-resident licensing fees and that they meet the NARAB 

standards for membership. 

Membership in NARAB would be voluntary and would not affect 

the rights of a non-member producer under any State license. Our 

bill would also establish membership criteria, which is again a very 

important need, which would include standards for personal qualification, such as education, training, and experience. 

And, further, member applicants would be required to undergo a 

national criminal background check to protect and give the proper 

protections to consumers that they need. And, to be very clear, 

NARAB would not be a part of nor report to any Federal agency 

and would not have any Federal regulatory power. 

And, finally, Mr. Chairman, Federal legislation is needed to ensure a reciprocal licensing process for insurance agents and brokers. And Congress, as my good friend Mr. Davis has mentioned, 

has already endorsed this concept with Gramm-Leach-Bliley. We 

are just picking up where that leaves off. 

I believe the increased competition among agents and brokers 

that our bill would create will be beneficial to all, and on all accounts be more fair. And, in addition, and of most importance, 

greater consumer choice as more and more agents operate across 

State lines, this problem as reciprocity has become worse and it 

has become apparent to me and others here in Congress that true 

non-resident licensing reform for insurance agents could only really 

be achieved through legislation on the Federal side. 

Our legislation has support, as we mentioned, from both sides of 

the aisle, because this is not a Democrat or Republican issue. It is 

an issue of great importance to all of the American people. 

I look forward to working with my colleagues, and you, Mr. 

Chairman, of course, on this important piece of legislation. And I 

look forward to hearing from our distinguished witnesses. 

Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you, Mr. Scott. 

We will now hear from Mr. Manzullo of Illinois for 2 minutes. 

Mr. MANZULLO. Mr. Chairman, thank you for holding this hearing today. These times of financial uncertainty have seriously 

raised questions about our current regulatory schemes. And it’s 

more important than ever to be engaged in serious discourse over 

the who, the how, and the why of regulation. 

A part of what we are examining today is the question of who 

should be regulating the insurance industry. This topic has been 

broached in hearings twice before during this Congress, and I comVerDate 0ct 09 2002 18:45 Jun 18, 2008 Jkt 042719 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\42719.TXT TERRIE
9

mend the chairman for engaging the industry and regulators in extensive dialogue on the issue. After listening to the testimonies 

from our previous hearing, I remain open, but skeptical—actually, 

more skeptical than open—about the optional Federal charter concept. I remain skeptical, because it is still being touted as a concept 

without a substantive plan that describes the how or addresses 

issues like the fiscal impact on the States or the impact on smaller 

insurers. 

I have yet to see evidence that the State regulatory system has 

failed the insurance industry. My home State of Illinois is a model 

of insurance regulation with over 1,470 insurance companies licensed to do business in our State. I am unconvinced that the Federal Government could be more responsive to the unique needs of 

local markets and conditions than a State regulator. 

I am further concerned that the resulting industry fragmentation 

would bring fiscal damage to the State of Illinois and squeeze out 

those smaller companies which may choose to remain State-regulated. When I shopped for insurance on my firm a couple of years 

ago, I had no less than seven quotes from seven different insurance 

companies, and I picked the one that ended up with the broadest 

coverage at the cheapest price. And I don’t want to do anything to 

prevent the folks of Illinois from having that type of choice. 

Again, I want to thank the chairman for his commitment to hearing all sides of the issue. There is still much to be discussed before 

decisive action can be taken. 

Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you, Mr. Manzullo. 

And now, finally, we will hear from Ms. Bean of Illinois for 3 

minutes. 

Ms. BEAN. Thank you, Mr. Chairman, and Ranking Member 

Pryce, for holding today’s hearing. 

As always, I would also like to thank our panel for their expertise and for being here to share it with us. Today’s hearing is to 

consider the various proposals on how to best achieve insurance 

regulatory reform. It is important and it is timely. Within the last 

several weeks alone, two new pieces of insurance reform legislation 

authored by committee members have been introduced. And the 

Treasury Department issued its series of recommendations to improve the regulatory framework of our financial services, including 

the insurance industry. 

While these approaches may differ, the theme is common. There 

is a clear need for comprehensive and meaningful reform. As you 

know, last July, Representative Royce and I introduced H.R. 3200, 

the National Insurance Act, which would create an optional Federal charter for life and property casualty insurers. Our bill seeks 

to increase consumer choice and improve industry competitiveness. 

I was pleased to see the recently-released Treasury Blueprint echo 

the sentiments of the Bloomberg-Schumer report on the importance 

of creating an optional Federal charter to overhaul the Nation’s 

135-year-old system for insurance regulation and to help maintain 

the preeminence and competitiveness of the U.S. capital markets. 

Furthermore, as a resident of and Representative for Illinois, like 

Congressman Manzullo mentioned, I have seen firsthand the benefits to consumer pricing and product options in a deregulated enviVerDate 0ct 09 2002 18:45 Jun 18, 2008 Jkt 042719 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\42719.TXT TERRIE
10

ronment, which could be seen across the Nation if they were freed 

from State price controls and regulatory hurdles. 

I believe H.R. 3200 can extend those benefits to consumers nationally, and, I want to associate myself with the remarks of my 

colleague and co-sponsor, Representative Royce, in that regard. 

In the interim, I want to strongly commend Chairman Kanjorski’s plan to establish an Office of Insurance Information. I see 

this, and I don’t believe I’m alone in seeing this as a vital step towards providing greater industry agility and a modern, regulatory 

alternative to the antiquated and burdensome system of State insurance regulation. I look forward to hearing our panelists’ testimony and recommendations for how we should proceed. 

Thank you, and I yield back. 

Chairman KANJORSKI. Thank you very much, Ms. Bean. 

And now, I will introduce the panel. As you know, we are under 

the bell, so there is a vote on now, and we will have about 15 minutes to get there. But maybe we can tailor you both in before we 

have to leave. 

So thank you for appearing before the subcommittee, and without objection, your written statements will be made a part of the 

record. You will each be recognized for a 5-minute summary of your 

testimony. And if you can do that, we will appreciate it. 

First, we will hear from the Honorable David G. Nason, Assistant Secretary for Financial Institutions, Department of the Treasury, to discuss the Treasury’s regulatory Blueprint with regard to 

the insurance recommendations. 

Mr. Nason? 

STATEMENT OF THE HONORABLE DAVID G. NASON, ASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS, U.S. DEPARTMENT OF THE TREASURY 

Mr. NASON. Thank you very much, Mr. Chairman. 

Let me first say that I am delighted to hear that you are planning to introduce legislation creating an Office of Insurance Information. You have been a leading voice on these issues for a long 

period of time, and we would be delighted to work with you on that 

as soon as we see the text of that legislation. We look forward to 

that, and it is just welcome news from this hearing today, so thank 

you so much for that. 

Thank you, Chairman Kanjorski, Ranking Member Pryce, and 

members of the subcommittee for inviting me to appear before you 

today to discuss the need for insurance regulatory reform. On 

March 31st, Treasury released a report on financial services regulation entitled, ‘‘Blueprint for a Modernized Financial Regulatory 

Structure.’’ The Blueprint reflects a year-long effort intended to 

provoke thoughtful discussion as we collectively work toward modernizing all sectors of the financial services industry. The Blueprint 

is not and has never been intended to be a response to recent 

stress in the credit markets. 

The Blueprint presents a conceptual model for an optimal regulatory framework. The regulation of all financial services products, 

including insurance, is addressed in this framework. Treasury’s 

Blueprint also presents a series of short-term and intermediate 

11

term recommendations that could in our view immediately improve 

and reform the U.S. financial services regulatory structure. 

Some of our recommendations focus on eliminating some of the 

duplication inherent in the U.S. regulatory system; but, more importantly, they try to modernize the regulatory structure applicable 

to certain sectors in the financial services industry within the current framework, including insurance. 

Today, I will address some of the Treasury’s recommendations 

with regard to modernizing insurance regulation in the near term. 

Insurance performs an essential function in our domestic and global economies by providing a mechanism for businesses and citizens 

to safeguard their assets from a wide variety of risks. Unlike banks 

and other financial institutions that are regulated primarily at the 

Federal level or on a dual Federal/State basis, insurance companies 

in the United States are regulated almost entirely by the States. 

The constitutional and statutory allocation of regulatory power 

between the Federal Government and the States has a complex 

evolution. For over 135 years, States have regulated insurance with 

little direct Federal involvement. In 1869, the Supreme Court concluded that the issuance of an insurance policy was not interstate 

commerce. In 1944, some 76 years later, the Court reversed itself 

holding that insurance was indeed subject to Federal regulation 

and Federal antitrust law. 

In 1945, before any assumption of Federal regulatory authority 

over insurance, Congress passed the McCarran-Ferguson Act, 

which ‘‘returned’’ the regulatory jurisdiction over the business of insurance back to the States. But, much like other financial services, 

over time the business of providing insurance has developed a more 

national focus, even within the State-based regulatory structure. 

The inherent nature of our State-based regulatory system makes 

the process of developing products cumbersome and more costly. 

There are a number of inherent inefficiencies associated with the 

State-based insurance regulatory system. Economic inefficiency appears to have resulted, both from the substance of regulation, such 

as price controls, and also from its structure, multiple, non-uniform, regulatory regimes. 

In addition to a more national focus today, the insurance marketplace also operates globally with many significant foreign participants. A State-based regulatory system creates increasing tensions 

in such a global marketplace, both in the ability of U.S.-based firms 

to compete abroad, and the allowance of greater participation of 

foreign firms in U.S. markets. 

Treasury believes that the fundamental question is whether our 

current State-based system of insurance regulation is up to the 

task of meeting the challenges of today’s evolving and increasingly 

global insurance market. The establishment of an OFC structure 

would provide insurance market participants with the choice of 

whether to be regulated at the national level or to continue to be 

regulated by the States. OFC insurance regulatory structure should 

enhance competition among insurers in national and international 

markets. It should increase efficiency. It should promote more 

rapid, technological change. It should encourage product innovation. It should reduce regulatory costs and, most importantly, it 

should provide a high quality of consumer protection. 

12

Treasury also recommended in its Blueprint, which was very 

similar to what you just mentioned Chairman Kanjorski, an Office 

of National Insurance (ONI) to regulate those engaged in the business of insurance pursuant to an OFC. The commissioner of national insurance would head the ONI and would have specified, 

regulatory supervisory enforcement, corrective action, and rehabilitative powers to oversee the organization, incorporation, operation, 

regulation, and supervision of insurance industries. 

The Blueprint also mentioned an Office of Insurance Oversight, 

which is very similar to the idea that you just discussed, Mr. 

Chairman, and while Treasury believes that an OFC offers the best 

opportunity to develop a modern and comprehensive system of insurance regulation in the near term, we acknowledge that the OFC 

debate in the Congress is ongoing. 

At the same time, Treasury believes that some aspects of the insurance segment in its regulatory regime require immediate attention. In particular, Treasury recommended that the Congress establish an Office of Insurance Oversight within Treasury. 

The OIO through its insurance oversight, would be able to focus 

immediately on key areas of Federal interest in the insurance sector. The OIO should be established to accomplish two main purposes. First, the OIO should exercise newly-granted statutory authority to address international regulatory issues such as reinsurance collateral. 

Second, the OIO would serve as an advisor to the Secretary of 

the Treasury on major domestic and international policy issues. 

Once the Congress does enact significant insurance regulatory reform establishing an OFC, the OIO could be incorporated into the 

OFC framework. 

