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ADDITIONAL PERSPECTIVES ON THE

NEED FOR 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

FIRST SESSION

OCTOBER 30, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–77

(

(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 

JULIA CARSON, Indiana 

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 

ALBIO SIRES, New Jersey 

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 

RICHARD H. BAKER, Louisiana 

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

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 

ALBIO SIRES, New Jersey 

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 

RICHARD H. BAKER, Louisiana 

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: 

October 30, 2007 ............................................................................................... 1

Appendix: 

October 30, 2007 ............................................................................................... 43

WITNESSES 

TUESDAY, OCTOBER 30, 2007

Eiland, Hon. Craig, Texas House of Representatives, on behalf of the National 

Conference of Insurance Legislators ................................................................... 5

Felton, John W., President, Tennessee Brokerage Agency, on behalf of the 

National Association of Independent Life Brokerage Agencies ........................ 16

Gilliam, Scott, Assistant Vice President and Government Relations Officer, 

The Cincinnati Insurance Companies ................................................................ 14

Hunter, J. Robert, Director of Insurance, Consumer Federation of America ..... 9

Iuppa, Alessandro, Senior Vice President, Government and Industry Affairs, 

Zurich, on behalf of the Financial Services Roundtable ................................... 7

Nutter, Frank, President, Reinsurance Association of America .......................... 12

APPENDIX 

Prepared statements: 

Kanjorski, Hon. Paul E. ................................................................................... 44

Manzullo, Hon. Donald A. ................................................................................ 46

Eiland, Hon. Craig ............................................................................................ 48

Felton, John W. ................................................................................................ 60

Gilliam, Scott .................................................................................................... 67

Hunter, J. Robert .............................................................................................. 78

Iuppa, Alessandro ............................................................................................. 126

Nutter, Frank ................................................................................................... 139

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Kanjorski, Hon. Paul E.: 

Statement of the National Association of Insurance and Financial Advisors ................................................................................................................. 151

Barrett, Hon. J. Gresham: 

Responses to questions submitted to John W. Felton ................................... 172

Responses to questions submitted to Alessandro Iuppa ................................ 173

(1)

ADDITIONAL PERSPECTIVES ON 

THE NEED FOR INSURANCE 

REGULATORY REFORM 

Tuesday, October 30, 2007

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 2:17 p.m., in room 

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

[chairman of the subcommittee] presiding. 

Members present: Representatives Kanjorski, Moore of Kansas, 

McCarthy, Lynch, Scott, Bean, Davis of Tennessee, Sires, Klein; 

Pryce, Hensarling, Baker, Shays, Royce, Barrett, Gerlach, Price, 

Davis of Kentucky, Bachmann, and Marchant. 

Chairman KANJORSKI. 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. I would like to thank Ranking Member Deborah 

Pryce and members of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises for being here for 

today’s hearing on additional perspectives on the need for insurance regulatory reform. I would also like to thank Ms. Pryce for 

joining me in inviting our panel. 

Today’s hearing is the second in a series on insurance regulatory 

reform. It is also the second hearing on the need to improve insurance regulation. Earlier this month we heard from key participants 

of the insurance industry on the need for reform. At that hearing, 

regulators, agents, brokers, and company representatives testified. 

Our first hearing reinforced my belief that Congress should take 

some action on insurance regulation. I expect today’s witnesses to 

add to our knowledge base on insurance and help inform each of 

us on what Congress should do before we make any policy decisions 

in this area. The vast majority of interested parties in the debate 

on insurance regulatory modernization agree that the system is not 

perfect and needs improvement. 

Today we will hear from additional parties, including State legislators, consumers, and industry representatives on the need for reform in insurance regulation. These additional perspectives will 

2

add greatly to our discussion, as each will relay a unique point of 

view. 

Although regulated by the many States, Congress has the responsibility to oversee the insurance industry. The aftermath of 

September 11th taught us all how important insurance is to a vibrant and thriving economy. We have also heard a lot about maintaining the competitiveness of the United States capital markets, 

including insurance, in an increasingly global economy. 

The importance of insurance to consumers, both large and small 

businesses, and individuals in each of our districts is another area 

we cannot forget. It is our responsibility as lawmakers to decide 

the best course to take on any issue, and in my view, we should 

do so in a thoughtful and a deliberative manner. The current system has been in place for over a century, and any changes we proffer should consider all potentially affected constituencies. 

In closing, I expect today’s testimony will continue to help guide 

us into specific areas to review. Even more so, I would like consensus and bipartisanship to dictate what areas we choose to focus 

on. I am optimistic that we can achieve this goal. 

Future hearings will explore policy options for reform. We will 

likely review general and broad reform ideas as well as options targeted on specific areas. Nevertheless, until we explore options, we 

will remain focused on why there is a need for improvement in insurance regulation. Our hearing earlier this month was a great beginning, and I look forward to another open dialogue with today’s 

panel. 

I now recognize Ranking Member Pryce for 5 minutes for her 

opening statement. 

Ms. PRYCE. Well, thank you, Mr. Chairman. I won’t use much of 

my time. I just want to thank you for this, the second in a series 

of hearings on what is a very important subject for this committee. 

I want to thank you also for agreeing to invite witnesses on a 

very bipartisan basis. I think this is reflective of a shared interest 

in going forward with reform, which is so very important in a 

thoughtful, considerate way. And I for one am very appreciative of 

your willingness to share this responsibility with the minority. 

I yield back. 

Chairman KANJORSKI. Do we have any other members who wish 

to make an opening statement? The gentlelady from Illinois, for 3 

minutes. 

Ms. BEAN. Thank you, Chairman Kanjorski, and Ranking Member Pryce, for holding a second hearing on insurance regulatory reform. In addition, I would like to thank all of our witnesses for 

sharing their expertise with us today. In particular, I would like 

to welcome Mr. Alessandro Iuppa, head of government and industry affairs for general insurance for Zurich North America, which 

is headquartered in my district. Welcome. 

Most members—and we discussed this in the last hearing—on 

this committee do agree that America’s economic preeminence in 

the world hinges upon the health of our capital markets and our 

global leadership in the financial services industry. Earlier this 

year, New York City Mayor Michael Bloomberg and U.S. Senator 

Charles Schumer commissioned a report on what changes were 

3

needed to keep the United States competitive in the global marketplace. 

One of the report’s top recommendations was the creation of an 

optional Federal charter for insurance. In July, Representative 

Royce and I introduced the National Insurance Act of 2007 to address issues of competitiveness and consumer choice. The bill would 

create an optional Federal charter for life and property casualty insurers. 

Designed to emulate the regulatory structure found in the dual 

banking system, the NIA would give insurance providers the choice 

of being regulated at the State level or by the new Federal regulator. The bill gives consumers what they want, choice and protection. Insurance customers will have more pricing and product options, driven by a competitive marketplace freed from State price 

controls and regulatory hurdles, without sacrificing consumer protections. 

The current State-based regulatory system has hurt the U.S. insurance industry’s ability to compete globally. In 2006 alone, the 

U.S. insurance services trade deficit totaled $24 billion. The current system, which requires insurers to work with 51 different 

State regulators, is burdensome and slows the new product’s time 

to market, sometimes by years. This discourages insurance innovation and product development. A national charter would foster 

greater industry innovation and competitive agility. 

The insurance industry has changed and evolved dramatically 

since 1871 when the National Association of Insurance Commissioners was established. But for 136 years, the regulatory system 

has not significantly changed. It is time to allow the insurance industry to move into the 21st century so that it can more effectively 

compete on the global stage and provide more pricing and product 

alternatives to our Nation’s consumers. 

As a resident of and representative for Illinois, I have seen firsthand the benefits to consumer pricing and product options in a deregulated environment. We can extend those benefits nationally 

with this bill. 

For years, hearings have been held identifying the problems inherent in the current State-based system. Insurance reform needs 

to happen, and we should start now. 

I look forward to your testimony and recommendations for how 

we should proceed. Thank you. I yield back. 

Chairman KANJORSKI. I will recognize the gentleman from California, Mr. Royce. 

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

like to thank you, Mr. Chairman, for your continued leadership on 

this issue. 

This being our second hearing on the need for insurance regulatory reform in a month, I think we look forward to investigating 

this issue further. At the last hearing we held, we heard from the 

National Association of Insurance Commissioners yet again on the 

progress they claim to have made in streamlining regulations at 

the State level. However, at that time we also heard frustration expressed from other witnesses, who pointed to the structural flaws 

in the State-based system as the major reason why meaningful reforms continue to elude the NAIC and the insurance sector. 

4

With 50 State insurance commissioners and 99 State legislative 

chambers needed to agree upon regulatory models proposed by the 

NAIC, it is easy to see why these proposals fail to garner any type 

of unanimous support. And quite often it is the two or three large 

States with the largest insurance markets, representing the bulk 

of the marketplace out there, that refuse to implement changes 

that momentarily might be agreed upon by the other members. 

Unfortunately, the only substantive reforms universally adopted 

have come about in large part because of Federal pressure in the 

past. Uniform solvency standards, that is because of the Federal 

pressure. Reciprocal agent licensing standards, that followed the 

mandates and threats that came from Congress. 

While this back and forth between Congress and the State regulators had produced some results, it is time to pursue a different 

path. We have yielded to the States for 136 years. We don’t have 

a national market here. We should. And we have yielded only to 

see the fundamental problems remain unaddressed. 

If America’s stronghold as the financial capital of the world was 

not at risk, the urgency of this matter would not be as strong. But 

we are now competing in a global marketplace where capital flows 

to the most efficient markets in all corners of the globe, and it does 

it at the click of a mouse. 

The Bloomberg/Schumer report understood this and explained it. 

The U.S. Chamber of Commerce report details this problem. And 

I believe the Congress will come to understand that an optional 

Federal charter is needed if our insurance industry and our financial services sector are going to compete globally in the future. 

We need a world-class regulator able to properly oversee and address issues that arise in that sector. The banking and securities 

industries have ample representations when major policy decisions 

are formulated in this town. Whether in responding to a national 

crisis or formulating tax policy or negotiating a major trade agreement, the Fed is there. The OCC is there, the SEC. They all have 

a seat at the table when the policy is developed or when we are 

trying to get into that foreign market. 

I believe the time has come to give the insurance industry equal 

representation, able to voice concerns on behalf of the industry, and 

able to enact substantive regulatory reforms. 

At the previous hearing, the independent insurance agents highlighted their opposition to an optional Federal charter, but their 

support for the National Association of Registered Agents and Brokers subtitled in Federal legislation in the Gramm-Leach-Bliley 

Act, which creates a clearinghouse for interstate license. 

However, the NARAB is intended to do for agents and brokers 

what an OFC would do for the entire insurance industry, streamlining regulation and allowing insurance providers to better serve 

their customers is the central theme of an OFC. 

Now that there is a virtual consensus that Congress should act, 

we must decide which path we should take. I believe creating an 

optional Federal charter is the best option. It will provide insurance consumers, producers, and sellers a viable alternative to the 

tangled bureaucratic web currently in place. And for this and other 

reasons, including the cost, I have cosponsored Representative 

5

Bean’s National Insurance Act, which would create an OFC for insurance. 

In closing, I think it is worth noting that we have our second 

former president of the NAIC testifying in favor of creating an optional Federal charter. I believe serving in this capacity has given 

them a unique insight into the difficulties faced by the NAIC. Mr. 

McCartney eloquently highlighted the failures of the NAIC to successfully streamline and modernize insurance regulation at the last 

hearing, and I look forward to Mr. Iuppa’s testimony today. 

Again, I would like to thank you for holding this hearing, Chairman Kanjorski, and I look forward to hearing from our distinguished panel of witnesses here. Thank you. 

Chairman KANJORSKI. Thank you, Mr. Royce. 

We will now move to the panel welcomed before us today. Thank 

you for appearing before this subcommittee. Without objection, 

your written statements will be made a part of the record, and you 

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

First we have the Honorable Craig Eiland, Texas House of Representatives, testifying on behalf of the National Conference of Insurance Legislators. 

Representative Eiland. 

STATEMENT OF THE HONORABLE CRAIG EILAND, TEXAS 

HOUSE OF REPRESENTATIVES, TESTIFYING ON BEHALF OF 

THE NATIONAL CONFERENCE OF INSURANCE LEGISLATORS 

Mr. EILAND. Thank you, Chairman Kanjorski, and Ranking 

Member Pryce. It is good to be here today. As noted, I am a State 

Representative from Texas, and I am here on behalf of NCOIL, a 

group of State legislators from approximately 35 States. Most of us 

are a member of an insurance committee or chairman of those committees. 

And we do exciting things 3 times a year, like meet for 3 days 

and discuss insurance and only insurance. We adopt model bills, 

and we debate model bills, and we take those bills back to our representative States and try to get them enacted. 

I usually sit where you sit, and I prefer sitting there much better 

than being down here. But I appreciate Congressman Marchant, 

my former House colleague in Texas, being here, and hope you will 

have some softball questions for me sooner or later. 

[Laughter] 

Mr. EILAND. With that said, I think that when you have a product that is a national product, you have much more of an argument 

for having some type of uniformity. We have recognized that in the 

States and we are moving that way specifically for life insurance, 

annuities, and those types of products that are the same no matter 

where you are. We are doing that with the compact which was discussed in the last hearing. And we are doing that with market conduct exam reform, which I will talk about in a minute. 

But what you will find in the difficulty is that if you have a product where if you live in Dallas, Denver, Des Moines, or Detroit, it 

is completely different based upon your coverage and your price. 

There is no uniformity there. And that is why you have difficulty 

in the property/casualty area trying to come up with uniform products and rates and forms. 

6

By way of contrast, with life insurance, if you live in Dallas, Detroit, or Des Moines, and you are a male, 50 years old, and a nonsmoker, with each company you are going to have basically the 

same price quote. And if you move to one of those other cities, it 

doesn’t change. You still have your life insurance. You still have 

your annuity. 

Not so if you own a house. Even if you have a trailer house and 

you move it from Dallas to Denver, you are going to have different 

coverage and a different price. The same with your auto. And so 

there are differences that we have to recognize. 

I know it was brought out last time in NAIC’s testimony, but it 

is also important to note that California is the 6th largest insurance market in the world; New York is the 7th largest, Florida is 

the 8th largest, and Texas is the 10th largest in the world. 

I don’t think any of those markets are going to give up their regulatory power or authority, certainly not without a fight. And I 

think that what they are doing is they are doing what they think 

those markets need to meet local issues—the wildfires in California, storms along the Gulf Coast, and snowfall in the Northeast. 

Those types of things are different, and that is why the policies and 

the exposures are different. 

I would point out that what we have tried to do on the Statebased regulation is when you all set the Gramm-Leach-Bliley deadlines, we met them, to institute those reforms. We have done the 

compact, like we discussed, for life insurance-type products. 

A couple of years ago we started working on market conduct 

exam reforms, and in Texas, I was the first one to pass that. We 

now have four States that have passed it. There is some concern 

that we are not moving fast enough. I would point out that on market conduct exam—and this is not sexy stuff. This is nuts and 

bolts. If you had a press release on filing a market conduct exam 

bill, you are in dire need of more legislation. 

But this is one of those nuts and bolts where we are trying to 

attack. The industry didn’t even come together on what they felt 

was needed until the spring of 2005, and so far, we have four 

States that have instituted market conduct exam reform. 

And so when you look at what the States have done for trying 

to have some rate reforms, especially on the commercial lines, and 

then having some type of filing use and the States moving that direction, you will see that where possible, we are moving in the 

right direction with producer licensing. We are moving in the right 

direction with uniformity on uniform products. We are moving in 

the right direction on market conduct exams, trying to reduce the 

number of those exams. And we are moving in the right direction 

on rate and modernization on forms. 

And so we certainly stay here hoping to work with you on the 

reforms that you all determine are necessary so that we hope that 

we can support them and work to help reform this. I do note that 

on reinsurance issues, there does need to be a national debate on 

what we do with reinsurance issues. We have been discussing this 

along with NAIC, and there are very technical, detailed things that 

have to happen on a worldwide basis, not just what we do. 

The international accounting standards have to be aligned so 

that we are looking at the same issues across the pond as we are 

7

here. And so it is not always as easy as it seems. And I see my 

red light says stop, so I will. 

[The prepared statement of Mr. Eiland can be found on page 48 

of the appendix.] 

Chairman KANJORSKI. I think you are the first one who has ever 

responded to that red light. 

[Laughter] 

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

Next we will hear from Mr. Alessandro Iuppa, senior vice president for government and industry affairs at Zurich, testifying on 

behalf of the Financial Services Roundtable. 

Mr. Iuppa? 

STATEMENT OF ALESSANDRO IUPPA, SENIOR VICE PRESIDENT, GOVERNMENT AND INDUSTRY AFFAIRS, ZURICH, TESTIFYING ON BEHALF OF THE FINANCIAL SERVICES ROUNDTABLE 

Mr. IUPPA. Thank you and good afternoon, Chairman Kanjorski, 

Ranking Member Pryce, and members of the subcommittee. My 

name is Alessandro Iuppa, and I am senior vice president, government and industry affairs, for Zurich North America. I appreciate 

the opportunity to speak with the committee on behalf of Zurich 

and the Financial Services Roundtable on the subject of insurance 

regulatory reform. 

I come to the issue of insurance regulatory reform with a perspective perhaps somewhat different than the other witnesses at 

today’s hearing. Prior to joining Zurich in January, I was an active 

member of the regulatory community for the past 20 years, serving 

as deputy commissioner and commissioner for the State of Nevada, 

as deputy and superintendent of insurance for the State of Maine, 

and in the interim, providing consulting services exclusively to insurance departments seeking to rehabilitate financially troubled insurers. 

During my 9-plus years as Maine superintendent, I was engaged 

on insurance issues nationally and internationally through the National Association of Insurance Commissioners and the International Association of Insurance Supervisors. I had the honor to 

serve as an NAIC officer from September 2004 through 2006, when 

I served as president, and from 2004 through 2006, I also served 

as chair of the IAIS executive committee. 

Financial markets in general have undergone extraordinary 

growth and structural change in recent decades. Much of this 

change is due to developments such as the worldwide integration 

of capital markets, the revolution in information technology, as 

well as shifting attitudes towards competition and protection in the 

financial services area. 

Unfortunately, the current U.S. regulatory structure is not fully 

equipped to supervise the sophisticated marketplace of the 21st 

Century. The need to operate within the State patchwork of regulation in the United States hinders insurers with risk issues confronting clients who operate on national and international bases. 

Zurich and the Roundtable are not opposed to the regulation of 

insurance. If they were, I would not be here. We do, however, support prudent, strong, state-of-the-art insurance regulation that alVerDate 0ct 09 2002 18:20 Jan 31, 2008 Jkt 039915 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\39915.TXT HFIN PsN: TERRIE
8

lows insurers to meet the needs of their policyholders and encourages competitive and thriving markets. Although the existing 

structure works for some, it impedes our ability to achieve those 

goals. 

To their credit, State insurance regulators individually and 

through the NAIC have attempted to institute regulatory reforms, 

and have made strides towards simplifying and streamlining regulatory requirements. The reality, however, is that today’s marketplace demands far more dramatic action than the States alone are 

able to provide. Competition and efficiency in the insurance industry lag behind the other financial services sectors, due in large part 

to the regulatory inefficiencies and inconsistencies in the State system. 

Over the past several years, I have spent a great deal of time 

working on behalf of the U.S. regulatory community with our foreign colleagues. What I learned is that despite our best efforts, our 

effectiveness on the international stage was limited, not necessarily 

in the development of policies and ideas, but in terms of implementing those policies and ideas at home. 

I will give you an example. The IAIS has become the standardsetting with respect to international insurance standards. U.S. regulators have been and continue to be active participants in the development of those standards. But no matter how much agreement 

exists among the regulators, the U.S. representatives cannot bind 

the U.S. regulatory community or their States to adopt those 

standards. The national insurance commissioner, with the authority to negotiate and perhaps bind the Federal Government, would 

add immeasurably to the effectiveness of our international endeavors. 

Let me now mention three areas that can benefit from Federal 

regulation: market deficiencies; speed to market; and commercial 

policyholder issues. The lack of a sustainable market for terrorism 

coverage and coverage shortfalls in some coastal regions illustrates 

a deficiency in the U.S. marketplace. There are many reasons insurers do not cover terrorism or certain property risks, and we 

should all be clear from the beginning that even with a Federal 

regulator, that regulator will not solve every problem that arises in 

the marketplace. 

Regulation, however, can play an important role by helping markets operate as efficiently as possible by maintaining the proper 

equilibrium among suppliers and purchasers. At the other end of 

the spectrum, by sustaining each State as an individual market, we 

inhibit the ability of insurers to spread that risk and enhance capacity. 

The problems created by mega-catastrophes tend to be regional 

in nature and national in nature. A Federal regulator with the responsibility for a national market will be better able to respond to 

regional and national problems. 

A number of States still require prior approval or the filing of 

rates and policy forms before the products can be offered for sale. 

Several States have deregulated the commercial insurance marketplace for rates and forms. Others, however, continue to maintain 

some level of preapproval requirements. 

9

My experience as the Maine superintendent taught me that of 

the approximately 1,000 companies that were licensed to underwrite insurance products in Maine, few intentionally sought to introduce products that did not comply with Maine law. For those 

products that did require prior approval, the search for the few 

problems at the beginning substantially slowed the pace of product 

introduction. 

It is also important to remember that not all policyholders are 

individuals. Commercial entities constitute a very large segment of 

the insurance market, and each has specific risk management criteria. Our company, for example, works with many of the Fortune 

Global 100 companies. To serve those clients, we developed the Zurich multi-national insurance proposition. 

With it, our global customers can be confident that their out-ofterritory coverage is aligned with local licensing and premium tax 

requirements. For our clients indemnifying risks in the United 

States, compliance would be much more simple if Zurich had a 

Federal charter. I mention this because compliance in these areas 

is an important policyholder protection. 

After 20 years as an insurance regulator, I can conclude that despite recent improvements, the States are not likely to solve the 

problems on their own, so I believe congressional action is necessary. For better or worse, many of the States’ regulatory modernization efforts have been the result of external pressure, and 

there is no guarantee that the States will adopt further meaningful 

reforms. Building consensus among regulators is a very difficult 

thing to do, and at times almost impossible. 