We appreciate the efforts of the chairman and the members of 

the subcommittee in evaluating issues associated with modernizing 

insurance regulation. And we look forward to continuing to work 

with the Congress toward finding an appropriate balance as proposals for Federal and State regulation of insurance are considered. 

Thank you. 

[The prepared statement of Assistant Secretary Nason can be 

found on page 106 of the appendix.] 

Chairman KANJORSKI. Okay, we were going to try to sneak you 

in, Mr. Dinallo, but we have come to the conclusion that we are not 

going to be able to do that. 

So the Chair is going to recess the hearing until after these 

votes, and then return. I urge all my colleagues to come back, because obviously, this testimony is very important. We need some 

questions answered. 

The subcommittee now stands in recess. 

[Recess] 

Chairman KANJORSKI. The subcommittee will come to order. We 

finished Mr. Nason’s testimony, and now we will get to our friend, 

Mr. Dinallo. 

13

STATEMENT OF THE HONORABLE ERIC DINALLO, SUPERINTENDENT, DEPARTMENT OF INSURANCE, STATE OF NEW 

YORK, ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) 

Mr. DINALLO. Thank you, Chairman Kanjorski, and members of 

the subcommittee. I am here to testify on behalf of NAIC, and, although I am here in that capacity, I am not here to blindly defend 

every aspect of State insurance regulation, which can at times be 

somewhat of a clunky affair. 

Instead, I am here to headline that in the spirit of a new approach to move to a regulatory model that invites and accepts a 

Federal involvement, I want to discuss some of those options and 

lay out some possibilities that I think would help. But while the 

topic is comprehensive reform for insurance regulation, I think it’s 

important that you hear from someone who has been on both the 

securities side and on the insurance side. 

And on the insurance side, both in a regulatory context and on 

the private side, it is my opinion that State regulation has actually 

been extremely effective over the last 100 years on the 2 key measures of that effectiveness. The two things you would ask of an insurance regulator is whether there has been good oversight of solvency and consumer protection. 

And on those bases, I think the system, both the regulators and 

the industry, have done a world class job, and, I think as you see 

over now the past, it’s rather lacking many of the scandals and the 

insolvencies and the market meltdowns that you have seen in other 

sectors of the financial services community. 

However, we do understand the need for improvement, especially 

around product and producer licensing and registration, and the 

uniformity in those areas. And there, I think, there is an important 

role for the Federal Government to play. The States sometimes do 

need help in achieving the uniformity of standards in those areas, 

and some of the Members’ comments today, I think, are on point 

in those areas. 

Although the NAIC is constantly working to achieve uniformity, 

it doesn’t always succeed. And if achieving that objective requires 

the assistance of the Federal Government, we are not adverse to 

that help. So let me give you a few ideas for that. 

I think I see five possible options. They break into two halves. 

There are those that the States do themselves, and those where the 

Federal Government has an important role. The first two are the 

interstate compact model, which may be appropriate to be used beyond the life insurance product approval. But, obviously, we are 

still only at about 31 States, although New York has seriously considered entering it, but it is an area where it is hard to achieve 50-

State participation. 

The second is the existing NAIC accreditation program, which 

also could be expanded beyond its current focus of financial solvency regulation, but again there are challenges there. The three 

models that I think have Federal involvement and the first being 

to provide some Federal incentive for States to reach compliance 

with the national standards, for instance, under the first NARAB 

provisions of Gramm-Leach-Bliley. 

14

The second is State regulators through the NAIC set the standards in targeted areas of insurance regulation, and then a Federal 

mandate imposes those standards on States that don’t voluntarily 

adopt them. But the last, that I think is the best, is an approach 

that I think we should seriously consider. It is what I would consider a FINRA-like model, which would give NAIC the regulatory 

authority over some aspects of insurance regulation as FINRA has 

over securities firms and dealers with the Federal Government essentially authorizing either the NAIC to do that or some other entity. 

From my experience on the securities side, it has worked very 

well with the NASD and the States, before it was called FINRA. 

And I think it has been something through the central registration 

depository or CRD. My experience is on the private side and the 

public side it was something that was not complained about very 

often. 

It was effective, and it had the benefits of giving some appropriate discretion to the States on certain issues around producers. 

It was not a new Federal bureaucracy. There was a single point of 

contact if we have that, and it brings 100 years of regulatory experience to it. It is streamlined, but it leaves the power at the State 

level, much as is appropriate, and doesn’t run afoul of some of the 

pitfalls of an optional Federal charter, which I think does create 

problems that we seriously have to consider concerning regulatory 

arbitrage and issues concerning duplication. 

NAIC, however, is not just waiting for that outcome. I think the 

system is more streamlined than our critics would have some, I believe, we’re constantly modernizing without problems affecting 

other markets and without sacrificing strong consumer protections. 

As the written testimony makes clear, there are major reforms 

under way in producer licensing and uniformity in those areas, and 

the licensing of new companies. All 50 States, for instance, accept 

a uniform filing form and I think that we should be proud of what 

just happened in the bond insurance area, where in just several 

weeks, 49 States licensed the Berkshire Assurance Corporation to 

step in to the void on the bond insurance crisis. 

The interstate compact is still there, but you have heard what I 

have said about that. Passporting reinsurance, I think, is a good 

idea. And I also know the NAIC is coming out with a new proposal 

on reinsurance, which I think will be a good step in the right direction and could be the answer there. And all those are supported by 

uniform standards, and some of the most advanced technology. 

In closing, I just want the committee to know that I and Sandy 

Praeger, the States and NAIC, want to partner with you to see the 

successful aspects of the State-based system and fix the areas that 

need improvement. But I believe this offer is a major step forward, 

a major change in NAIC’s position, which I think is important and 

is a definite step towards modernizing a very important aspect of 

financial services in this country, and I would look forward to 

working with you on that undertaking. 

Thank you. 

[The prepared statement of Mr. Dinallo can be found on page 69 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Dinallo. 

15

Mr. Nason, I do not know whether to take the testimony of our 

last witness as an offer. 

How would you read it, and how do you think we should respond 

to that offer? 

Mr. NASON. I think that we should respond by saying we welcome working with the NAIC. I think the way I interpret those 

comments is that it is a recognition that the insurance regulatory 

structure needs to be modernized. I think that we can continue to 

try to work around the edges, or we can go to the fundamental concern, which is that we need to recognize the fact that insurance is 

a $6 trillion industry. It is a national industry, and it needs significant reform. 

Those are tough decisions to make, but we would be happy to 

work with the NAIC and you, of course, on all these issues. 

Chairman KANJORSKI. Do you believe that the Blueprint laid out 

by Treasury is the proper process, or do we need further studies 

and further examination? 

Mr. NASON. Oh, no. We certainly need to engage with the Congress. The Blueprint was not intended to be a solution to all these 

issues. It was intended to start a debate. It was intended to take 

some positions that we think are appropriate in terms of engaging 

with the Congress on how to deal with these issues, but the Blueprint is not intended to be the end-all of a discussion about these 

issues. It just was important for the Treasury to take some positions and lean a little bit more forward in terms of how to deal 

with regulatory structure issues, including insurance. 

Chairman KANJORSKI. How soon do you think it is possible to 

enact into law some of the suggestions? Do you think we can get 

it done in this term or in this session of Congress? 

Mr. NASON. Well, we stand ready to work with you as much as 

possible. I know we are anxiously awaiting to see what the legislation looks like that you are proposing on the Office of Insurance Information. 

I know that I and my staff will be working with you as soon as 

possible to see if that can get done. I know that we’ll put all of our 

energy there, but the goal of the Blueprint was not to create expectations that we would be able to implement those things by the end 

of the calendar year. It was just intended to start a debate. 

The precedent we are using is the green book in 1991, which led 

to the Gramm-Leach-Bliley, or was part of the discussions leading 

to the Gramm-Leach-Bliley Act of 1999, and that is the focus that 

we are using for these types of issues. These are long, complex 

issues that require a lot of debate. 

Chairman KANJORSKI. I just have a moment or so left. Mr. 

Dinallo, could you give us a little insight? 

How did you get 49 States to approve the new bond insurer of 

Berkshire Hathaway so quickly when we know how laborious, 

sometimes, the process has been in the past? 

What did you uniquely do to get those States to sign it? Was it 

the exigency of the situation that caused them to react quickly, or 

what? 

Mr. DINALLO. I think it was partly the exigency of the situation, 

but one of the reasons I did initially reach out to Jane of Berkshire 

Hathaway was I had an instinct that because of their franchise 

16

value, because of the indisputable depth of their capital, and because of their long-term status in financial services that it would 

be an easy sell, so to speak, in the rest of the States. 

So that was one of the factors. I’m not surprised that coupling 

the exigency of the situation with that kind of a company, it was 

able to be done. I also think that there was an indication here that 

the States are in fact getting their act together a bit. So here, 49 

States in several weeks, it’s hard to ask for more than that, I 

think. And I think it is the case that we have made positive 

changes. The systems are there. The problem is to have model laws 

that are the same in every State. That’s going to be a challenge. 

I concede that. 

I think Congressman Scott’s points are correct, that on the training of the brokers, the licensing, education, those should not be 

dramatically different as a minimum from State-to-State. 

Chairman KANJORSKI. Very good. Mr. Royce? 

Mr. ROYCE. Thank you, Mr. Chairman. 

Mr. Nason, the Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure covers the history of insurance 

regulation as well as many of the problems experienced right now 

by the current, State-based system. I was going to ask you if you 

believe there is one line of insurance, either property casualty or 

life insurance, for example, that would benefit more than the other 

from having the option to choose Federal regulation as opposed to 

State. 

Mr. NASON. Thank you for the question, and also, I just want to 

go back and thank you for the kind words about the Treasury Blueprint. A lot of people worked very hard on that. 

I think that there is an interesting discussion about an optional 

Federal charter for insurance, and it is whether or not it should be 

just life insurance, or should include property and casualty insurance. I think that it is our view that both should be part of the requirement. 

Mr. ROYCE. It is a different paradigm. It is a different model. 

Mr. NASON. There are differences, but there are also similarities. 

The similarities are that the companies are both national in scope. 

They both are providing coverage in a variety of States. So there 

are a lot of differences. 

While the regulatory overlap and duplication of the structure inhibits both the property and casualty insurers are also inhibited in 

their competitive pressures by some of the aspects of regulation of 

the States such as price controls. And we think that could be dealt 

with. 

Mr. ROYCE. How much should we be concerned by Europe’s move 

to one national market for all of Europe? 

Mr. NASON. I think that we should take that lesson and understand that this is a national market. I think that we would be better situated to engage with the Europeans in both welcoming insurers to come into the United States and allowing insurers in the 

United States to participate in international markets. So I think 

that we should take a lot of interest and learn from that. 

Mr. ROYCE. The Treasury Blueprint that the Treasury has put 

out speaks of the interconnectiveness, the increased 

17

interconnectiveness between financial services products, the conversions of banking and securities and insurance markets. 

Why do you believe it is necessary to regulate the financial services sector by objective rather than by product? 

Mr. NASON. Well, the goal there you are referring to is our optimal model in the Blueprint, and the goal there was not to provide 

a specific recommendation as to what the regulators would look 

like. But we were trying to suggest that there is a discipline associated with describing what you are trying to achieve by objective. 

This was something that was used very effectively in other countries like Australia and the Netherlands. If you ask what objective 

you are trying to achieve, and the three objectives that we identified for the U.S. regulatory structure were consumer protect, market stability, and safety and soundness, you have a better sense of 

what we were trying to achieve by these regulatory objectives. 

Mr. ROYCE. When we go over to the issue of global competitiveness, on which we have had a number of studies, every major study 

that we have seen on this topic has included the establishment of 

an optional Federal charter for insurance, in the recommendations 

that they put forward. 

What are some of the immediate concerns which could be addressed through either an Office of National Insurance or something along the lines of an Office of Insurance Oversight? 

Mr. NASON. I think there are three immediate concerns that can 

be achieved: First, some Federal presence in a market that is national and global in scope; second, you can deal with some of the 

regulatory inefficiencies of having 50-plus regulators; and third, it 

is very important to have a regulator that can view trends, that 

can have systemic-type implications across the Nation. So those are 

the three big issues. I think each of them are addressed quite comprehensively in a national insurance office and in an optional Federal charter construct, and that is why we recommended it in the 

Blueprint. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you very much, Mr. Royce. 

Now, the gentleman from New York, Mr. Ackerman. 

Mr. ACKERMAN. Thank you, Mr. Chairman. 

This is for Superintendent Dinallo. As the insurance industry 

evolves, and more and more Americans require insurance policies 

in States other than their own, or in multiple States, the need both 

for insurers and policyholders for insurers to be able to provide 

policies to policyholders in States in which they might not be accredited, the need is increasing. 

One of the least burdensome means through which this has been 

achieved thus far is through the interstate compact, a compact in 

which some of our larger States are not involved. Your State, Mr. 

Superintendent, New York, is one of those States that is not involved. My question is, will New York be joining the interstate 

compact? 

Mr. DINALLO. Well, I think the answer, Congressman, is that it 

is not entirely up to me or the Department. It is a decision that 

ultimately would reside with the Governor and the legislature, but 

I, certainly, and the Department at this point is certainly in favor 

of doing whatever we need to do, including recommending involveVerDate 0ct 09 2002 18:45 Jun 18, 2008 Jkt 042719 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\42719.TXT TERRIE
18

ment in the compact. We have a few issues that we’re working out 

with the interstate compact commission or committee, but I think 

on balance, it is the right thing. 

I do agree that there ought to be in these areas that you describe 

a certain seamlessness, which again, putting aside solvency and 

consumer protection, which I think is something not to be overlooked and the extremely positive history and insurance regulation 

is something that we should be very proud of. We should do everything we can to encourage product and producer licensing and registration that is when appropriate seamless. 

And so I think that as far as my support of it so to speak or the 

Department’s support of it, it looks like we’re headed in that direction. And if that will help with the rest of the government of New 

York State, then that is a positive trend. 

Mr. ACKERMAN. I applaud you on that decision and conclusion, 

and say at last, an interstate compact in which a New York governor can be proud. 

I yield back. 

Chairman KANJORSKI. Mr. Barrett of South Carolina. 

Mr. BARRETT. Thank you, Mr. Chairman. 

Gentlemen, thank you for hanging in there with this marathon 

today. I appreciate it. 

Mr. Superintendent, in South Carolina, we have done some 

things in the past that haven’t been the best in the world, but we 

have a system that works pretty good, and we are extremely proud 

of it. And I don’t want to do anything that’s going to screw it up, 

just to be honest with you. 

In your experience, what types of Federal regulatory reforms do 

you think may break some of the regulations that are working 

pretty well right now? 

Mr. DINALLO. Well, I think there are a few issues. One is that 

I do have a strong instinct that any optional regulatory relationship I think is not a positive one. I think that the importance of 

regulation to a large degree is a rather close relationship where 

you get to understand the business, and they understand what the 

expectations are from the regulator. 

I think that the intimacy of the State system has in fact been 

the reason for such a positive history on solvency and consumer 

protection. I think that you have to have like a marriage. You have 

to be in a committed relationship, and the concept of an option is 

sort of doomed to regulatory arbitrage and a race to the bottom, 

and inevitable distancing that occurs. 

And I think that to the extent that it permits companies to essentially engage in that kind of conduct or the regulators just begin 

not to ask the tough questions or have the kind of attitude that we 

have had for a hundred years, I think, is really problematic. And 

I think that we should not race to deal with a clunkiness, which 

I think NAIC needs to concede and look to a success on the securities side through the CRD system and other mandated registration 

and licensing systems. 

We should not completely change a system that is in my mind 

if you had to pick the two bases to judge success in insurance regulation, we have actually been world class. We have not done what 

I think is the third most important, as well, which is making our 

19

companies competitive. And I think, though, that that can be improved by some of the ideas that we’re ready to discuss now. 

Mr. BARRETT. So you think that the idea of a one-size-fits-all 

type of concept is not the best in the world in allowing the States 

some flexibility to meet their own market demands is probably a 

pretty good idea? 

Mr. DINALLO. Yes, I think because insurance besides being, time 

and again people say it’s a consumer-oriented product, it is also 

very important to understand the local markets. In property, in 

particular, you’ll have all kinds of localized issues, and I think that 

one size does not fit all, at all, in insurance. 

I think that is something that people have to be very, very aware 

of, and I think that is why it has been successful in the last 100 

years, because insurance regulators are very aware that success is 

quiet, and, you know, we’re like the CIA. And only bad things end 

up in the paper, usually, when regulators go awry. 

So one of the reasons why I have tried to have New York do 

some of the higher profile things that we have done in the last year 

is I do want people to understand what their regulators do for a 

living, because when they do it well, generally, it is quiet. 

Mr. BARRETT. Right. 

Mr. DINALLO. And it has been pretty quiet. Quiet is good. 

Mr. BARRETT. It is good. We only hear about the bad stuff, don’t 

we? 

Mr. Secretary, kind of the same thing. I mean, tell me what you 

think the benefits of an optional Federal charter would be for a 

State like South Carolina that is doing things right. 

Mr. NASON. I think South Carolina has a lot to be proud of in 

terms of how they are handling their regulation. They have one of 

the best in terms of not being welcoming of price controls, and they 

have one of the best and most competitive automobile insurance 

markets in the country, along with Illinois. 

I just wanted to suggest that we are not trying to eliminate the 

South Carolina regulatory system, and that is why it is not a onesize-fits-all approach to have an optional Federal charter. Under an 

optional Federal charter system, companies can elect Federal regulation. There is always a discussion about whether or not that invites regulatory arbitrage, but we are not writing on a clean slate 

when we talk about an optional Federal charter. We are building 

off of a platform that has served this country extremely well in the 

banking sector. The dual banking sector has a very similar structure to this. 

And what do I think an optional Federal charter will do? I think 

it will provide higher standards, not lower. I think that companies 

will gravitate towards those higher standards because uniformity 

will provide lower costs and better products to consumers. I think 

it will make us more competitive, and I think you will get more 

competition, more business, and more people writing coverage in 

South Carolina than before. 

Mr. BARRETT. I see my time is up, Mr. Chairman. 

May I ask one more question, if the Chair would be so kind? 

So you honestly believe that a Federal regulator sitting somewhere in a lofty position is going to be more agile and more responsive than somebody, a State regulator, a State person who is in my 

20

State, who knows the people, who knows what is going on, who has 

been on the ground and understands the system? 

Mr. NASON. I think that the Federal Government has a good history of doing solvency regulation, so yes, I do. 

Mr. BARRETT. Okay. Thank you, sir. 

Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you, Mr. Barrett. 

Mr. Meeks of New York? 

Mr. MEEKS. Thank you, Mr. Chairman. 

I am trying to decide, you know, I have been listening to a lot 

of people on this issue on both sides and trying to figure out which 

way. And I think that there has to be a way somewhere in the middle where we can make sure that we’re protecting the consumers, 

as well as making sure that we are being competitive in nature, 

because the world is different than it was 30 or 40 years ago; it 

was a much smaller world. 

So, let me ask this first, dealing with the globalization that we 

are currently in, and I guess I will ask Superintendent Dinallo this 

question. When global financial services talks are held in other 

countries, that’s what I’m trying to focus. It makes some of our people competitive. 

Do you think it harms the U.S. standing to have an official that 

can speak for only one insurance matter compared to banking and 

securities officials who speak on a national voice? And do you think 

that this problem would exist with other regulatory proposals that 

lack a national regulator? 

Mr. DINALLO. Again, one has to look at what the reality is. I 

think that we are the most open, most transparent, most robust insurance market in the world. I think that you have four States: 

California, New York, Florida, and Texas. They rank among the 

top 10 insurance markets in the world, just as those States by 

themselves. 

I would argue that if the tradeoff between enhanced global competitiveness is the possibility for market disruption, insolvencies, 

and poor consumer protection, I think we’re doing pretty well 

against that kind of benchmark versus messing with the system. 

Now, I don’t dispute that we should step back and enhance the 

registration and licensing and product approval process that is unnecessarily clunky, I think, in the State system. But I would not 

seek to completely rewrite the regulation of the insurance industry 

off of the history that we have. And with all due respect, I would 

argue that some of what has gone on in commercial banking has 

not been entirely positive. And, I know that last time, there was 

this big debate about whether it was the State’s fault or the Federal Government’s fault. 

I don’t think it’s any one system’s fault. I think that a dual, chartered system has real pitfalls to it, and sometimes there are mispicks. And there is certainly a regulatory arbitrage that I think is 

one that we should consider seriously steering away from. 

Mr. MEEKS. You know where the market seems to be going, and 

I agree. 

Those four States, right now, are the biggest. But as the China’s 

of the world, and the India’s of the world, and others continue to 

grow, and you look at the number of individuals that are there, and 

21

as they begin to be able to afford it, etc., then that is a market that 

a number of our companies, and I surely want them to be able to 

compete in. 

Do you believe that by not having a national regulator, having 

one system, this system would hurt our competitiveness? 

Mr. DINALLO. I think where it’s most challenging is in reinsurance. And I have in other public statements supported the ideas of 

passporting for reinsurance, or I know people have discussed some 

kind of body, maybe Federal/State partnerships where you do have 

some designated lead States and you’ve discussed the solvency. You 

know, New York has been a leader on this decollateralization issue, 

and I think we should seriously look at what is becoming arguably 

a trade issue. 

But I think that it’s just to me an issue of deciding whether you 

have a lead State or some kind of body that’s responsible for what 

really matters in reinsurance to a large degree, which is solvency, 

and the legal system of that State and your ability to enforce court 

decisions. 

But I don’t think that the lack of a Federal regulatory on the 

scale that you’re talking about is something that’s going to doom 

us to uncompetitiveness. Right now, I would hazard to guess that 

other financial services areas wish they had such an intact regulatory system that does not have some of the issues that we’ve gone 

through in the last several years, and other countries, I think, 

would actually be envious of where we are right now. 

Mr. MEEKS. Let me just ask this question. I see my time is running out. I have one question I want to ask Mr. Nason, but I want 

to ask one more question of the superintendent, as well. 

What about the reinsurance industry? It’s a very global industry. 

They write contracts on multi-State bases. Their customers are sophisticated insurance companies, unlike direct companies, and 

they’re not subject to rate and form regulation. 

Do you think the reinsurance industry merits congressional consideration of a Federal regulation? 

Mr. DINALLO. I have said publicly that it is not Federal involvement that I have an issue with. What I am concerned about is the 

optional part of it, and I have said publicly that in reinsurance in 

particular, there may be a good role for the Federal Government. 