An optional Federal charter would give insurers and products a 

choice between a Federal regulator and multiple State regulators. 

It will not dismantle the longstanding State insurance regulatory 

framework; rather, it will compliment the State system with the 

addition of a Federal partner. 

It is likely that many insurers and producers, particularly those 

who operate in a single State or perhaps a small number of States, 

would choose to remain State-licensed. Large national and international companies, on the other hand, would more likely opt for 

a Federal charter, thereby relieving themselves of the burden of 

compliance with 56 different regulatory regimes. 

I thank you for your time, and I look forward to your questions. 

[The prepared statement of Mr. Iuppa can be found on page 126 

of the appendix.] 

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

Next we will have Mr. J. Robert Hunter, director of insurance for 

the Consumer Federation of America. 

Mr. Hunter. 

STATEMENT OF J. ROBERT HUNTER, DIRECTOR OF 

INSURANCE, CONSUMER FEDERATION OF AMERICA 

Mr. HUNTER. I even have broader experience than that. I was a 

Federal regulator. I ran the Federal Insurance Administration and 

the National Flood Insurance program, and I was an insurance 

commissioner and served on the executive committee of the NAIC. 

You asked that we focus our oral presentation on the areas of 

regulation that needed improvement, and I am going to do that. 

10

There are serious problems that consumers face today. Here are 

just a few of them. 

First, claims abuses: Hurricane Katrina shows the mess regulation in the States is in. People are being denied the money they are 

entitled from their insurers. The taxpayers are paying flood claims 

for wind damage that should have been paid by the insurers. Beyond Katrina, insurers are systematically cheating consumers, 

using computer programs like Colossus to turn their claims departments into profit centers. Most regulators have done nothing. 

Second, unfair prices: Here are a few examples. If your education 

goes up, your rate goes down. If you have a low-paying job, you will 

pay more. If you bought the limits of liability the State requires 

but didn’t buy a lot more, you will pay more. If you are curious and 

ask about a hypothetical claim, your rate goes up even if you don’t 

file the claim. Most regulators have done nothing. 

Third, excessive prices: In 2006, insurers paid out the lowest percent of their premium dollars in history, 50 cents per dollar of premium. Despite the major storms, insurance companies reaped unprecedented profits over the last 3 years, totaling $500 from every 

man, woman, and child in America, this at the same time they had 

Hurricane Katrina. This is because insurance companies are increasingly transferring risks and costs onto consumers and taxpayers. Most regulators stand by helplessly, doing nothing. Worse, 

insurers are exempt from State and Federal antitrust laws and are 

allowed to collude in setting prices and other matters that would 

be criminal if the played by the same rules as the other businesses 

in America. 

Fourth, even large sophisticated buyers have been cheated. Elliot 

Spitzer proved that with his finding of collusion, hidden kickbacks, 

and illegal bid rigging. 

Fifth, poor information. People don’t know what is in their policies. There are no real plain language policies. There is no standard coverages. 

Sixth, new classes not related to risk are being created, such as 

credit scores, destroying the insurance loss prevention function by 

disconnecting price from risk, little control exercised by the regulators. 

Seventh, regulation is weak because regulators are not independent. We know about the revolving door in insurance, don’t we, 

Al? And also, we know that part-time State legislators often work 

for insurance companies. 

Eighth, few States have told consumers their rights. Only Texas 

requires a bill of rights with every policy. People don’t know their 

rights for things like cancellation restrictions and so on. 

Ninth, except for California, States have not controlled expenses 

that are built into insurer rates, expenses such as huge sums used 

to contribute to politicians, or to lobby Congress, or inappropriate 

costs like losses of lawsuits and fines and penalties. These are all 

passed on to consumers in almost every State. The regulators are 

failing. 

There are many other problems I could list. There are problems 

waiting to emerge that will be uncovered by lawsuits, not the regulators, or by the media. Consider life insurance market conduct 

abuses of a decade ago. The largest life insurers told people their 

11

premiums would disappear, and confused them into believing their 

life insurance was an investment. It took lawsuits to uncover these 

problems. 

Now, consumers don’t care who regulates insurance. We really 

don’t care if it is Federal or State. But we do care if it is any good, 

and it isn’t good today. 

But consumers are also not clamoring for speed to market. The 

collusive and near-simultaneous introduction of the outlandish 

anti-concurrent causation clause into homeowners insurance policies is one example of speed to market that we don’t want. It 

makes the policies bad. In a very short time, 46 States approved 

this awful provision, which has caused havoc in the wake of Hurricane Andrew. 

Consumers do not want uniform regulatory systems if it means 

gutting the few consumer protections we have to achieve it. It is 

hard to believe that the OFC that has been introduced would make 

matters worse for consumers. It is almost impossible to write a bill 

like that. But they did it. The insurers are very good at writing 

bills. Consumers do not want speed to market of junk insurance 

products or uniform weak regulation. We want real protection. 

One other myth we should puncture: Tough oversight of the insurance market is not incompatible with vigorous competition. The 

best State regulatory regime is California, from a consumer perspective, and it achieves both goals. Appropriate regulation enhances competition, requires insurers to compete fairly and in a 

manner that benefits consumers, and results in good returns for 

the insurance companies. 

Insurer-backed proposals in Congress do nothing to increase 

scrutiny of insurer actions that have caused severe harm to consumers. Indeed, these proposals would harm consumers. 

It is possible to create a regulatory system, whether it is State 

or federally based, that protects consumers and forces competition. 

We proposed a number of detailed measures in our testimony for 

this. Repeal of the McCarran-Ferguson Act antitrust exemption is 

one of them. Requiring clear disclosure of the policies is another. 

Simply stated, we need a strong, effective consumer protection in 

place in the country, not weak regulation. An OFC guarantees regulatory arbitrage. The drafters admit it. A race to the bottom. If 

you really want uniformity, why don’t you propose a Federal bill 

to take over regulation, and then we can argue about the level of 

protections. Have the courage if you really believe in it. It is not 

uniform if you have two systems on top of each other. 

The subcommittee has a vital role to play in making sure that 

any Federal role increases regulatory standards so that America’s 

consumers have adequate protections. 

[The prepared statement of Mr. Hunter can be found on page 78 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Hunter. 

Next we will hear from Mr. Frank Nutter, president of the Reinsurance Association of America. 

Mr. Nutter. 

12

STATEMENT OF FRANK NUTTER, PRESIDENT, REINSURANCE 

ASSOCIATION OF AMERICA 

Mr. NUTTER. Mr. Chairman, thank you very much. I am Frank 

Nutter, president of the Reinsurance Association. I would certainly 

like to shift gears from Mr. Hunter’s presentation to focus on the 

role that reinsurance plays in regulation. 

I do want to commend Chairman Kanjorski and Ranking Member Pryce for their continued leadership in this area of insurance 

regulatory reform, and I welcome this opportunity to discuss why 

the 50-State system for regulating reinsurance in the marketplace 

is in need of reform, why the system does not work well for the sophisticated global marketplace like reinsurance, and explain the 

RAA’s position in support of an optional Federal charter. 

Reinsurance is a global business. According to the NAIC-filed annual statements of U.S. insurance companies, in 2006 more than 

2,300 foreign reinsurers assumed business from U.S. ceding companies. Although most insurers principally engaged as assuming reinsurers are located in a small number of countries, the 2,300 named 

reinsurers identified by U.S. ceding companies were domiciled in 

more than 95 foreign jurisdictions. Their share of the U.S. market 

underwritten directly by foreign-based reinsurers has grown steadily to 53 percent in 2006, from 38 percent in 1997. 

Some foreign reinsurers also establish U.S. subsidiaries. If the 

amount of U.S.-based ceded revenue to these foreign-controlled entities were added to the percentages I quoted above, the total nonU.S. share would be 85 percent. 

These percentages should not be misconstrued. Non-U.S.-based 

reinsurers and their U.S. subsidiaries bring much-needed capital 

and capacity to support the extraordinary risk exposure in the 

United States and to spread that risk throughout the world’s capital and capacity providers. 

The United States employs two methods of reinsurance regulation, direct regulation of licensed U.S. reinsurers, and indirect regulation of the reinsurance transactions ceded by U.S. insurers to 

unauthorized reinsurers. The fundamental concept underlying the 

U.S. regulatory system is that a reinsurer must either be licensed 

in the United States and subject to the full spectrum of multi-State 

reinsurance solvency regulation, or if not licensed in the United 

States, provide collateral to ensure the payment of the reinsurer’s 

obligation to U.S. ceding companies. 

Capital providers to the reinsurance market in recent years have 

clearly opted for the latter approach to avoid the multi-State system of licensing that exists in the United States. 

Following the 1992 hurricane season, eight new reinsurers were 

formed, reflecting $4 billion of new capital. Following the events of 

September 11, 2001, 12 new reinsurers with $10.6 billion in capital 

were formed. After Hurricane Katrina, at least 38 new reinsurance 

entities with $17 billion of new capital were formed. 

Nearly all of the new capital came from the U.S. capital markets. 

However, other than the U.S. subsidiaries of some of these new 

non-U.S. companies, no new U.S.-domiciled reinsurer has been 

formed since at least 1992. For these new non-U.S. startups, the 

ease of establishment, capital formation, and regulatory approvals 

13

in non-U.S. jurisdictions contrasted with the cumbersome and protracted nature of getting a license in multiple States. 

We have identified in our statement three areas of concern regarding reinsurance regulation: 

First, credit for reinsurance laws and regulations based on the 

NAIC model has been debated extensively in recent years. Some 

have advocated for the reduction of collateral for these reinsurers 

that choose not to be subject to U.S. licensing. However, U.S. primary insurers have largely opposed this effort, believing that it 

weakens U.S. regulation and dilutes the financial security of U.S. 

insurers and their policyholders. 

Second, collateralization is a surrogate for licensing. It eliminates 

a regulator’s need to assess the level of regulation in the non-U.S. 

reinsurer’s domiciliary jurisdiction, or the financial strength of it. 

It also reflects the challenges facing 50 State regulators with resource constraints and competing regulatory demands. 

Unfortunately, it seems that initiatives by some States suggest 

that a patchwork of State laws relating to financial security may 

be emerging. The RAA believes that it is essential to maintain a 

strong but uniform regulatory structure in the United States. In 

that regard, the RAA commends the sponsors of H.R. 3200 for proposing an optional Federal charter. 

We have also highlighted the problems associated with extra-territorial application of State laws. While the NAIC and State regulators should be applauded for seeking greater uniformity in laws, 

this has not prevented the States from pursing varying and sometimes inconsistent regulatory approaches. One of the best examples 

is the extra-territorial application of State laws, meaning that 

State law not only applies to insurers domiciled in that State, but 

to insurers domiciled in other States. 

We have also highlighted mutual recognition as an issue to be 

addressed. The United States imposes a highly structured and conservative level of regulation upon licensed reinsurers. However, it 

has long been recognized that the level of reinsurance regulation 

varies in countries throughout the world, and there are several 

globally recognized methods of conducting regulation. 

The RAA is encouraged by the inclusion in H.R. 3200 of a system 

of mutual recognition among the countries which would allow reinsurers to conduct business in the United States based upon their 

home country’s jurisdiction, and allow U.S. reinsurers to do business in foreign countries based upon U.S. regulatory requirements. 