Maybe there ought to be a role, but, again, we haven’t had some 

of the issues and the insolvencies that you would otherwise be fearful of in reinsurance. 

But, I would say they have all of them, because it’s a pure capital 

play and it’s among institutional players. There is the greatest possibility there, but I think you could do it through passporting or 

the other model that I know the NIC is going to come up with and 

I think that the chairman is considering. 

Mr. MEEKS. Mr. Secretary, let me just quickly ask you this question. The superintendent is right in the sense that, you know, the 

system seems to have been working, protecting consumers for a 

long period of time. I know that the Treasury Blueprint talks about 

public policy goals such as stability, solvency, consumer protection, 

consistency, and uniformity. It seems as though under the State 

system, that has been successful. 

22

Why do you think a Federal regulator now, you know, who may 

not have the same interest that the local or State individuals have, 

who have made sure that consumers are protected, why would a 

Federal regulator be a better person to come in and do this regulation as opposed to New York, who has this great history? Or South 

Carolina, as has been mentioned? 

Mr. NASON. I agree with the superintendent that we haven’t seen 

recent problems on the State side for insurance companies. But, 

let’s not kid ourselves. The State regulatory regime for insurance 

is not without problems. There were significant insolvency concerns 

in the 1980’s. Those led to other calls for Federal action for insurance regulation, so there are certainly concerns that we have seen 

in the insurance regulatory structure. And, the current things that 

we are seeing in the credit crisis, there are certain problems that 

we have seen in terms of State regulation and failures in State regulation for some of the banking areas. So it would be incorrect to 

suggest that State regulation is a model of perfection, while Federal regulation has been a failure. 

I think that it is also a false choice to assume that moving to a 

Federal regulator is going to abandon adequate consumer protection. That is certainly not the case. I mean, we had suggested in 

our Blueprint and we would be advocating quite strongly that there 

would be a very strong consumer protection component to any Federal regulator for insurance. So I think that we both agree that 

consumer protection is a very important part of insurance regulation. 

I think that the data are compelling, that we need to move to 

Federal regulation for insurance considering the changes that 

we’ve seen in the insurance market, and I think that it is incorrect 

to suggest that the State regulatory regime did not experience 

problems in our recent history, in fact. 

Mr. MEEKS. Thank you, Mr. Chairman. I yield back. 

Chairman KANJORSKI. Thank you, Mr. Meeks. 

Now, Mr. Scott of Georgia? 

Mr. SCOTT. Yes. Let me carry that line of thinking along, just a 

little bit, Mr. Secretary, and Mr. Superintendent. 

In fact, though, we’re moving along pretty well. You know, I 

served in the Georgia House of Representatives for 8 years, down 

in Georgia, and in the State senate for 20 years. We’re doing very 

well in Georgia. We’re doing very well across with the system as 

we are moving. 

My concern about the Federal charter is I know one thing it 

would do. It would have a very devastating, negative impact on 

competition, especially with the smaller companies competing with 

the larger companies. There would also be some very problematic 

issues of timelines, of how would it be implemented. 

Why is it necessary to be implemented, especially when the system now is stable and is functioning? And on the two really important points of consideration, competition within the industry, and 

most of all the benefits to the consumer, because at the end of the 

day, that is really what we are after. The benefits to the consumer, 

the convenience of the consumer, and it just makes sense. 

Now, I just want to get to one example. According to the NAIC 

data, States generate roughly $2.75 billion in non-premium tax revVerDate 0ct 09 2002 18:45 Jun 18, 2008 Jkt 042719 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\42719.TXT TERRIE
23

enues from insurers and producers. Correct? My bill that we’re 

working on, my colleague, Geoff Davis, and about 35 other co-sponsors are working with, requires the agents and the brokers to pay 

the licensing fees in every State in which they operate. 

But, under the proposal like the optional Federal charter, the 

States would forfeit these dollars for each insurer and producer 

that shifts to a Federal charter. That is a tremendous loss of revenue and another negative feature that would happen with the optional Federal charter. I am not in any way poking holes in this; 

I am just trying to bring a major point of clarity here. 

If the largest of insurers representing the vast majority of fees 

and premium volume become federally chartered, how will States 

recover from losing this $2.75 billion, the significant source of general revenue? 

Mr. NASON. Let me go back to the beginning of your question, 

first, to say that simply because we are doing well does not mean 

that we shouldn’t be striving for improvement. If the goal of what 

we are trying to achieve is to provide benefits to the consumers, I 

think a regulatory structure that takes away redundancies and 

burdensome costs will be passed on to the consumer, and those consumers that we are trying to look after will have lower priced products and more choices, and will not have to suffer any detriment 

to consumer protection. 

With regard to your second question, the legislation that has 

been proposed in both Houses by Congresswoman Bean and Congressman Royce has provisions to protect some of the funding that 

is provided to the States in terms of State tax revenue to address 

some of those concerns that you are referring to. So the details of 

how that legislation is crafted to deal with some of those issues 

would need to be worked out, but I think they could be worked out. 

Mr. SCOTT. Let me continue that line of questioning. 

Mr. Dinallo, I would like for you to respond and give me your 

thoughts on that, as well. That is a significant amount of money, 

just one example. But I honestly believe that States having primary authority over the insurance industry is a legitimate regulatory entity. 

And as States are able to make their own rules, to comply with 

what that State deems important for their population and have the 

independence to grow in their own way, each State is different. 

Trying to make one shoe fit all feet in this room would be an impossibility, and that applies to these very diverse and different 

States with different features in each different region. 

But that dependence to grow in their own way and on their own 

time would further ensure competition within the industry. I think 

this is the case, don’t you? And wouldn’t ensuring States having 

the primary authority over the industry ensure that competition? 

I would like for you to talk about cost. You talked about efficiencies, you know. How would some Federal oversight increase or 

decrease efficiency? 

Mr. DINALLO. I think there is a history of the States being innovative. There are some attributes of a kind of a competitive system. 

I actually don’t think competition among regulators is the worst 

thing in the world. I know that Secretary Paulson in his statement 

about the Blueprint said that as if it were a negative. I think someVerDate 0ct 09 2002 18:45 Jun 18, 2008 Jkt 042719 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\42719.TXT TERRIE
24

times it’s a positive because I think the people demonstrate between themselves the best way and that can become a national 

standard, and I think that one always has to be aware of that. 

I think that you’re correct that there is going be some loss of revenue base. But again, I don’t think that Assistant Secretary Nason 

and I are so far apart on the following concept, which I think is 

something that you were talking about in your opening comments, 

we do need to find ways where we streamline and do nationalize 

certain aspects of insurance that I think would not run afoul of 

your concerns. And I think those should be in areas concerning registration and licensing, and I think we should get there. I think it’s 

important. I urge the committee to look at what happened on the 

security site in those areas, and look at CRD and THINRA remodel 

now, because I think it’s a way, it’s the best way I can think of to 

achieve the best of all worlds, sort of the ultimate compromise—although that’s probably the wrong word—the maximal way to save 

the best parts of the different systems or the approaches of a Federal system, which I think we do need to worry a little bit about 

speed to market and the registration of producers. Those are important things. 

The States may never be able to do them as well as if the Federal Government, so to speak, gave certain overarching authority 

in minimum stands. Or the NARAB approach. But I’d almost rather that become something that is not optional. 

Mr. SCOTT. Okay. Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you. We can now hear from the 

gentlewoman from Illinois, Ms. Bean. 

Ms. BEAN. Thank you, Mr. Chairman. And thank you for waiting 

until I could get to my questions. But it looks like I’m last. So if 

we are quick and no one else sneaks in, you will get out of here 

pretty soon. 

I have a couple of questions for Secretary Nason. First, the 

Treasury Blueprint calls for the creation of a national insurance office that would offer the option of uniformity and national regulation. What are some of the effects you think would develop from 

the additional efficiencies of that uniformity and also specific relative to product approval, speed-to-market, and portability? 

Mr. NASON. I think the benefits are many. I think that cost for 

companies doing business on a national basis would go down. I 

think that the speed-to-market concerns that the NAIC is working 

very diligently to impact with their interstate compact would be addressed comprehensively and with one fell swoop in that type of 

legislation. So I think products would get out to the marketplace 

faster. I think both of those things would be extremely important 

benefits to what is essentially a national industry. 

Ms. BEAN. Do you think speed-to-market would spur greater innovation since there’s a greater reward for being the early market 

entrants? Coming out of the high-tech industry, I know often that 

was the reward for doing R&D, to coming out with new products, 

taking it to market first as you would get the lion’s share of that 

marketplace. 

Mr. NASON. Right. 

Ms. BEAN. Right now there isn’t that incentive in the insurance 

industry. 

25

Mr. NASON. Sure. Absolutely. I think that one of the problems 

that inhibits innovation in the insurance industry is regulatory 

structure. I think that is beyond debate. 

Ms. BEAN. Thank you. The other question is—as the Blueprint 

outlines pretty clearly—as the marketplace has evolved in the capital market space, and there is a lot of convergence of product 

types, so insurers are engaged in far more complex financial transactions than they once were, are States equipped to regulate those 

more sophisticated global insurance products? 

Mr. NASON. I think that is a very good question, and I think 

these companies are getting more and more complex. One of the 

comments that we received was—I will read it and then I will just 

describe where it was from—‘‘The current United States regulatory 

structure is not fully equipped to supervise the sophisticated insurance marketplace of the 21st Century. The need to operate within 

the State patchwork of regulation in the United States means that 

insurers with customers with worldwide operations are hindered in 

their efforts.’’ 

That was submitted to us in connection with our Blueprint and 

one of the signers was a former president of the NAIC. 

Ms. BEAN. I appreciate your clarification on that, and I also want 

to thank you for addressing Congressman Scott’s concerns about 

State revenues, because it would be revenue-neutral. There 

wouldn’t be a loss of revenues to the States. I don’t think he heard 

me, but I will share that with him later. But I am glad that you 

cleared that up for the record. Thank you, and I will yield back. 

Chairman KANJORSKI. Gentlemen, we have come to the end of 

the first panel. Thank you very much for your indulgence. The 

panel is now dismissed, and I would like to welcome the second 

panel. 

I am pleased to welcome our second panel. First we will have Mr. 

Lawrence H. Mirel, partner, Wiley Rein, LLP, on behalf of the SelfInsurance Institute of America to discuss retention group reforms. 

Mr. Mirel? 

STATEMENT OF LAWRENCE H. MIREL, PARTNER, WILEY REIN 

LLP, ON BEHALF OF THE SELF-INSURANCE INSTITUTE OF 

AMERICA (SIIA) 

Mr. MIREL. Thank you, Mr. Chairman, and members of the subcommittee. My name is Lawrence Mirel, and I am with the law 

firm of Wiley Rein. I am the former commissioner of insurance securities and banking for the District of Columbia; I served in that 

position from 1999 to 2005. 

I am delighted that the subcommittee is taking on these various 

insurance regulatory reform proposals, and I am honored to be invited to participate. 

I am here today on behalf of the Self-Insurance Institute of 

America, to testify in favor of H.R. 5792, the Increasing Insurance 

Coverage Options for Consumers Act of 2008. SIIA, as it is known, 

is the country’s largest nonprofit association that represents companies involved in the self-insurance alternative risk transfer marketplace. Its membership includes self-insured employers, captive 

insurance companies, risk retention groups, insurance entities, capVerDate 0ct 09 2002 18:45 Jun 18, 2008 Jkt 042719 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\42719.TXT TERRIE
26

tive managers, third-party administrators, and other industry service providers. 