In conclusion, the core characteristics of an appropriate reinsurance regulatory structure are a single regulator or regulatory system for reinsurance with national regulatory oversight, and the 

power to prevent conflicting or inconsistent State laws and regulations in an effective and efficient manner. 

A single regulator’s authority should provide for recognition of 

substantially equivalent regulatory standards and enforcement in 

other competent regulatory jurisdictions. The regulatory structure 

should support global capital and risk management, financial 

transparency so that the cedents can assess counter-party risk. 

And regulators should have access to all necessary financial information. 

14

We have identified in the statement several options that can be 

achieved, including the option of a Federal charter for reinsurers, 

which is the one that the RAA strongly supports. 

Thank you very much, Mr. Chairman, and we welcome this opportunity to continue to work with the committee. 

[The prepared statement of Mr. Nutter can be found on page 139 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Nutter. 

Next we have Mr. Scott Gilliam, assistant vice president and 

government relations officer of the Cincinnati Insurance Companies. 

Mr. Gilliam. 

STATEMENT OF SCOTT GILLIAM, ASSISTANT VICE PRESIDENT 

AND GOVERNMENT RELATIONS OFFICER, THE CINCINNATI 

INSURANCE COMPANIES 

Mr. GILLIAM. Thank you, Chairman Kanjorski, Ranking Member 

Pryce—a fellow Buckeye, number one right now—and members of 

the subcommittee. My name is Scott Gilliam. I am assistant vice 

president and government relations officer for the Cincinnati Insurance Companies. 

Our group of companies market property and casualty insurance 

and life insurance in 34 States through independent insurance 

agencies. Based on 2006 revenues of $4.5 billion, we are the 23rd 

largest publicly traded property and casualty insurer in the United 

States. I would also note that we are not a member of a national 

trade association, so we come here with an independent voice 

today. 

In presenting our views on insurance regulatory reform this 

afternoon, we have three goals: one, identify the problems we see 

with the current system of State regulation; two, emphasize our 

support for a continued system of State insurance regulation; and 

three, suggest that public policymakers and interested parties may 

need to take a fresh approach to insurance regulation reform and 

consider alternatives to the current proposals on the table. 

We come to this debate on behalf of hundreds of small and medium-sized insurers like ourselves who collectively insure millions 

of individuals and small businesses across this country. These insurers value their connection to their State and local governments, 

a connection which carries over into the business of insurance, 

which by its very nature is uniquely local. 

Consider the decision to purchase insurance, which is rooted in 

many local risk factors. Consider the types of occurrences for which 

individuals and businesses purchase insurance, all of which are 

uniquely local in nature. And also consider the body of State and 

local laws that apply when insurable events occur, including State 

tort law, contract law, and social policy law. 

It is in this context that the States have been established as the 

primary regulator of the business of insurance, and it is for these 

reasons that the States should remain the primary regulator of the 

business of insurance since the activities and occurrences which necessitate insurance and its regulation are not uniform from place 

to place or State to State. 

15

But there is great consensus that several areas of State-based insurance regulation are in need of reform. The areas which seem to 

attract the most complaints, and which are sometimes problematic 

for our company as we endeavor to market property, casualty, and 

life insurance products in 34 States include product regulation, rate 

regulation, producer licensing, company licensing, and market conduct examinations. 

But I cannot offer any horror stories. Rather, the company line 

at Cincinnati Insurance seems to be: State regulation of insurance 

is sometimes challenging, but we can live with it. Nor is the current system of State insurance regulation grinding our operations 

to a halt. 

But that is not to say that State regulation is without flaws. The 

Cincinnati Insurance Companies believe the major problem with 

the current system of State regulation is the needlessly repetitive 

nature of the system. We simply do not believe that 34 separate 

jurisdictions need to regulate each and every aspect of our business. 

In many instances, regulation by an insurer’s domiciliary State 

would be sufficient to protect all persons or entities with an interest in an insurance transaction or the operation of an insurance 

company. Areas of regulation where this might work, among others, include product regulation, producer licensing, company licensing, and financial regulation. These are the areas of regulation 

which we view as more organizational in nature, of which there is 

no need for every State jurisdiction to demand its own approval. 

At the same time, we acknowledge that there are some aspects 

of the business of insurance which need to be regulated in every 

jurisdiction in which we conduct business. These include the areas 

of regulation which are more transitional or conduct-related, such 

as consumer protection, fraud, claims handling, and possibly market conduct. 

We hasten to add, however, that an important aspect of reforming State regulation is to demand more uniformity in the procedures the several States would employ to regulate in those areas 

of regulation, which would remain subject to multi-State regulation. And of course, the devil is identifying which aspects of the 

business of insurance demand multi-State jurisdiction and which 

would be more appropriate for exclusive regulation by a domiciliary 

State. 

But the idea here has quite a simple premise, one that is analogous to the full faith and credit of a State-issued driver’s license. 

I am licensed to drive by the State of Ohio, but I can drive in any 

State with that license. But when I leave Ohio and drive to WilkesBarre, I am subject to the public safety laws of the Commonwealth 

of Pennsylvania. 

Let’s apply this analogy to insurance regulation. Why not let my 

company’s licensure by the State of Ohio serve as a national license 

to conduct business of insurance in every State, while keeping my 

company subject to the insurance consumer protection laws in 

Pennsylvania and every other State. 

We therefore suggest that consideration be given to a modernized 

State system of insurance regulation that would reserve certain 

areas of insurance regulation to a single State regulator, most likeVerDate 0ct 09 2002 18:20 Jan 31, 2008 Jkt 039915 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\39915.TXT HFIN PsN: TERRIE
16

ly the insurer’s domiciliary State, to the exclusion of all other 

States, but allow all States to regulate in those areas not reserved 

to a single State regulator. 

We realize there may be unintended consequences of an approach 

like this, and this may not be the right solution to what currently 

ails State regulation. But we feel that it is this type of outside-thebox thinking that needs to be explored before we give up on State 

regulation in favor of anything Federal. 

Let me close by suggesting that H.R. 1065, legislation passed 

unanimously by the House in June and pending in the Senate, 

might serve as a template for how a single State/ multi-State system of State regulation might be achieved. We believe that the approach embodied in H.R. 1065, targeted Federal legislation identifying specific areas of insurance regulation reserved to the regulator of an insurer’s domiciliary State, is worth consideration as a 

means to implement the single State/multi-State proposal we have 

described this afternoon. 

That concludes my testimony. I would be happy to answer any 

questions. 

[The prepared statement of Mr. Gilliam can be found on page 67 

of the appendix.] 

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

And last, we will hear from Mr. Felton, president of the Tennessee Brokerage Agency, testifying on behalf of the National Association of Independent Life Brokerage Agencies. 

Mr. Felton. 

STATEMENT OF JOHN W. FELTON, PRESIDENT, TENNESSEE 

BROKERAGE AGENCY, TESTIFYING ON BEHALF OF THE NATIONAL ASSOCIATION OF INDEPENDENT LIFE BROKERAGE 

AGENCIES 

Mr. FELTON. Mr. Chairman and members of the subcommittee, 

my name is John Felton. I would like to thank you for having me 

here this afternoon. I am the current chairman of the National Association of Independent Life Brokerage Agencies, or NAILBA. I 

am also the president of Tennessee Brokerage Agency in Knoxville, 

Tennessee. 

I am appearing today on behalf of NAILBA, the principal trade 

association representing wholesale life brokerage. NAILBA is a 

nonprofit trade association with over 350 members in the United 

States. We represent 100,000 producers, who deliver over $1 billion 

of life premium a year. 

A normal NAILBA member agency may employ anywhere from 

10 to 30 employees, and operate in an average of 31 States. We are 

small businesses, but we represent the fastest growing distribution 

of life insurance. Currently, we produce over 60 percent of the life 

insurance written in the United States today, and it is projected by 

the year 2020, we will be writing over 80 percent. 

I appreciate the opportunity to appear before you to discuss the 

critical need to streamline and modernize the insurance regulatory 

system in the United States. Despite the best efforts of the National Association of Insurance Commissioners via the Interstate 

Compact, the current State-based system does not enable insurance 

17

carriers and agents to provide new competitive products to consumers throughout the United States in a timely fashion. 

Additionally, the current system lacks uniform and equal opportunities to every citizen in the United States to access similar products and protections. For wholesalers that are licensed in multiple 

States, the inefficiencies and inconsistencies within the State system are costly and potentially harmful to consumers. 

I would like to take you inside a typical NAILBA agency so that 

you have a greater understanding of why Federal regulation of insurance would greatly increase insurance distribution productivity, 

increase sales, increase consumer satisfaction, lower consumer and 

broker confusion, and lower the potential for errors of omission and 

other litigation. 

All NAILBA member agencies have contracts on an average of 15 

to 20 different life insurance carriers. The NAILBA agency is a 

wholesaler whose customers are insurance brokers and agents. 

These clients in turn market insurance products to the insurancebuying public. 

The insurance carrier will outsource sales, marketing, agent 

training, and some underwriting functions to NAILBA member 

agencies. By eliminating these functions, it allows a life insurance 

company to focus on product manufacturing and applying the savings to more competitive and consumer-friendly products. 

The insurance agent or broker is served by accessing product 

from the NAILBA member agency because the agency is independent and able to provide unbiased advice to help the broker select the best company and product to meet the needs of customers. 

The consumer is served by a distribution system that creates a demand for competitive products and increased efficiency these products deliver. 

All NAILBA member agencies have a substantial customer base 

of insurance brokers. They may be located in a different State, or 

may solicit insurance in multiple States. On average, NAILBA 

member agencies are licensed in 31 States and spend nearly 

$12,600 per year just to update the proper State regulatory forms. 

The multi-State nature of a NAILBA agency forces us to be keenly aware of the pitfalls of the current system. In my written testimony, I provided detailed examples of the maze that is the current 

State-based system. 

In closing, NAILBA believes an optional Federal charter approach would provide consumers with increased access to competitive and market-reflected products more quickly. The reduction of 

costs associated with working with 1 regulator, not 50, would be reflected in the pricing of products. This would have the effect of reducing costs to the consumer and providing consistent agency licensing standards and continuing education requirements. 

Centralized control of agent status through a national database 

would provide consumers with a higher level of confidence in those 

who represent the insurance industry. NAILBA certainly believes 

that OFC is an idea whose time has come. Thank you. 

[The prepared statement of Mr. Felton can be found on page 60 

of the appendix.] 

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

18

I thank the entire panel for your testimony. It has certainly been 

interesting, and quite conflicting in its basic positions. 

I guess I would start off with one question, Mr. Eiland, just a 

practical question. What kind of complaints do you get as a State 

legislator from your constituents in Texas about insurance? And if 

you could tell me, what do you do about them? 

Mr. EILAND. Yes. The first one a lot of times is about health insurance, and most of the time we have to tell them, we can’t help 

you because ERISA preempts it, or something like that. 

The second one is usually about companies pulling out of areas, 

companies not wanting to write products, homeowners, in certain 

areas. You know, most of the big—Allstate, State Farm, and Farmers, most of them over this last summer decided they weren’t going 

to write within an arbitrary—a mile or a half-mile within a major 

body of water. 