I won’t go through the history of the Liability Risk Retention Act 

because it was covered earlier by Mr. Moore, who is the co-sponsor 

of this new bill, but it goes back to the crisis that we had with liability insurance in the 1980’s. Today, there is a new insurance crisis. Because of the devastation caused by Hurricane Katrina and 

the other major storms in 2005, commercial insurers are reevaluating their exposure in areas of concentrated catastrophic risk and 

in some cases are seeking to reduce their property insurance coverage in such areas. 

As a result, the cost of property insurance is rising everywhere, 

and in some places it is hard to obtain at any price. This has led 

to a renewed interest in the possibilities offered by the alternative 

risk market, which includes all kinds of self-insurance mechanisms, 

including risk retention groups. 

These non-traditional insurance entities provide options that are 

not available through the commercial insurance market. Risk retention groups in particular provide a way for businesses and nonprofit organizations that are engaged in similar kinds of activities 

and face similar risks to band together and collectively provide insurance coverage to their members. 

Currently, these risk retention groups may only offer liability insurance. The new bill would allow them to offer property insurance 

as well. 

I want to point out that the bill under consideration does not call 

for a government solution to the property insurance crisis. No new 

responsibilities would be undertaken by any agency of the Federal 

or State Governments, and no taxpayer money would be put at 

risk. This bill would simply provide consumers with another competitive option to manage their risk exposure in a difficult environment where capacity is limited. 

As the GAO said in its 2005 report on risk retention groups, risk 

retention groups have had an important effect on increasing the 

availability and affordability of commercial liability insurance for 

certain groups. We think it will have the same effect on property 

coverage availability as it did on liability coverage availability. 

A risk retention group offers a number of important incentives 

to its members. Policies can be written that more precisely fit the 

risks of the member entities. Risk retention groups offer their 

members custom-made insurance plans instead of the off-the-shelf 

plans offered by commercial writers. 

Underwriting can be geared to the actual risks of the member 

companies instead of their risks being averaged with the risks of 

other kinds of entities that may in fact be very different. A risk retention group allows more knowledgeable and professional risk 

management to take place. 

Perhaps most important of all, the appeal of the risk retention 

group is that it can operate across State lines without having to be 

licensed in multiple jurisdictions and subject to overlapping regulatory authority. 

Mr. Chairman, I don’t want to take any more time because I 

know we’re short of time, but I do want to thank in particular Congresswoman Pryce and Congressman Moore for their leadership in 

27

introducing this bill. We think it will provide an important new option to people who are looking for property insurance coverage. It 

will not solve the problem, but it will help. 

We thank you for listening to this testimony and for considering 

the bill. 

[The prepared statement of Mr. Mirel can be found on page 98 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Mirel. I appreciate that. 

Next we have Mr. Alastair Shore, senior vice president and chief 

underwriter of CUNA Mutual Group, on behalf of the American 

Council of Life Insurers and the American Insurance Association, 

to discuss optional Federal charter. 

Mr. Shore? 

STATEMENT OF ALASTAIR SHORE, SENIOR VICE PRESIDENT 

AND CHIEF UNDERWRITER, CUNA MUTUAL GROUP, ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURERS AND 

THE AMERICAN INSURANCE ASSOCIATION 

Mr. SHORE. Thank you. Good afternoon, Chairman Kanjorski, 

Ranking Member Pryce, and members of the subcommittee. My 

name is Alastair Shore and I am the chief underwriter of CUNA 

Mutual Group. I appreciate the opportunity to testify at today’s 

hearing on insurance regulatory reforms on behalf of CUNA 

Mutual’s insurance trade associations, the American Insurance Association, and the American Council of Life Insurers. And I would 

like to thank the subcommittee for its leadership in the reform debate and its commitment to finding the best solution. 

CUNA Mutual is the leading provider of insurance and other financial services to credit unions and their members worldwide, and 

is the parent organization of all insurance companies that form 

CUNA Mutual Group. Established by the pioneers of the credit 

union movement in 1935, CUNA Mutual has a long and distinguished history in the United States. 

While we work very closely with CUNA, the Credit Union Trade 

Association, we are separate entities. Comments today reflect the 

position of CUNA Mutual, the insurance company. 

Having operated in the State regulatory structure for over 70 

years, CUNA Mutual strongly supports optional Federal chartering 

for insurance companies as the best reform alternative for consumers, the industry, and the economy. 

And we sincerely believe that the subcommittee’s examination of 

this issue will lead you to the same conclusion. 

H.R. 3200, introduced last July by Representatives Melissa Bean 

and Ed Royce, is a strong consumer protection bill, which focuses 

on a centralized system that emphasizes safety, soundness, and 

consistency of regulation. And as Representative Bean highlighted, 

these protections come without sacrificing State premium taxes. 

We also strongly support the Treasury’s view that an optional 

Federal charter would play an important role in the new world of 

integrated financial markets, and would address the burdens imposed by the State system on insurers and consumers alike. 

Insurers, banks, and capital markets investors are now offering 

products that may be substitutes for each other, and there is a 

28

trend towards one-stop shopping for finance and risk management 

needs. 

Insurers must have a regulatory system that adapts to market 

realities and allows them to compete in a level playing field and 

to serve the evolving needs of the policyholders. 

Moreover, the turmoil that has riled the financial system highlights the interconnectedness of our financial system and the importance of insurance to the proper functioning of that system. This 

is precisely the time to enact regulatory reforms that strengthen 

solvency oversight and foster a more competitive regulatory environment for insurers at the Federal level. Waiting will make it 

more difficult to correct existing problems. 

The current State insurance regulatory system basically reflects 

an approach that began in the 19th Century and continued to expand following the passage of the McCarran-Ferguson Act, Federal 

law recognizing insurance as a product of interstate commerce, and 

delegating regulatory responsibility to the States, subject to congressional recapture at a later date. 

Under McCarran, the result at the State level has been a regulatory scheme that lacks uniformity of efficiency, reflects outdated 

assumptions that are far from accurate today, and focuses on government intrusion in the market. 

Moreover, our competitiveness is further restricted as our international trading partners move to develop more streamlined insurance regulatory models that will leave the United States behind. 

One such development involved the introduction of risk-based insurance solvency requirements across the EU, an initiative known 

as Solvency II. 

The new solvency requirements will enable better tracking of the 

real risks run by any particular insurer, while at the same time encouraging competition and innovation. But the regulatory structures in this country will not allow U.S. insurers to be easily integrated into Solvency II to the extent that they want to take advantage of it. 

In the end, U.S. insurers’ competitiveness may suffer. 

For these reasons, we encourage you to take a close look at H.R. 

3200 as the answer. Our national companies and optional Federal 

charter would displace the current multi-State regulatory patchwork, with a framework for uniformity, consistency, and clarity of 

regulation focused on consumer needs and protection. The Federal 

charter option would also displace the regulatory red tape and government price and product controls that characterize the current 

system. 

Although H.R. 3200 effectuates a fundamental shift in regulatory 

application, it also proposes to put in place an oversight regime as 

strong or stronger than any found in an individual State today. 

Let me close by emphasizing that insurance regulatory reform is 

a critical imperative that will determine the viability of one of our 

Nation’s most vital economic sectors and help define how our economy manages risk in the future. 

The choice is between the existing 19th-Century State regulatory 

bureaucracy or a new approach that relies on individual choice, 

competition, and the evolution of our customer’s needs in the 21stCentury global economy. 

29

Thank you for the opportunity to present our views today. 

[The prepared statement of Mr. Shore can be found on page 114 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Shore. 

Next we have Mr. Thomas J. Minkler, president of the Clark 

Mortenson Agency, on behalf of the Independent Insurance Agents 

and Brokers of America, to discuss the National Association of Registered Agents and Brokers Reform Act of 2008. 

Mr. Minkler? 

STATEMENT OF THOMAS J. MINKLER, CIC, PRESIDENT, 

CLARK-MORTENSON AGENCY, INC., ON BEHALF OF THE 

INDEPENDENT INSURANCE AGENTS AND BROKERS OF 

AMERICA 

Mr. MINKLER. Thank you, and good afternoon, Chairman Kanjorski, Ranking Member Pryce, and members of the subcommittee. 

My name is Tom Minkler, and I’m pleased to be here today on behalf of the Independent Insurance Agents & Brokers of America 

and our 300,000 individuals to provide our perspective on H.R. 

5611, the NARAB Reform Act. 

I am the president of the Clark Mortenson Agency, a New Hampshire-based agency with 51 employees, that offers a broad array of 

insurance products to consumers and commercial clients, and specifically I’m licensed to do business in nine States. 

The most serious regulatory challenges facing insurance agents 

today are the redundant, costly, and sometimes contradictory requirements that arise when seeking licenses on a multi-State basis. 

The root cause of these problems is the failure of many States to 

issue licenses on a truly reciprocal basis. 

To rectify this problem, we strongly support the NARAB Reform 

Act, or NARAB II. Introduced by Representatives David Scott and 

Geoff Davis, this legislation would streamline non-resident insurance agent licensing, but is deferential to States’ rights as the dayto-day State insurance laws and regulations would not be affected 

by this legislation. 

Given the strong bipartisan support of NARAB II—there are already over 30 co-sponsors—we are excited about the prospects for 

this bill. I personally would like to thank Representative Scott, 

Representative Davis, and the members of the subcommittee who 

co-sponsored the bill for their support. 

Today, State law requires insurance agents and brokers to be licensed in every State in which they operate. Therefore, agents are 

forced to comply with varying and inconsistent standards and duplicative licensing requirements. These requirements are costly and 

burdensome, and they hinder the ability of insurance agents to effectively address the needs of consumers. In fact, the current licensing system is so complex and confusing that many have retained expensive consultants in order to comply with the requirements of every State in which they operate. 

In my office, I have two individuals that I have to ask to take 

time away from their primary job functions just to manage and 

track licensing requirements in the States where I do business. 

This is not only very time-consuming, but it’s counterproductive to 

serving my clients. 

30

Some observers mistakenly believe that most insurance agents 

operate only within their home State, and that the problems associated with licensing only affect the Nation’s largest insurance providers. The reality is that the average independent insurance agency today operates in more than eight States, and it’s increasingly 

common for small and mid-size agencies to be licensed in 25 to 50 

States. 

Congress recognized the need to reform the industry’s multiState licensing system back in 1999, when it incorporated a 

NARAB subtitle into the Gramm-Leach-Bliley Act. However, true 

reciprocity remains elusive. Our diverse membership of small and 

large agents hope meaningful reform is imminent, but we are still 

waiting for the promised benefits. 

Our members are frustrated by the many challenges and burdens 

they continue to face, and are increasingly impatient with the lack 

of actual progress. 

Let me briefly mention some of the most prominent problems. 

Despite claims to the contrary, many States have not implemented 

licensing reciprocity. States continue to impose additional conditions and requirements. These extra requirements make it impossible for agents to quickly and effectively obtain and maintain the 

necessary license and violate the reciprocity standards established 

in Federal and State law. 

The NAIC maintains that approximately 43 States have met this 

reciprocity standard established in GLBA, but the suggestion that 

so many States license non-residents on a truly reciprocal basis 

would come as a surprise to the real-world practitioners. 