So you have people who say, look, I have been an Allstate customer for 30 years, I have never had a claim, and now they are 

dropping my homeowners insurance. And we say, well, you know, 

we can’t really do anything at that. So there are those complaints. 

Then there are complaints about pricing, that they are getting 

less and less coverage for more and more premium. And that is a 

big concern. 

Chairman KANJORSKI. Well, does the regulator—do you refer 

that then to the Texas commissioner of insurance? 

Mr. EILAND. Yes. 

Chairman KANJORSKI. And do they follow up and do they regulate on those issues? 

Mr. EILAND. Yes, they do. The problem is, one of the things that 

we have been talking about that we have been doing is getting 

away from such heavy regulation on rates and forms. So we give 

the insurance companies the ability to change their coverage and 

price whatever they want to as long as it is not excessive in the 

regulator’s eyes. 

So even though it goes up—but that is not what the consumer 

sees. The consumer sees: I have the same house; I have the same 

company; I have no claims; and they want to raise up my prices 

by 20 percent. And there has been no storm. So what is the deal? 

Then we find out—several of the companies come in and they 

blame it on reinsurance. But it is their own reinsurance. They have 

a reinsurance subsidiary which they purchase their reinsurance 

through, or at least part of it. They let the reinsurer raise those 

prices because we don’t have anything to do with their rates. And 

then that raises the rates for the policyholder. And we can only 

look at the end product, the end price, to see if it is excessive and 

unreasonable. 

And then we have to—the way our system in Texas, which we 

reformed about 6 years ago, the commissioner for one company recently denied a rate and said, that is excessive. They went ahead 

and they are allowed to charge it, and now the commissioner has 

to beat them in court to prove that it is excessive. 

And so when you hear all these people talking about how they 

want regulatory reform, I do believe I agree with Mr. Hunter on 

this. Consumers don’t want less regulation. I mean, they want good 

19

quality regulation and to be able to do something about it. That is 

what we hear about the most. 

Chairman KANJORSKI. Speaking of Mr. Hunter, you do not have 

a lot of good stuff to say about the insurance industry, Mr. Hunter. 

Mr. HUNTER. Oh, there is a lot of good I would say if you wanted 

me to list some of the good things. You said, what were the problems? It is good that they are making money. I mean, I am not for 

them going broke or anything. I just think they are making too 

much. 

But there are a lot of good things about the insurance industry. 

It makes a lot of jobs in the Nation. It makes things happen. When 

it is working smoothly, it is great. But when it isn’t, then there 

needs to be intervention. 

Chairman KANJORSKI. Do you think it is not working smoothly 

because of avarice, or a thoughtful intent to deny paying customers, or attempting to target and only make special monies in 

special areas? 

Mr. HUNTER. I think it is— 

Chairman KANJORSKI. From the areas that Mr. Eiland is talking 

about? 

Mr. HUNTER. I think it is a fundamental change in corporate culture over decades, to the point now where, for example, McKinsey 

could come in to Allstate and say, we want to turn your claims operation into a profit center, and here is how you can basically cheat 

your customers. And Allstate didn’t kick them out. 

When I was a young man in the insurance industry, I think we 

would have called the cops if somebody came in and made such a 

proposal, and now probably 17 of the top 20 insurers are using that 

methodology. 

Chairman KANJORSKI. Mr. Gilliam, do you agree with Mr. 

Hunter that the standards for the insurance industry have materially changed as a result of culture? Or do you think it is getting 

better? 

Mr. GILLIAM. I am not quite sure how to answer that because 

Mr. Hunter and I don’t agree on very many things. 

Mr. HUNTER. I didn’t think you would. 

Mr. GILLIAM. But, you know, we are a major regional insurer. We 

have over 4,000 employees. We sell insurance in 34 States. And we 

think that the current system of regulation strikes a nice balance 

between allowing a competitive market, letting us get our products 

to market, and also fair consumer regulation. 

I would hold the Ohio Department of Insurance out as probably 

one of the best examples in the country of a striking a fair balance 

between the consumer and the company and— 

Chairman KANJORSKI. But you do business in 34 States. How 

about some of the other States, for instance, the coastal States, 

Texas, Louisiana, Alabama, and Florida? 

Mr. GILLIAM. Do I have to respond about Florida? 

Chairman KANJORSKI. We would sure like to know. We hear a 

lot about Florida these days. 

Mr. GILLIAM. Well, you know, the areas where the risks are the 

greatest produce the greatest challenges for the industry. And it is 

tough. It is tough in the Gulf States where hurricanes arrive all 

the time. And this is an issue that I have been on my soapbox for 

20

11 years in Congress, and we still believe that if you peeled back 

the clock 20 years and allowed risk-based rates, we wouldn’t be in 

the problems we are in the Gulf States. There has been political 

suppression of rates for dozens of years, and we are paying the 

price today. 

Chairman KANJORSKI. Well, wouldn’t that economically discriminate against a lot of us who would like to have nice sunshine and 

oranges, but we just couldn’t afford to live there? 

Mr. GILLIAM. If you want the sunshine and oranges, you have to 

pay for it. If you want to live in Iowa, it is a different set of circumstances. But those who choose to live in the risk-prone areas— 

Chairman KANJORSKI. So California is going to belong to the millionaires. Is that acceptable? I don’t know. 

Mr. GILLIAM. Well, you know, there is another dynamic to this 

that is just starting to make itself known, and that is you can’t put 

the cost of insurance on the backs of insurers, to some extent. 

There are some people who, no matter what the circumstances, low 

and moderate income, they can’t afford a risk-based rate. 

An interesting study was released in the last several weeks by 

the RAA, and I believe the AIA, talking about the social side of the 

problem with catastrophe insurance. For those who can’t afford it, 

there are thoughts of using some Federal ideas like home heating 

oil subsidies and telecommunications because there is a certain 

segment of the population who just can’t afford a risk-based rate. 

That is a social, societal problem. 

Chairman KANJORSKI. The formula to provide subsidies to a certain percentage of the income. 

Mr. GILLIAM. Yes. I read the study rather quickly but that is, I 

think, the general idea they are throwing out there, a new idea for 

consideration. 

Chairman KANJORSKI. But some of my friends—and I am not indicating they are on the right—they may call that a bit of socialism. 

Mr. GILLIAM. Well, I am probably as conservative as it gets, and 

I don’t want to have the Federal Government do anything. Don’t 

quote me on that. 

Chairman KANJORSKI. Don’t worry. We don’t do very much. 

Mr. GILLIAM. There is a social aspect of this whole problem with 

catastrophe insurance. And I think that until we address it, it is 

the big elephant sitting over in the corner. 

Mr. NUTTER. Mr. Kanjorski, can I address this comment about 

the socialization issue? 

Chairman KANJORSKI. Yes, very quickly, because I am robbing 

my colleagues of their time. 

Mr. NUTTER. We published a study with the American Insurance 

Association, co-authored by Bob Litan of the Brookings Institution, 

largely focused on fixed and low-income people, and recognizing 

that many of those people do live in catastrophe-prone areas. Because of their resource limitations, perhaps there ought to be some 

kind of State or Federal program that really does provide vouchers 

or something very targeted to help those people. That was the nature of the study. 

21

Chairman KANJORSKI. Very good. Can we get a copy of that? And 

Mr. Gilliam, if you could give us a reference on the study that you 

recently went through, that would be helpful. 

Mr. GILLIAM. Sure. 

Chairman KANJORSKI. Thank you very much. 

Ms. Pryce? 

Ms. PRYCE. Thank you very much, Mr. Chairman. 

Mr. Eiland, I was wondering, as you were talking with the chairman about companies pulling out, do you have an opinion whether 

optional Federal chartering would assist in that in our country? 

Mr. EILAND. It would have nothing to do with it. 

Ms. PRYCE. Nothing to do with it? 

Mr. EILAND. No. One of the dichotomies that we have to recognize in insurance is most corporations, especially shareholder-held 

corporations, have a duty to try to maximize profit. An insurance 

company theoretically is supposed to accept risk and spread the 

risk. 

And the way that you maximize profits, one of the things that 

was alluded to in other testimony, is not accept the risk, they avoid 

the risk. That is one thing I disagree with Mr. Iuppa on, is that 

he mentioned that they want—with this optional Federal charter, 

they could spread the risk across State lines, etc. 

Hogwash. They want a rate down to zip code level. That is why 

we have credit scoring, not so they can figure out if they want to 

transfer risk from Texas to Maine, but so that they can avoid risk 

as much as possible within zip codes inside Texas or— 

Ms. PRYCE. Does anybody on the panel disagree with that, that 

Federal chartering wouldn’t make any difference, that there would 

still be massive pullouts in high-risk areas? 

Mr. HUNTER. Not with the drafts I have seen because they would 

have no authority to tell the insurance companies, you need to 

write everywhere as part of the deal here. If it had that authority, 

it could. 

Ms. PRYCE. Mr. Iuppa? 

Mr. IUPPA. Yes, if I may. I mean, one of the things to keep in 

mind is the ability to attract new business into the country, quite 

frankly. Yes, we have thousands of insurance companies doing 

business here. But the reality is, with the existing system, it is difficult to—there is a barrier in the sense of coming into the United 

States because you have to be licensed State by State by State. So 

there is that factor there. 

And I think, too, with regard to specifically whether or not an 

OFC in and of itself would help in that regard, I think the answer 

is yes, that it would help to attract additional capital into the marketplace, as opposed to other jurisdictions around the world. 

Ms. PRYCE. Okay. Let me—somebody else on that? Yes? 

Mr. NUTTER. Ms. Pryce, the only thing I would add to that is consistent with Mr. Iuppa’s point, a streamlining of the regulatory 

process by which companies come into the U.S. market to be licensed or do business in the U.S. market, even if they choose not 

to be licensed, would probably facilitate capital formation that 

would serve the risk in the U.S. market. 

That would certainly have a valuable effect going down the line 

to insurance companies, and presumably then to consumers. 

22

Ms. PRYCE. Mr. Felton? 

Mr. FELTON. Yes. This is—you know, a lot of this is talking about 

the property and casualty insurance. But the life insurance, the 

way it is priced, it is priced off mortality of all 50 States. So the 

OFC obviously would not affect the life insurance on this end because it is all priced based on the full mortality. 

Ms. PRYCE. Well, I think we were talking about property and casualty. 

Mr. FELTON. Right. Right. 

Ms. PRYCE. But let me get to that then and maybe address my 

next question to my fellow Buckeye. Mr. Gilliam, one of the major 

arguments that you use, and many others, is that the insurance 

marketplace isn’t uniform from place to place or State to State, 

that there are different geographical and weather influences, floods 

and tornadoes, whatever. And State commissioners are better suited to understand the differences in these markets. 

Do you think that level of uniqueness translates to all insurance 

products? I guess that bespeaks the testimony Mr. Felton just attempted to give. Are products that cover someone’s home and their 

automobile really that different from one State to the next? And 

then, Mr. Felton, I will let you continue with your answer about 

life insurance. 

Mr. GILLIAM. I would answer that the products—I acknowledge 

the argument of the life industry that their products are more uniform from State to State, and maybe lend themselves more to a national or Federal regulator. 

Let’s take auto insurance, for example. State tort law is what 

governs auto insurance because you really don’t need your auto insurance unless you have a claim, and you don’t have a claim unless 

you have been in an auto accident. There are uniquenesses in every 

State on automobile laws. 

Sure, in general they are the same, just like the speed limits are 

generally the same. But when you are talking about how do you 

resolve a claim in Pennsylvania versus New Jersey versus California, there are tremendous uniquenesses that need to be taken 

into account. 

And maybe an analogy is, I hear over and over, insurance is like 

banking, so why not the optional Federal charter? Well, a key distinguishing factor is this claims process. You don’t have to go 

through a claims process to withdraw money from an ATM. But if 

you have an auto accident, you can’t get your claim resolved by 

going to an ATM. You have to talk to a claims adjuster, who has 

to look at the laws of that State. There are just so many things 

that distinguish especially property/casualty. 

Ms. PRYCE. Well, thank you. And Mr. Felton, very briefly, do you 

want to continue making your point on life insurance? 

Mr. FELTON. Yes. The point was that the way the life insurance 

companies in the United States price their products, it is priced off 

the mortality of the total population. However, people in certain 

States—I will give you an example. In Tennessee, we can buy a 

guaranteed issue life insurance product. If we can’t get anything 

else, we can buy that product in the State of Tennessee. 

If we lived in North Carolina, we could not buy that product because it is not approved in North Carolina. That is where some of 

23

the shortcomings of the NAIC—I think they are doing a great job 

with the compact. But unfortunately, it is not doing enough. 

Ms. PRYCE. Thank you. Thank you, Mr. Chairman. 

Chairman KANJORSKI. Mr. Scott? 

Mr. SCOTT. Thank you, Mr. Chairman. 

Let me ask you, if each of you would care to comment very briefly on this issue of some disparity between the competing products, 

similar products, between banks and life insurers. For example, 

competing with similar bank products, life insurers have claimed to 

us that they are at a disadvantage with their retirement and asset 

accumulation products. 

It is true that banks can introduce new products in a relatively 

short period of time, say, a couple of weeks, whereas the insurers 

can sometimes take up to 2 years to obtain all of the necessary approvals for similar products. And that is a true fact. 

What are your thoughts on this and your opinions on ways that 

we can improve on this disparity to try to bring some equalization 

here and some relief, again making progress on this in a fair and 

competitive way without a complete overhaul? 

Mr. FELTON. I will be glad to take a shot at it. A lot of the products—I assume the products you are talking about with banks, you 

are talking about CDs and IRAs and money market ACSC’s? 

Mr. SCOTT. Yes. Retirement asset accumulation. 

Mr. FELTON. Because banks do sell a lot of life insurance these 

days. And they are selling products that any agent in the United 

States can sell as well. 

Now, when it comes to CDs, they are able to bring that to market quicker because they are determining those rates themselves. 

If a life insurance company were to try to bring an annuity product 

out that would compete with this CD or money market or whatever 

it was, it would be a long process to get it approved in all 50 

States, if you could even do that. Right now it may be approved in 

one State and not approved in the other. 

So there is a little bit of disparity there. And as far as competitiveness, they are to give products—or put products on the market 

that the life insurers can’t compete with in a timely manner. Is 

that kind of— 

Mr. SCOTT. Yes. Is there anything we can do about that disparity? 

Mr. FELTON. Well, it would be nice if we had a little more speed 

to market with the products for the life insurance carriers, and 

that is kind of what we are pushing for on the life side. We need 

to be able to bring a product out, and rather than just have it approved in 32 States, have it approved in all 50 States so we can 

take it to the consumers and they can take advantage of the better 

pricing. 

Mr. GILLIAM. Could I jump in there? 

Mr. SCOTT. Yes, sir. 

Mr. GILLIAM. One of the things I spoke of is this problem of 34 

jurisdictions demanding approval of the same thing. Now, there 

might be, you know, quite a bit of debate on this, and it might 

strike fear in the hearts of State insurance commissioners everywhere. 

24

But I think what needs to be looked at is why couldn’t that product be approved in that insurer’s home State and be allowed to be 

used nationwide the next day? I think that is what we really have 

to look at here. That is the whole linchpin of this debate. It is 

about getting your product to market. 

We wouldn’t be here today if there were delays in getting products to market. That is what is driving this entire debate. And 

until we really get our arms around that, we are going to be 

foundering. 

Mr. SCOTT. Do we have any way of—and I will get to you in a 

minute—but do we have any way of measuring the impact of loss 

to the insurers by not having this disparity addressed? 

[No response] 

Mr. GILLIAM. Sounds like we don’t. 

Mr. SCOTT. Would you say it is a significant loss? Is it a big 

enough issue for us to wade in on, or is it something that we just 

let the market take care of itself, do nothing about? 

Mr. FELTON. I would venture to say it is a growing loss. As the 

banks become more—invest in the selling of financial products, I 

think it grows every year. But what that number is— 

Mr. SCOTT. All right. We have no quantity? 

Mr. FELTON. Not to my knowledge. There might be. I don’t know 

it. 

Mr. SCOTT. Yes, sir? 

Mr. EILAND. I think one of the things—the question is what can 

you all do. One of the things that I think members of this committee and the subcommittee and the full committee can do is for 

those 20-odd States that have not joined the compact, you can go 

back to those States and, number one, ask why that legislature has 

not joined the compact by passing the bill and/or the commissioner 

and/or the governor and encourage them to do so because then you 

could accomplish a filing at one single point for life insurance, annuities, long-term care, and disability insurance in all 50 States instead of just the 30-some-odd that you can get done now, once that 

gets fully implemented and operational. 

Mr. HUNTER. I agree with that, that the charter—the NAIC is 

recognizing the difference between life and property/casualty with 

its compact. And I think that is the short-term solution to the life 

insurance kind of thing. Certainly it is not the State of domicile. 

I was a Texas insurance commissioner and I couldn’t get a certain State to take an insurance company down that was clearly 

broke because the ex-governor served on the board of directors and 

they were afraid. So I had to go into their State courts and take 

down the company. 

So I think the State of domicile has some political pressure problems. But the NAIC charter with a multi-State—if the States 

would give their good actuaries and good reviewers of policies to 

that charter, it can actually quickly do a good review that would 

even satisfy consumers. 

Mr. SCOTT. Yes, sir? 

Mr. IUPPA. Just a quick point on the quantification. I think you 

phrased the question in terms of cost to the insurers. I think we 

are losing focus here. It is a loss to consumers, not the insurers. 

25

I mean, they are losing opportunity cost because products can’t get 

into the marketplace. 

Mr. SCOTT. Okay. Fine. 

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

Mr. Royce? 

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

I wanted to go to Mr. Iuppa. Mr. Iuppa, you were a former president of the National Association of Insurance Commissioners. And 

I was going to ask you, do you believe it is necessary that all lines 

of insurance, including life insurance, property/casualty, commercial, personal lines, should they all be included in an optional Federal charter? Should Congress go down that path? Should we attempt to create one national market for insurance in that way? 

Mr. IUPPA. Yes. The short answer is yes. I think the important 

thing to keep in mind, what we are talking about under the bill 

that you and Representative Bean have proposed, is an optional 

Federal charter. I think that all the companies who do business in 

the United States, regardless of line, ought to have the opportunity 

to make that decision, to make that choice. So the short answer is 

yes. 

Mr. ROYCE. We face a $24 billion deficit in insurance services nationwide. We hear that a lot of it has to do with the Balkanization 

of the market here. We know that in Europe, they now have a market. On the other hand, we look at banks and other financial services. There they have a $28 billion surplus in terms of our trade 

overseas. 

Do you think that this has an impact, this nature of the market 

here in the United States today under this structure? 

Mr. IUPPA. Yes. I think it does. I think the thing to keep in mind 

is that the United States probably represents the largest market, 

certainly, in the world with regard to insured purchases, whether 

you are talking about property, life, all kinds. 

Again, the inability to come in through a single point is a deterrent with regard to capital moving into this country to create new 

insurance companies, whether it is at the reinsurance level, whether it is at the primary carrier. 

So I think there is clearly a barrier there, and I can say with certainty that in my dealings with even my former colleagues at the 

E.U., that that was probably one of the most significant complaints 

that they would raise, both from the industry side as well as the 

regulatory side. 

Mr. ROYCE. Who from the United States currently represents the 

collective interests of the sector of insurance at international conferences, at meetings, at summits, when regulatory matters are 

discussed, when it comes to economic advocacy purposes, when it 

comes to trying to get into markets where we are locked out? 

Mr. IUPPA. Well, I think it is a multi-faceted approach. And, I 

mean, the fact that you don’t have a Federal regulator for, for instance, USTR to go to directly or Commerce directly to go to—they 

do go to the States and the NAIC, who represent the regulatory 

community. 

Mr. ROYCE. And apparently that hasn’t been very effective. 

I wanted to go to Mr. Felton with a question because he is a representative of one of several agent groups—we have agents for 

26

change—that came out in support of the concept of an optional 

Federal charter as well. 

Now, for the NAILBA, you say the average member does business in a number of States, probably 31 States, on average. You 

said in your testimony, if I got this right, that it costs each of them 

about $12,000 to keep up with the separate States in terms of the 

redundancy, the bureaucracy. 

I think one of the business schools did a study and said these costs for the consumers translate to $5.7 billion, if you believe that 

when you have competition and so forth, that consumers ultimately 

pay a price for the regulatory burden imposed and the costs imposed. 

I was going to ask you, how could an optional Federal charter approach benefit agents, but also benefit producers and consumers in 

your mind. And maybe you could provide a specific example where 

consumers are adversely impacted by the current system. 

Mr. FELTON. Sure. The way it works now is—and the numbers 

we gave you were averages. I personally am licensed in 49 States, 

so I have a person on my staff who is in charge of keeping up my 

license in each one of these States. There is a fee for each State, 

and those fees are not the same. Some States are much more expensive than others. 

If I do that, an agent has—if he is going to sell in a different 

State, he has to have a license in that State as well. So he has to 

fill out the paperwork and pay the fees. It goes all the way up to 

the insurance companies. If they are going to sell in a State, they 

have to pay the licenses in each State they are in. 

Those are costs that the insurance company pays. That will come 

out in the pricing because whatever it costs them to produce a 

product, and life insurance is a product, it is going to be borne by 

the consumer because they are going to have to pay a price and the 

insurance company is going to price that product to where they can 

make money on it. 

So it kind of runs downhill. If they are paying more to be in all 

50 States than they would to have one national license, that cost 

will be borne by the consumers. And if nothing else, in money and 

man-hours, it is a real hassle. 

Mr. ROYCE. Thank you, Mr. Felton. Thank you, Mr. Chairman. 

Chairman KANJORSKI. Ms. Bean? 

Ms. BEAN. Thank you, Mr. Chairman. 

I also have a question for Mr. Iuppa. There is ample evidence to 

suggest that States that have imposed price controls in the interest 

of consumers have often gotten results that don’t benefit those consumers, and that in other States, like mine in Illinois, or States 

like New Jersey who have had a market-based approach, there 

have been benefits in terms of price and product options to consumers. 

Do you have any examples of either the positive or the negative 

effects based on a regulated or deregulated environment? 

Mr. IUPPA. Yes. And for that, to respond to that, I will go back 

to my tenure as a superintendent in Maine. 