Many of you probably do not realize that non-resident agents 

typically confront three layers of licensing requirements, as many 

insurance departments require non-residents to obtain individual 

license, to obtain similar agency licenses, and to provide proof that 

the agency is registered as a foreign corporation. 

Agents have long identified the development of a one-stop, nonresident licensing facility as a priority. The National Insurance 

Producer Registry has been working for more than 10 years to 

achieve that goal. While NIPR has made some progress and 

brought certain efficiencies to the marketplace, its accomplishments have been overstated by some and its objectives remain 

unfulfilled. 

The primary challenge facing NIPR is that its licensing system 

must accommodate the requirements that are imposed by the 

States, and NIPR cannot realize its vision until States are truly reciprocal and that duplicative licensing problems have been addressed. NARAB II would address these barriers to reform. 

NARAB II employs the framework first developed by Congress in 

1999, and utilizes the experience and insights obtained over the recent years to improve on the concept. It eliminates barriers faced 

by agents who operate in multiple States, establishes licensing reciprocity, and creates a one-stop, non-resident facility. 

The bipartisan proposal benefits policyholders by increasing marketplace competition, and consumer choice, and by enabling insurance agents to more quickly and responsively serve the needs of 

the consumers. 

31

Once duly licensed in their home State, an agent would apply to 

NARAB and would have to satisfy NARAB criteria for membership. 

NARAB would not be a part of, or report to, any Federal agency 

and would not have any Federal regulatory power. 

H.R. 5611 merely addresses marketplace entry. State regulators 

would continue to supervise and discipline agents, and would continue to enforce State consumer protection laws. 

The bill also does not affect resident licensing requirements for 

agents who are satisfied with the current system. In short, NARAB 

II would provide a more efficient, modernized, and workable system 

of insurance agency licensing for all stakeholders. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Minkler can be found on page 86 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Minkler. 

Next we have Ms. Frances Arricale, executive director of the 

Interstate Insurance Product Regulation Commission, to discuss 

the Compact. 

STATEMENT OF FRANCES ARRICALE, EXECUTIVE DIRECTOR, 

INTERSTATE INSURANCE PRODUCT REGULATION COMMISSION 

Ms. ARRICALE. Thank you, Chairman Kanjorski, Ranking Member Pryce, and members of the subcommittee. I greatly appreciate 

the opportunity to be here with you and to provide an update on 

the start-up success of the Interstate Insurance Compact. My name 

is Frances Arricale, and I am the executive director of the Interstate Insurance Product Regulation Commission. 

The Commission is the actual public agency that manages the 

day-to-day affairs of the Compact. As you heard in prior testimony, 

the Compact does have 31 members to date, which encompasses 50 

percent of the premium volume nationwide in our authorized product lines. We are an asset-based interstate compact, and that 

would be life insurance, annuities, long-term care, and disability 

income. 

And we have had a great start-up success in meeting the goal of 

speed-to-market for those products, and doing that while ensuring 

continued consumer protection in the marketplace. We leverage the 

State-based system, the experience of the State-based system, to 

meet the demands of the global marketplace, allowing insurers to 

get their products to market quickly, without sacrificing consumer 

protection. 

As you know, insurance is a unique product. It is a promise for 

future protection, for which current premiums are collected, and 

there is a very important concern that our regulators be able to respond locally to consumers. 

We are able to provide a national platform while continuing to 

ensure that State insurance regulators are able to respond to consumers locally. 

We have had great start-up success. We initiated our actual filing operations last year, where insurance companies can make one 

filing under one set of standards for one approval that is valid in 

all of our member States, and we do that with a speed-to-market 

32

commitment of under 60 days, so that actually insurers can get a 

product to market in under 60 days. 

We have achieved a great deal of consensus with our member 

States, working with our regulators, our State legislators, working 

with the industry and consumer representatives to promulgate national standards. We already have a portfolio of standards in the 

life area, and we are currently working on standards in the annuities area. We expect to fulfill the portfolio of the four lines and 

asset-based products by next year, and we do this by utilizing technology. These are electronic filings that are made and we continue 

to work with our member State insurance departments to provide 

them with the most up-to-date information they need to respond to 

their constituents locally. 

I will note that our standards are truly a race to the top. We are 

not looking for the lowest common denominator among the States. 

We are looking to raise consumer protections. Our member States 

are committed to that. 

One example is currently right now we are working on annuity 

standards. As you know, there are some concerns raised, particularly for seniors on annuity standards, and we are looking to raise 

the consumer protections, particularly on surrender charges. And 

that will be accepted in all 31 of our member States, and growing. 

We also make sure that the policy forms themselves are readable. We have raised the national standards on readability of policies, and we make sure that the policies themselves have our insurance commissioner’s numbers right on the policy, so if they have 

a concern, that they are able to directly contact their insurance departments, thus, having a national standard but having consumers 

be able to reach out to their regulators. 

Also, while we have 31 States, we have 10 States currently with 

legislation pending. In order to join the Compact, you need to pass 

the Compact model statute in your State legislature. We have 10 

States currently, and as you heard, New York is one of those 

States. We have a number of other States, including California, 

New Jersey, and Illinois pending in their legislatures, and we look 

forward to welcoming more States into the Compact. 

While we have achieved initial success, we are certainly looking 

for more achievements, going forward. We have approved over 50 

products already through the Compact. Those are in the marketplace and they were approved within the speed-to-market 60-day 

turnaround time. We certainly recognize that the industry is looking to put out innovative products to really meet the ASA protection demands of the public, and we are working towards standards 

in all of those lines also to encompass innovative products. We will 

also be expanding our operations and encouraging additional States 

to join us. 

I would like to leave you with this—the regulators, the State legislators have heard the call that reform is necessary. They have 

spoken about it through the NAIC, but we have actually delivered 

on an operational reality that we are ready, we are here, we are 

approving products, and we’re only going to expand and build a 

state-of-the-art operation in order for the insurance sector to be 

able to compete in the global economy. 

33

We have built the frameworks of uniformity, and we are now utilizing those, and I look forward to answering any of the questions 

of the subcommittee. 

Thank you. 

[The prepared statement of Ms. Arricale can be found on page 50 

of the appendix.] 

Chairman KANJORSKI. Thank you very much, Ms. Arricale. 

Finally, we will hear from Ms. Donna Pile, managing partner of 

A.G. Perry Insurance Agency, on behalf of the National Association 

of Professional Insurance Agents, to discuss the National Insurance 

Producer Registry. 

Ms. Pile? 

STATEMENT OF DONNA PILE, CIC, CPIW, CPIA, MANAGING 

PARTNER, A.G. PERRY INSURANCE AGENCY, ON BEHALF OF 

THE NATIONAL ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS (PIA) 

Ms. PILE. Chairman Kanjorski, Ranking Member Pryce, and 

members of the subcommittee, thank you for the opportunity to 

participate on this panel. We appreciate the thoughtful, deliberative manner in which you are discussing the complex issue of insurance modernization and reform. 

My name is Donna Pile, and I am a main street agent in Lexington, Kentucky. Last year, I had the honor of serving as president of the National Association of Professional Insurance Agents, 

and I am proud to represent PIA’s over 10,000 main street agents, 

their employees, and their customers. All PIA members are licensed insurance producers in their State of residence, and most 

agencies for PIA operate in three or more States. Accordingly, insurance regulatory modernization then is a vital issue for all of our 

PIA members for many, many reasons. 

The first and foremost fundamental is the State insurance producer licensing system. Our licensing system is comprised of resident license, non-resident license, and the multi-State licensing 

system, across which all of these occur. PIA was one of the original 

trade associations working with the National Association of Insurance Commissioners and the National Conference of Insurance Legislators to set up and fund an electronic licensing system for producers. 

We realized early in the 1980’s that an electronic systematic was 

the wave of the future, and testified as early as 1988 on the producer licensing reform before the House Commerce Committee. 

The committee today has requested that PIA National concentrate our comments on the NIPR, or the National Insurance 

Producer Registry System. The producer licensing mechanism has 

been modernized and work is ongoing. It is a nationwide, Statebased electronic system, similar to the State security system, CRD, 

or Central Registration Depository, a licensing system too. Just like 

the securities licensing system, the insurance producer licensing 

system was built by the States for the States and should remain 

under State control. 

The mission of the NIPR is to be a premier public/private partnership supporting the work of the States and the NIIC for re-engineering, streamlining, and making uniform the producer licensing 

34

process for the benefit of regulators, for the insurance industry, 

and for consumers. 

The NIPR has brought us to the future through electronic licensing. Through NIPR’s non-resident licensing service, producers and 

insurers can apply for non-resident licensing now in 47 jurisdictions and receive confirmation within a few business days. Obtaining a non-resident license in California, for example, some years 

ago, used to take up to 3 months. Now California, beginning to utilize more of the NIPR’s capabilities, can process in less than 3 

weeks. 

The important thing about the producer licensing under NIPR is 

that this system is up and running in almost all jurisdictions and 

can be completed in probably the last five, in a very relatively short 

time. 

The substantial portion of the investment of the system has already been made by the States. We are now in the process of putting the last segments to achieve our goal of a one-stop licensing 

system in the next 2 to 3 years. 

As with all licensing matters, achieving a one-stop licensing system for insurance producers among the States requires a great deal 

of effort. In order to get the few remaining States to participate in 

the NIPR, PIA is committed to our State legislators and our regulators to keep this process ongoing. 

We offer, on behalf of the NIPR, a PowerPoint presentation that 

we respectfully request to be included in the hearing record. This 

presentation will highlight for you the work that has been done 

and how close we are to accomplishing this modernized system. 

Also, States fully utilizing all of NIPR’s services will help producers understand and know the States’ laws and practices that 

are properly aligned, so that all of us who operate in several jurisdictions have a better understanding and a certainty of our compliance of our compliance obligations. 

Whatever the path one might choose to reform insurance producer licensing, the steps that we are undertaking with the States 

currently still must be done. The path to reform is almost complete 

with producer licensing through the utilization of the NIPR. 

PIA National believes that the fundamental public purpose and 

obligation of all regulation is the safety and the protection of the 

consumer. 

This includes supporting a sound and competitive marketplace, 

but it also requires oversight and enforcement of the sector’s participants so that they are in compliance with the law, again for the 

benefit of the people. 

The NIPR electronic system assists regulators with their mandate to protect consumers by allowing them to police the marketplace in a more effective manner. PIA National has been charged 

by our members to facilitate a modernized licensing system. The 

action plan we’ve presented through the NIPR delivers an immediate result. 

Specifically in licensing, it is a constitutional and very well designed to be compatible with the overall, long-term modernization 

of the State oversight system. 

PIA members need a system that aligns all authorities to create 

a harmonized system. 

35

We thank you for the opportunity to share PIA’s perspective on 

this important issue. PIA members are local agents serving main 

street America, and we appreciate your efforts to hold States accountable to the modernization goals. 

[The prepared statement of Ms. Pile can be found on page 110 

of the appendix.] 

Chairman KANJORSKI. Thank you very much, Ms. Pile. I appreciate it. Now, before I go into my questions and thanking the panel 

for their testimony, I know we have gone much later than everybody anticipated. Does anybody have a flight that we are putting 

you at risk of missing? And if so, what do we have to do to accommodate you? 

Mr. MINKLER. Mr. Chairman, it may be too late. So, I’m here for 

the duration. 

Chairman KANJORSKI. Oh, I am sorry. Anyone else? 

Well, then I thought we would go until midnight, if that is all 

right with everyone here. 