The health insurance market in Maine, like most States, is divided into three markets, the individual, the small group, and the 

large group. And in the State of Maine, the most heavily regulated 

27

is the individual market, then followed by the small group, and 

then the large group, which is basically experience rated. 

But what has effectively happened in the Maine marketplace is 

that the market in the most turmoil is the individual market. The 

effect of the oversight that has been put in place there has effectively killed the market. There are maybe four carriers left who 

will write business in Maine when it comes to health insurance. 

So I think that is an example of where good balance and equilibrium hasn’t necessarily worked well. 

Ms. BEAN. Do you have any converse, the other side, by chance? 

Mr. IUPPA. Well, certainly Illinois is an area that, with its market-based approach, has been rather positive. Certainly, again 

drawing on my experience previously, looking at things like auto 

insurance rates, Illinois was always favorable compared to some of 

the other States. 

I do know in New Jersey, where they effectively had no market 

for auto insurance just a few short years ago, with the changes 

they have made there companies have now come back into the market. So I think there are some positive examples, too. 

Ms. BEAN. Some more consumer options. Thank you. I have a little more time. so I would like to ask you one other question, based 

on your experience as a regulator. Most of us on this committee 

would agree that it would be a desirable objective to increase capital flows into the United States and minimize capital from flowing 

offshore, particularly if it is in reaction to a regulatory environment. 

Do you have any comments on the impact our current regulatory 

system has towards that objective? 

Mr. IUPPA. Sure. The first thing I want to do is point out that 

with regard to capital inflows, that Zurich started capital inflows 

into the United States back in 1912. We were the first foreign insurance company to become active here in this market. 

But I think that again, we have to look at this in the context of 

that this is very much a global marketplace that we are operating 

in now. Yes, risks can be local. But for a carrier like Zurich, where 

we do business in 170 different countries, we have the ability to 

spread that risk around. 

And capital is the essence of an insurance company’s ability to 

write business. Absent capital coming in, creating the surplus within the companies to write business, it is just not going to happen. 

We certainly saw—after September 11th is a good example. 

There was a tremendous amount of capital that actually came into 

the insurance marketplace, something like $18 or $20 billion. Most 

of that went to companies being formed in Bermuda. 

And the primary reason that I was hearing at the time, and 

being told when I was asking about it, was because we just do not 

want to have to put up with the hassle of becoming licensed in all 

the States. It is too time-consuming. It can take us a year or 2 

years to get through the entire process. Whereas other jurisdictions, they were able to bring that capital in and they were able 

to form the companies, and they have been underwriting risk here 

in the United States ever since. 

Ms. BEAN. Thank you, and I yield back. 

Chairman KANJORSKI. The gentleman from Kentucky, Mr. Davis. 

28

Mr. DAVIS OF KENTUCKY. Thank you, Chairman Kanjorski. I 

apologize to the witnesses for missing some of the earlier testimony. I was finishing some meetings back at the office. 

But this is the second hearing that we have had on insurance 

regulatory reform in Congress. It is evident from the panel today 

that there is, to put it mildly, a diversity of opinion on how we need 

to tackle this. I don’t see why we can’t move forward in absence 

of agreement with perhaps a focused, targeted modernization, with 

measures that are going to directly benefit consumers. 

My question at this point in the committee’s discussion of the 

issue is for any of the witnesses who support a Federal regulator. 

And I would like to frame it like this: Have you fundamentally decided your organization can’t work with those in the industry who 

oppose a Federal regulator as a means to find common ground or 

to build consensus on key parts of the overall debate of regulatory 

modernization? 

Mr. FELTON. I think on behalf of NAILBA, we are willing to work 

with anyone that is going to improve the life insurance arena for 

the consumer. That is—you know, we are willing to move it forward. We want to be able to speed the product, improve the way 

we license our agencies, and just make it easier to do business. So 

that is kind of where we stand. 

Mr. DAVIS OF KENTUCKY. Anybody else? Mr. Nutter? 

Mr. NUTTER. If I might comment. I represent the reinsurance 

market. It is probably the one area where there is increasing support around the idea of streamlining the current system. Even the 

NAIC has a proposal before it that would facilitate a single State 

as a port of entry for reinsurers being licensed in the United 

States, and a system of mutual recognition for reinsurers doing 

business from outside the United States into the United States. 

So even the State regulators recognize that the global nature of 

the reinsurance market lends itself most readily to a single regulator, national or Federal. 

Mr. DAVIS OF KENTUCKY. Anybody else? 

Mr. IUPPA. Yes. You know, like the prior two speakers, I mean, 

we are certainly interested in moving the agenda of an OFC forward. And I think—again I go back to a comment I think I may 

have made while you were not with us, Representative. 

But it is an optional, what we are talking about. We are not talking about scrapping the State system. We are not talking about 

making an either/or in terms of the proposal that is out there at 

this point. 

So I think that at the end of the day there are certain things, 

certain structures that come into play depending on a company’s 

business model. For a company that does business in only one or 

two States, they may not be interested at all in an optional Federal 

charter, whereas a company that I work for, that does business in 

170 different countries, all the States and territories, there is a 

much greater likelihood that we would be interested in that and 

are interested in that. 

And one of the driving factors is that many of our customers do 

business on a national and international basis. We are basically a 

commercial writer, so we have a different clientele, if you will, 

within the company. 

29

So there are different needs, I think, that are out there. And I 

think what we are all looking for is to try and strike the right balance and have good legislation come forward. 

Mr. DAVIS OF KENTUCKY. Go ahead. 

Mr. HUNTER. In support—I am representing consumers, mostly 

individual type consumers. And I believe, and you weren’t here, we 

are agnostic about whether it is federally or State-based. If it is excellent, we will be for it, whatever is the best. So if we had a very 

strong Federal system, we could be for that. We don’t like optional. 

We don’t like choice going back and forth for the insurers. We 

think that sets up a regulatory arbitrage. 

Mr. GILLIAM. A brief comment on that? Even though I am not a 

supporter of the OFC, the point I want to make bears on this tremendously. Here is our biggest concern: The word ‘‘optional’’ is a 

red herring because if Congress decides to go with an optional Federal charter and they close the books on insurance regulation, you 

are done. You are not going to do anything to try and help reform 

the State system. 

Then we are going to have two unlevel systems. And those who 

use the simple Federal system are going to have a tremendous 

competitive advantage over the rest of us who still have the State 

system that, while good in its basis, needs modernization. 

Mr. DAVIS OF KENTUCKY. Yes. I would suggest just one thing. In 

retrospect and perspectives, I have never seen anything the Federal Government has done that seemed helpful other than—taking 

the analogy, it is like swallowing a polar bear trap. It may seem 

good going down, but when it springs on you, you suddenly find out 

it is holding onto you from the inside. 

And I suppose the question having come out of a professional 

background dealing with systems integration, you know, in the 

high tech world, much of the problem—the legislative challenges 

that we face, depending on how it is done, could create a vast market advantage for one side or the other, depending on how you do 

this. 

But when I get below the symptom level and I begin looking at 

root causes, the root causes are very common. There is a lack of 

information standardization, lack of best practices among the 

States, and from the standpoint of creating common standards for 

interchange between the States would seem like a way to begin 

this process, to establish this common ground on what those critical data entry points are before creating a new Federal bureaucracy that isn’t necessarily going to have the interests of the States 

in mind. And particularly for the small insurance brokers and 

small companies, this could create some challenge in multi-State. 

You know, on the flip side, I understand as a business owner the 

challenges of trying to write insurance when you have to deal with 

someone licensed in seven different States to try to get the same 

health insurance policy done. It is a nightmare for the insurer, for 

the person out at the tip of the spear, but also for the small business owner as well. 

And I think having seen this as a consumer and as an integrator, 

one of the places to start is with this common ground rather than 

create something and then find a way to fit the States or the Federal Government into it. 

30

And with that, I yield back, Mr. Chairman. 

Chairman KANJORSKI. The gentleman from Berks County, Pennsylvania, Mr. Gerlach. 

Mr. GERLACH. Thank you, Mr. Chairman. Really following up on 

Representative Davis’s comment there, and some of your comments 

and prior conversations on this whole issue of an optional Federal 

charter, I wonder, with the existence of this compact—and I am not 

even sure how many States have formally entered into this compact—I wonder, when you look at the issue of Federal charter and 

you look at the benefits that it proposes, as well as the concern on 

the other side that you are creating a new Federal bureaucracy, 

and what it looks like in year one may be totally different from 

what it looks like in year ten and beyond, has there been an effort 

within the industry overall, and perhaps Congress can be part of 

the effort, to first see if there can be established a uniform insurance code that would be accepted by States? 

Perhaps, you said, a minimum number of States, that if accepted 

then creates a nationwide system where you have uniform definitions. You have uniform product issues defined. You have a process 

for approval that is standard. You have a standard licensing and 

review process. 

So that on the one hand, you have created that uniformity that 

many seek, and on the other hand, you still retain the ability of 

States to regulate that uniform code without having to create a 

new Federal bureaucracy to do that. 

If for some reason a minimum number of States do not adopt a 

uniform insurance code by a certain date, then you certainly have 

perhaps Congress giving the ability to then move into an optional 

Federal charter because you have given the States the ability to 

adopt that and they have failed to do so and correct the problems 

that you describe. 

So is there any thought on taking an interim step before you 

move to an optional Federal charter, at least for some lines of insurance like life or property, where you establish a model uniform 

insurance code and then you set the process to move forward from 

there, and if 80 percent of the States adopt it within a certain period of time, all 50 States then must comply, and if there is not an 

ability to get 80 percent within a certain time period, you move to 

an optional Federal charter type program. 

Any thought given to that, or what is your comment on something like that? 

Mr. HUNTER. We have had that. I see Mr. Baker here. He introduced that, basically, in the SMART Act, which we happened to oppose and other people supported. So I think we have had that debate, and it obviously can always be reintroduced. It is not a new 

idea. 

Mr. IUPPA. I guess, if I can, just a couple quick comments on 

that. One is going back to Gramm-Leach-Bliley and the NARAP 

proposal or provisions in that law which effectively looked to put 

together or require a uniform producer licensing code or law. And 

it had to have a certain number of States, 27, I think it was, or 

maybe 26, which would trigger it. The reality is, and I think we 

would hear from Mr. Felton, that we don’t have a uniform licensing 

system in the United States even with that provision in the law. 

31

The other thing I just would mention is that—well, the other 

thing to keep in mind is that since—and I had the opportunity to 

look back at some of the early minutes of the NAIC just in the last 

couple of years. And really, what you have just articulated is one 

of the goals of the NAIC. 

There is some debate as to which commissioner it was who actually came forward first, but New York generally gets credit, to try 

and bring the commissioners together back in the 1870’s and come 

up with uniform financial reporting in particular at that point in 

time, but also more uniformity amongst the different aspects of the 

oversight. 

I think the reality is what you have is the same kind of—you 

know, one of the strengths of our country is the State system in 

the sense that we have it as a means of using it for experimentation. It is one of the strengths that we have, I think, as a country. 

But that also brings into it an awful lot of opportunity for creating diversity, even when uniformity would be better off than diversity. And certainly in some areas relative to insurance regulation, we would be better off with uniformity. And again, as I mentioned earlier, I think that the optional Federal charter would provide that for those companies that are looking for a uniform policy 

of regulation and supervision. And then you would also have the 

ability for companies like Mr. Gilliam’s to be able to continue to be 

supervised at the State level. 