Mr. SHORE. I also have that challenge. So we’ll see how we get 

on. 

Chairman KANJORSKI. Okay. Well, let me just waive my questions initially. If I have some that are so burning that I have to 

go back to them, I will. Let me go to Ms. Pryce for her questions. 

Ms. PRYCE. Thank you very much, Mr. Chairman. Obviously I 

am very grateful to the subcommittee for staying here all day. 

Those of us who are used to this type of thing, having our lives 

ruled by the votes schedule, or lack of schedule, as it were, it’s sort 

of a way of life that you warrant, and so I appreciate your flexibility. 

I’m also interested because of the bill just introduced by myself 

and Mr. Moore and talking a little bit to you, Mr. Mirel, and any 

of you who would like to comment on risk retention. And perhaps 

you could comment on the impact that this bill, or one like it, 

might have on easing the insurance of affordability and availability, which is at crisis levels in some places, prone to catastrophic risk. I think I know the answer, but I would like to hear 

you perhaps edify me on the response that I think you will give. 

Mr. MIREL. Thank you, Ms. Pryce. I appreciate the question. As 

I said earlier, it is not going to solve the problem all by itself. But 

it will provide another option to people who have commercial property risks in dangerous places like the Gulf Coast or the Atlantic 

Coast or earthquake zones or terrorist zones for that matter. They 

will have the option to come together to form a risk retention 

group, or if they already have a risk retention group in place that’s 

offering liability insurance, they will now have a new opportunity 

to be able to get property coverage through this self-insurance 

mechanism. 

It will be, I think, an important benefit to a small but important 

group of people and businesses that otherwise will not have good 

options or realistic options. 

Ms. PRYCE. And there is, you know, a list of supporters that is 

very, very long to this bipartisan bill, and we have distributed it, 

of course, as far and wide as we can. But they range from hospitals 

to universities, public housing, consumer groups, and many in the 

industry. 

36

But there are some that haven’t been able to give it its full support, and I’m not sure why. I assume it’s just competitiveness and 

market share, that type of thing. Would that be your impression? 

Any of you who want to respond, please do. 

Mr. MIREL. Yes. I think that this is a pro-competitive bill. This 

does not cut anybody out; it simply gives more options to consumers. It will, of course, threaten people who now have the opportunity to have market shares that they might lose some of if this 

went forward. But even there, I think this is a minor problem, because in many of the areas where this will be used, insurers who 

now have the market are leaving; they are cutting back; they don’t 

want the exposure. So even there, it is not a large problem, in my 

view. 

Ms. PRYCE. Well, I appreciate that. I see Mr. Moore is here and 

I appreciate his cooperation. We have worked on many things in 

the past, and this is just another example of a good bipartisan 

piece of legislation. In the interest of everybody’s time, I will yield 

back. Thank you so much. 

Chairman KANJORSKI. Thank you very much, Ms. Pryce. 

The gentleman from Kansas, Mr. Moore? 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. Mr. Mirel, in 

your testimony, you referred to some of the problems the GAO 

identified with corporate government standards for risk retention 

groups. And in the legislation that Mrs. Pryce and I filed, we tried 

to address these concerns by implementing the National Association of Insurance Commissioners’ proposed government standards 

for risk retention groups. As a former insurance commissioner 

yourself, perhaps you know our former insurance commissioner, 

and now Governor, Kathleen Sibelius. 

Mr. MIREL. Very well. 

Mr. MOORE OF KANSAS. Can you explain how the legislation 

would help fix the problems addressed in the GAO report, sir? 

Mr. MIREL. I think that the inclusion of those standards, Representative Moore, is very important to the success of this legislation. The whole idea behind the risk retention group is that it is 

run by its members for its members, and there have been some 

questions raised, some problems raised—the GAO noted these in 

its report—that sometimes the risk retention group is managed by 

outside interests and not always necessarily in the best interest of 

the members. 

The provisions of the bill that adopt the NAIC standards, I think, 

will go a long way toward preventing that kind of abuse. 

Mr. MOORE OF KANSAS. Thank you, Mr. Mirel. One more question, the other part of our legislation would allow risk retention 

groups and risk purchasing to expand their coverage options beyond just liability coverage to include commercial property coverage. Can you explain who might need access to this new type of 

coverage, and why now might be the best time to enact these provisions into law, sir? 

Mr. MIREL. Yes, sir. I think that the ability to be able to come 

together to provide self-insurance through this mechanism of a risk 

retention group will mostly benefit those who are currently experiencing difficulty in finding coverage, or finding affordable coverage. 

And that primarily, right now I think, affects the Gulf Coast and 

37

Atlantic Coast up as far as Massachusetts. Commercial property is 

difficult to insure in some of those areas, because commercial insurers are pulling back. And this provides these kinds of groups 

with another option, an important option. 

Mr. MOORE OF KANSAS. Thank you very much, Mr. Mirel. Mr. 

Chairman, I yield back. 

Chairman KANJORSKI. Thank you very much, Mr. Moore. And 

now the gentleman from California, Mr. Royce? 

Mr. ROYCE. Thank you, Mr. Chairman, very much. 

I was going to ask you, Mr. Shore, well, first one of the things 

that strikes me, we have a situation where because of the way 

State regulation works today, it doesn’t work well for a lot of 

agents. And I have talked to agents who find it difficult to try to 

handle all the bureaucratic hurdles and take the exam in every 

State, or whatever. 

So agents would like to see the process streamlined, and we have 

many agents who support the optional Federal charter, and actually for the same reason. But they are looking at it from the perspective also of the consumer, the customer. And they will say, you 

know, we have a situation where if you have a banking product 

and you move, you can take the banking product with you. But if 

you move, if the client moves, then his insurance starts all over 

again. 

And so from the standpoint of streamlining a process, these 

agents tell me it actually makes sense to move to an optional Federal charter, so that the consumer as well as the agent is advantaged really in that sense. 

Now when you start the discussion over the OFC, some have said 

that would benefit a lot of insurance companies. But what about 

the smaller and medium-sized companies? Well, CUNA Mutual is 

a medium-size operation, and I just would ask you if you believe 

that is the case. Would an optional Federal charter hinder your 

ability, Mr. Shore, to compete? 

Mr. SHORE. No. I think it would enhance our ability to compete. 

Mr. ROYCE. We heard Superintendent Dinallo testify. He expressed great displeasure with the effort to move to a dual-charter 

regulatory system for insurance in the name of protecting the consumers, or constituents, from his perspective. Do you believe the 

current State-based system benefits consumers? And do you believe 

they would be harmed under an optional Federal charter? 

Mr. SHORE. No. I see, you know, within the credit union space 

we see—you know, credit unions that are State-chartered and credit unions that are federally chartered, and that the two systems 

work very well together to the protection of the consumers within 

that space. 

Mr. ROYCE. So we have a system for banking, for thrifts, for credit unions, that works well now, but also allows for a national market so that people can—and certainly you find, for your credit 

union, that it is very beneficial to have this dual system. 

Product approval has been a major issue raised when discussing 

the shortfalls of the current State-based system. Can you estimate 

for the committee the time it takes your company to bring a new 

insurance product to market when you are trying to deal with all 

of these various States? 

38

Mr. SHORE. Yes, I can. You know, we will typically get approval 

in some States very quickly. Some of the States we have heard 

about today—South Carolina and Illinois for example, are very responsive. But it can take us up to 2 years to get approval for a 

product from all 50 States. 

Mr. ROYCE. The last question I would ask you is if you believe 

that this type of bureaucratic delay is discouraging product innovation within the industry. Because one of the things I noticed, you 

know, when you look at our competitiveness internationally as 

well, we see that our balance of trade with respect to banking and 

other financial services, we have this very positive position. But 

where we’re really in the tank is with respect to trying to get our 

insurance products overseas. And it seems as though the bureaucratic morass we have created—at least this is what the think 

tanks that have looked at this, left, right, and center, that have 

commented in favor of an OFC, have said to us—that it just does 

not make sense. This puts us at a competitive disadvantage, just 

in terms of our consumers, cost them an additional $13 billion additional in money because of the inefficiencies of this kind of system. 

So is it discouraging product innovation within the industry, and 

therefore also putting it, in your opinion, at a competitive disadvantage? 

Mr. SHORE. I think it certainly discourages innovation, because 

it does take so long to get to market and it is very costly. And we 

are concerned about the developments in Europe and putting the 

European insurers in a much stronger position than we are. 

Mr. ROYCE. One market for all of Europe. You really don’t have 

a situation in Europe, or for example, in Switzerland they say for 

every canton in Switzerland we should have a separate insurance 

commissioner, or you don’t have a situation in India where they 

say for every state in India we should have a separate state insurance commissioner, and elect them at that, let’s say. Or we don’t 

have that in China, where they say for every province in China we 

should have a separate—they have one national market, and frankly for Europe it’s more than a national market; it’s one European 

market, with the resulting lower prices and more convenience. And 

if you move in Europe, you don’t have to start all over with you 

insurance; you take it with you. 

Mr. SHORE. Correct. 

Mr. ROYCE. Yes. Thank you, Mr. Shore. 

Chairman KANJORSKI. The gentleman from Georgia, Mr. Scott? 

Mr. SCOTT. Yes. Thank you, Mr. Chairman. 

Mr. Minkler, let me ask you about this issue of how do we arrive 

at complete reciprocity? Because I think that is really at the core 

of this. Back in 1999, the Gramm-Leach-Bliley Act recognized this 

issue, and moved forward with it. Could you share with us what 

happened then and why it was not complete, and how our legislation that we are putting forward addresses that? And then if you 

could give us some history as to what are some of the burdensome 

issues that, let’s say for example, just you in your business, your 

firm faced with the current State-by-State issue? But I think it’s 

very important for the committee to understand that we’re not reinventing the wheel here, but this has already been laid out. This 

39

need has been established for almost 10 years, and how it has gotten worse. 

And give us some in-depth understanding of reciprocity, and why 

it is so critical and important that we pass this measure that Congressman Davis and I are putting forward. 

Mr. MINKLER. Thank you, Congressman, I’d be happy to answer 

those questions. As you state, we’re gaining on 10 years since the 

original NARAB bill. It’s our belief that at the time, while well-intentioned, the bar was probably set too low. We were looking for 

29 States to be compliant to avoid NARAB, but that has not happened. Compliance has waned. The reciprocity issue continues. 

With NARAB II, we will be addressing all States in all the issues 

that are involved. There is in my day-to-day life—as I said, I do 

business in about nine other States—I spend an inordinate amount 

of time wrestling with reciprocity issues that are not there today. 

While we may have heard from the NIAC that reciprocity exists, 

truly there are a number of States that let us go online to obtain 

insurance licenses, but that add a burdensome layer on top of that 

by going beyond what the standards were set in the original 

NARAB, which makes it very difficult, and in many two or three 

steps to go through. 

With a NARAB model, those efficiencies would be realized. I 

would spend a lot more time with my clients rather than with a 

bureaucrat eight States away. That’s my aim and the aim of our 

300,000 members is to be able to service our clients. 

This would give us uniformity and reciprocity in a way that the 

original NARAB never delivered on. 

Mr. SCOTT. And would this benefit the consumer? 

Mr. MINKLER. When I’m able to spend more time with my consumer rather than in just licensing issues, they benefit. It also 

brings additional products to the marketplace, additional competition to the marketplace, because now we opened and leveled the 

playing field for anyone who wants to participate in that by giving 

each and every agent the ability to transact business in the States 

they wish to transact, and would address issues like portability, 

that we heard earlier is a problem. 

Now we would be able to have licensing in the States that we 

would need to; so if we had a client who moved from State to State, 

it would not be burdensome the way it is today. 

Mr. SCOTT. And let me ask you, what would you say would be 

the average number of States or jurisdictions that an agent would 

do business in now? 

Mr. MINKLER. Our research indicates that the average is about 

8 States for our agents. Now we have many agencies of mid- and 

larger size that do business in as many as 50 States, but on average, I would say it is about 8 States. 

Mr. SCOTT. And as insurers who operate in multiple States must 

comply with the different States’ laws, as States continue to have 

the primary authority to regulate their insurance, let me just ask 

you—I would appreciate just having your thoughts and views on 

how the insurance industry would evolve to include a mix of Federal and State regulation instead of completely reforming the industry with an optional charter. 

40

As I’m looking at this, it seems to me that there is a need for 

a diverse mix here, that there is something here that I mean I 

think we can come out from this that has a variety of different 

points of view. I just see that there is a mix here, and I wonder 

if you might be kind enough to address that, how we could do that 

away from the Federal charter. And I’m not in any way kicking the 

optional approach; I’m just saying that I think that if we are allowed to put this in place, that it might do the trick and we 

wouldn’t need to go the extent of that. I would like to have your 

comments on that. 

Mr. MINKLER. Certainly. The NARAB II concept would initially 

address agent licensing and reciprocity. But the model could work 

across-the-board for the issues that are being talked about in OFC: 

The speed-to-market issues; the model that can be developed 

through NARAB can be applied there. It can be applied to the reinsurance and excess lines market bill that passed this chamber 

unanimously 2 years ago. 

The model itself is transportable to address many of the issues 

that have been brought forward in OFC without creating a Federal 

bureaucracy and without adding to the 16,000 individuals who are 

already proficient and licensed regulators across the Nation. 

It is our belief in the IIBA that targeted Federal tools as opposed 

to a Federal regulator can gain all the efficiencies that we are looking for amongst all the witnesses you have had today, but in a way 

where we do not create some large entity that would just be another bureaucratic step for agents and companies. 

Mr. SCOTT. Mr. Chairman, if I may—I know my time is up—but 

just one quick question, because we do have a former insurance 

commissioner here, Mr. Mirel, I’d like to get your thoughts on it, 

and particularly just simply, do you think that non-resident agent 

licensing is an area that is ripe for reform with Federal legislation, 

as we are proposing? 

Mr. MIREL. I certainly agree with what Mr. Minkler has said. 

The problem with insurance regulation—and I say this as a former 

regulator—is the overlapping and duplicative regulatory problems. 

And they can be solved through a Federal regulator, they can be 

solved through other kinds of mechanisms within the State system, 

and Mr. Minkler has talked about them. The Liability Risk Retention Act, the new bill that was introduced, H.R. 5792, is another 

example of how that could work. 

The organization I’m testifying on behalf of, the Self-Insurance 

Institute of America, does not take a position on which is the preferable route to go, but certainly agrees that overlapping and duplicative regulation is holding up the system, and should be fixed. 

Mr. SCOTT. Thank you very much. Thank you, Mr. Chairman. I 

appreciate the time. 

Chairman KANJORSKI. Very good. 

And finally, the gentlewoman from Illinois, Ms. Bean? 

Ms. BEAN. Thank you, Mr. Chairman. And thank you all for your 

patience with all of our questions. I do want to specifically also 

thank Mr. Shore for supporting our bill and for giving some concrete examples of how you think it would benefit not only your own 

competitiveness, but consumers as well. 

41

My question is for Frances, is it Arricale? Okay. You had talked 

about the Compact trying to improve speed to market, and you 

talked about a 60-day target and that you have had some success 

within that, but that it isn’t mandated that States participate. You 

have 31 States that are participating. So you really don’t have an 

ability to guarantee that speed to market nationally, just to those 

States who have chosen to participate. 

So can you speak to—you talked about being able to get things 

to market quickly, so it’s only within those 31 States—how long 

does it take someone who wants to truly go national, working with 

the assistance of your Compact, to do some of the States quicker 

before they can really get to market nationally? 

Ms. ARRICALE. The national standards that we have developed, 

we do that in cooperation with all of the regulators throughout the 

country at the NAIC level, in working through those standards. It 

is true that we have 31 members to date, and that we are outreaching to the remaining members to join us. And we are hopeful 

that we will have more than 31 States even this year, and that the 

speed to market really is being able to file just once one form with 

us and getting that one approval for the 31 States. 

If you did want to then roll it out to the remaining 20-some-odd 

States and jurisdictions, you would have to go directly to those 

States to get those approvals. But we are very hopeful that we will 

have more members join us so that you will have more approvals 

valid within the Compact approval process, and that it truly is 

speed to market. 

We think having 31 States out of 50 is good; it relieves a little 

bit more there than half of the approvals you would need to get on 

a State-by-State basis. But we are looking forward to having the 

remaining States join us. 

Ms. BEAN. Okay. I just wanted to get clarification. So you are 

really going from maybe 51 regulatory bodies, or filings, to 22 to 

actually hit the market. 

Ms. ARRICALE. [Nods head up and down] 

Ms. BEAN. Okay. 

And you talked about within those 31 member States that are 

participating in the 60 days. What percentage of things have you 

been able to do in 60 days, and what is outstanding that doesn’t 

get done in 60 days? 

Ms. ARRICALE. Under the Compact’s speed-to-market commitment, actually in our rules, is that we have to from the date of filing to date of disposition, all has to incur within that 60-day timeframe. So once an insurer files and we have insurers, large, medium, and small insurers filing with us, that we actually have to 

turn around the regulatory decision by the 60-day timeframe. That 

really is the speed to market that we are offering; we have regulatory professionals who formerly had worked in insurance departments and now work with us. A great deal of experience on these 

matters, reviewing as well as with a credentialed actuary, and that 

all of that review process so that the policy conforms to the uniform 

standards is done within that 60-day timeframe. 

Ms. BEAN. Thank you. I have nothing further. 

Chairman KANJORSKI. Thank you very much, Ms. Bean. 

42

Now, I am going to reserve just a few minutes of my time. Ms. 

Arricale, I am rather intrigued with the success of the Compact 

thus far, but it is not thorough. What would inhibit us from including an additional power in the Office of Insurance Information that 

the Compact members be considered an SRO, a Self-Regulatory Organization? That organization could make a recommendation or act 

on certain activities, whether it be uniformity or even a product, 

and recommend to the Federal officer that it now be considered on 

a Federal or national scale, and the rule would be enhanced. That 

way, you do not have to go back to the 19 or 20 missing States, 

and it would be an incentive for them to get their tail in gear and 

join the Compact. 

It sort of creates a national mechanism to see whether or not it 

would work. It would seem to me, since we could do all kinds of 

combinations here, including bringing in NARAB II, suggestions 

could be accomplished that way, at a total 50-State level. Have you 

given any thought to that proposition, or do you want to give it 

some thought and maybe some response to it? 

Ms. ARRICALE. Certainly there has been discussion, and I think 

you heard in the prior panel in terms of having some Federal action happen in relation to the State initiatives. I do want to note 

that the States have worked very proactively and inclusively with 

the interested parties to develop this framework. I would call it the 

chassis that we have built with the Interstate Compact, and that 

the actual standards are there and ready, the operation is there, 

the expertise is there. We certainly are encouraging the other 

States to join, but to have, of course, all of the States with us 

would truly make it a national platform. 

So I would leave this subcommittee with that we have built that 

framework, and we do it as a public agency. We serve the member 

States directly. So we do that in the public interest, and we are accountable to the public for that. 

Chairman KANJORSKI. Well, what I am suggesting is, you know, 

we may be on to something here that you already have a comfortable organization that really represents sort of a self-regulatory 

organization under the Compact. But when you get to implementation at the 50-State level, you are inhibited because some States, 

particularly some large States, just do not want to join. 

But if we were empowering the Federal officer to get a request 

from your organization, notify the States that are not joining that 

it is going to be considered by the Federal office for mandatory action of some sort, then it puts them between a rock and a hard 

place. Either get on board or get out of the way, because we are 

coming down the line. Then we could very easily do licensing, 

brokering. That could done rather quickly, and eventually the Office can even look at products. 

Maybe ultimately we have a need, it seems to me, on international global markets, for an insurance commissioner on a Federal level to speak for the insurance industry of the United States 

and negotiate. We can delay it; we can say we do not need it, but 

in reality all the reports I am getting back indicate that we are suffering from not having that. When we have these crucial meetings, 

we really do not have anyone there who is being the best advocate 

for the entire insurance industry. 

43

That affects everybody from the consumer to the companies to 

the agents. Everybody suffers a little bit when we do not have our 

best and brightest talent out there, with the ability to act. If we 

can structure something to accomplish that, that is a potentially 

growing mechanism, but is a heavy hand of federalizing something 

just immediately—I mean it seems—I think we could design a Federal insurance license that really meets the needs of all these 

things. I see a lot of need for growth, but I also see a need for a 

Federal charter or the benefits of a Federal charter in some way, 

for some companies, but not all companies. And it would be to have 

an election. 

But if we find a self-regulatory organization mechanism that 

takes out a bureaucracy—I think we have heard that mentioned a 

few times—none of us want to build a big bureaucracy or a new 

bureaucracy. And we may have struck something here. 

So if you could give that some thought, I would appreciate it. 

And anyone else on the panel should certainly feel free to do so as 

well. But we are going to be moving on this piece of legislation 

soon, and we do not want to cause problems that would delay its 

passage. It already has, I think, some good intentions and good reasons to be enacted as soon as possible. 

But if everybody could sort of see it as a vehicle that can be examined over a period of several years as to how to solve some of 

these short delays of 10 years that you addressed, I do not think 

we can afford to wait 10 more years. We have to do something now. 

It seems that we know what the questions are; let us create the 

vehicle to do it. That is what we are interested in. 

Now with that, let me say the fact that we held you here this 

long is not a record, but it is getting close to one. This is important 

to this subcommittee, and it is important to the Financial Services 

Committee as a whole. We are running out of time, but we really 

want to do something. 

I think you can see from the nature of the hearing that we have 

had that we really have tremendous cooperation both in the majority and minority side of the committee, in the selection of witnesses 

and topics, and moving on in the commitment of the Members during the day. 

I want to thank you all for taking time and being so respectful 

of the subcommittee and putting up with your time constraints, 

particularly you, sir, having missed your flight. We cannot offer 

you any great things in Washington, but we can recommend things 

not to do in Washington. Okay? 

[Laughter] 

Chairman KANJORSKI. And I will not go off on that. 

I think it is at this point that I really want to close the hearing, 

so let me say that the Chair notes that some Members may have 

additional questions for the panel which they may wish to submit 

in writing. Without objection, the hearing record will remain open 

for 30 days for Members to submit written questions to these witnesses and to place their responses in the record.

44

Before we adjourn, the following written statements will be made 

part of the record of this hearing: The National Association of Mutual Insurance Companies; Mr. Eric Gerst; and the NIPR 

PowerPoint presentation for PIA. Without objection, it is so ordered. 

And now the panel is dismissed and this hearing is adjourned. 

Thank you. 

[Whereupon, at 7:05 p.m., the hearing was adjourned.] 

(45)

A P P E N D I X

April 16, 2008

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