Mr. EILAND. I think you have the tools out there right now. What 

we need to do is make sure they work better. With the compact in 

place, up and running at least for 30-some-odd States, you have the 

framework to work from there for the most logical lines. 

I don’t know if you were here, but my comment earlier was that 

until you have a product that is the same price and form in Dallas, 

Denver, Des Moines, and Detroit, if it is different in each of those 

places, you are going to have a tremendous problem trying to get 

uniformity because it is not uniform by its very nature. 

The four products that we have in the interstate compact commission—life, disability, long-term care, and annuities—it doesn’t 

matter if you live in Dallas, Denver, or Detroit. And if you move, 

it goes with you, and the premium doesn’t change. And so that 

makes sense. Let’s work on that first. We have that framework. 

If there is licensing and producer licensing tweaks and reform 

that needs to be done, we have the basis there. We have done it 

before on Gramm-Leach-Bliley. If we need to enhance that, make 

it better, we can do that, and we can do that on the State level. 

And so those two are there for those products. And those are the 

most logical ones at least to start with. If you try to do a nationwide insurance code, we will all be gone, I think, by the time that 

gets done. 

Mr. FELTON. Yes. I think in my opening comments I stated that, 

you know, NAILBA says that the NAIC’s compact was a good idea. 

At this point, I think, as has been said, we have 30-some-odd 

States involved. Unfortunately, there is no enforcement. If a State 

chooses not to take part in that compact, I don’t know who—what 

is the downfall for them? I don’t think there is any. 

Mr. GERLACH. Please. 

32

Mr. GILLIAM. Be careful what you ask for when you ask for a 

Federal insurance code. But I will say that the idea is somewhat 

intriguing since it would reserve the ultimate regulatory authority 

to the States for this reason. As Mr. Iuppa said, the reason the 

NAIC came into existence was to try to create a set of uniform laws 

across the States for insurance. 

And those of us who attend the NAIC meetings four times a year 

see that with great fanfare they pass a model law, and then we all 

start placing bets on how many States will actually adopt it, and 

then of those, how many will tweak it their own little way. So there 

is no model law. There are model ideas, but they never turn into 

model laws. So it is an intriguing concept. 

Mr. GERLACH. Thank you. Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you, Mr. Gerlach. 

The gentleman from Louisiana, Mr. Baker. 

Mr. BAKER. Thank you, Mr. Chairman. 

Mr. Iuppa, I want to review with you and get your opinion concerning the actions the Congress has taken so far in the context of 

our stated regulatory reform goal. And I say this as a fellow who 

has spent some time in this effort with Mr. Hunter and others over 

decades, it seems. 

State catastrophe funds where the State injects itself as a risktaker, prices policies below what a normal business venture would 

say is the actuarial risk, subsidizing it from maybe center-of-theState consumers who are supporting the on-the-beach consumer 

with a lower rate. Does that system and any incentives given to 

promote a State net cat program diminish the enthusiasm of a 

company like yours of attempting to enter the market? 

Mr. IUPPA. Well, I think—I mean, from our perspective, and I 

think that history generally will bear this out, that when it comes 

to natural catastrophes, that the industry has sufficient capital. It 

has sufficient expertise to underwrite those risks and pay the 

claims when they do come in. I think history is a pretty good indicator of that. 

I think that there is a danger when the—whether it is the Federal Government or the State government begins to interject itself 

into how the market actually works, that there are going to be 

problems. 

Mr. BAKER. Well, let me move on to another one. We have considered flood insurance, this Congress, which I would note for the 

record, even though I am from Louisiana and we have significant 

interest in the matter, that the reason why we had the wind versus 

water snafu in the first place is because of the Federal intervention 

in the flood market. 

If a lender is going to make a loan in a flood-prone area and 

there were no flood insurance program, I assure you there would 

be a flood insurance market in the private sector that would price 

that risk appropriately. 

But the remedy that we adopted in this community was not to 

reform a program which has an $18 billion debt and an actuarial 

inability to pay that debt off, but merely to add the wind program 

at an estimated $100 billion a year exposure with no increase in 

premiums. 

33

From a market perspective, does that appear to be on a sound 

financial basis? 

Mr. IUPPA. From a taxpayer perspective, I think the answer is 

no. 

Mr. BAKER. Well, let me move on to terrorism. Maybe we got it 

right there. You know, we extended the term. We mandated the 

nuclear/biological/chemical/radiological. We included group life. We 

lowered the amount the industry has to put into the game. And we 

increased the potential liability of the taxpayer with a perhaps as 

long as 15-year exposure; it could be a 10-year. 

What does that look like from a market perspective? Are we on 

sound actuarial footing there? 

Mr. IUPPA. Well, I think that with regard to terrorism, unlike 

natural catastrophes, we don’t know when the terrorist attacks are 

going to occur. We knew the full magnitude— 

Mr. BAKER. But you are going to have to offer the NBCR. 

Mr. IUPPA. Yes. Well— 

Mr. BAKER. And how are you going to price that, I wonder? 

Mr. IUPPA. Well, we can still price it from an actuarial perspective. We take into account all the various factors that will go into 

the products that we put into the marketplace. 

Mr. BAKER. Yes. But do you have an extensive actuarial database 

for terrorism? 

Mr. IUPPA. For terrorism, there is no— 

Mr. BAKER. So it is somewhat of an operational problem? 

Mr. IUPPA. Well, it is an assumption of risk. 

Mr. BAKER. In our pursuit to simplify insurance regulatory regimes, we have a record already this year which is looking a little 

on the thin side, wouldn’t you say? 

Mr. HUNTER. Are you running for the Senate? 

Mr. BAKER. Don’t do that to me. 

[Laughter] 

Mr. BAKER. No. Up until a few minutes ago, my reputation was 

in good standing. 

No. I merely point out that this is going to—if we are about reform, we are going to have to get by a lot of the various stakeholders in the marketplace who have various reasons for the current regulatory regime. And we also have to recognize the consequence of untenable losses in this industry, which, by the way, 

has the lowest rate of return on equity of any sector in the financial marketplace, contrary to many people’s thoughts. 

People are going to withhold their investment and go elsewhere—London, Dubai, Hong Kong, who knows. I think the facts 

demonstrate that there is already a flight of capital from this country. And the principal reason why this industry will suffer more 

than any other is this ham-handed kind of regulatory approach, as 

opposed to—and I know there are differences of opinion on this 

matter—allowing markets to function and people to price risk 

based on their actuarial view of that property in the near term for 

which the policy contract is obligated. 

And all of the governmental intervention to the contrary has not 

served people well. It has only ensured that private risk-takers are 

less likely to go into those markets, and therefore less competition, 

34

therefore higher prices—unless, of course, the State is arbitrarily 

subsidizing the rates, further complicating the matter. 

And I know it wasn’t a question, but I felt like I needed to get 

that off my chest. Thank you. 

Chairman KANJORSKI. Thank you. 

Mr. GILLIAM. Could I jump in there? Could I go back to point 

one, State cat funds? I couldn’t let that one go. 

As a company who is looking at entering a new market or staying in an existing market, the presence of a State cat fund is an 

economic red flag to us because our belief is that if risk-based rates 

were followed, you would never need a State cat fund. 

So to us, it is always, look carefully before you enter a market 

like that because it suggests market dislocation, disruption, and 

not letting the economic forces of the business of insurance operate 

the way they were intended to. 

Chairman KANJORSKI. Thank you, Mr. Baker. Do you think we 

are any further along this year than we were 5 years ago? 

Mr. BAKER. Well, the only thing I can tell you, Mr. Chairman, 

is I know what won’t work, if that helps you. 

[Laughter] 

Chairman KANJORSKI. In some of the comments from the panel, 

you talked about the relative dysfunction of the existing State system. I think it may have been you, Mr. Gilliam, who talked about 

that. Do you consider the State system, as it presently exists, to 

be dysfunctional? 

Mr. GILLIAM. It is functioning. It needs some help. And I will go 

back to this idea, and I think this is what is driving the optional 

Federal charter proponents, is that they have to wait 2 years to get 

their product improved. If a home State could approve the product 

and the next day it is open for business nationwide, kind of like 

the driver’s license, I think that there would be a tremendous 

meeting on common ground. 

Now, when that idea is out there, people will say, that is very 

dangerous because then you are going to have people going to the 

State where they think they have the worst regulation, the easiest 

regulation, they can slip by. So that is the other side of the coin. 

But I think until—you know, we hear about this globalization. 

But let’s talk about globally within the United States. There is no 

reason why, if we didn’t put our heads together, why can’t you have 

a product approved in your home State and use it immediately, as 

opposed to waiting 2 years for 34 States to follow suit? 

I think that is the linchpin of this entire debate, in many areas 

of regulation. 

Chairman KANJORSKI. Well, I am not an expert in insurance. But 

I am impressed with the fact there are what, 20 States that don’t 

belong to the compact and have no intent. And they are usually the 

large States—California and Texas, I believe. 

Mr. EILAND. We are in. 

Chairman KANJORSKI. You are in now? 

Mr. EILAND. We are in. We were one of the first. We were the 

first big State to be in. 

Chairman KANJORSKI. Very good. Is New York in? 

Mr. EILAND. Not yet. But just on that issue, as you well know, 

being a legislator, oftentimes when a new idea comes along, you 

35

want to take a look at it. And it doesn’t always make it through 

the full session the first time. And so that is one thing that is happening, I mean, that— 

Chairman KANJORSKI. Well, how long has this new idea been a 

new idea? 

Mr. GILLIAM. Since 1870. 

Chairman KANJORSKI. 1870? 

Mr. EILAND. I would say that the model legislation for the interstate compact was completed around 2003 or so. 

Chairman KANJORSKI. I think that was only in reaction to some 

of the hearings we were beginning to have here in Congress and, 

you know, a recognition that we actually may act, and almost did. 

And then they moved along and everyone pulled back, including 

Mr. Baker, and we said, let’s give them a chance. I remember attending several of their conferences. I was highly unimpressed or 

impressed. I am not sure. I knew they wanted to do something, but 

I didn’t get that sense they were going to accomplish it. 

Yes? 

Mr. IUPPA. I just wanted to follow on to Mr. Gilliam’s comment 

on the speed to market. I mean, speed to market is important, but 

it is not the only issue moving some of us towards an optional Federal charter. I think we really are taking at it from a more holistic 

view—the kinds of businesses that we market products to; our footprint, whether it is regional, local, national, international, also 

comes into play as well. 

Chairman KANJORSKI. Do you believe if we did an optional Federal charter, we could have State-by-State enforcement, or would 

we have to have Federal enforcement? 

Mr. IUPPA. Well, I think if we had an optional Federal charter 

and we had a Federal chartering system for those entities that 

chose to incorporate or establish themselves through that Federal 

charter, that the Federal court system would be the natural place 

for enforcement actions with regard to— 

Chairman KANJORSKI. Well, I am talking more about the regulator now. Why can’t we just reverse and say that the attorney general or whomever would be the enforcement officer of the various 

States, even though it is a Federal charter and it is a violation of 

the Federal charter or a contended violation, that we expect the attorney general of the State in which it occurred to be the enforcement officer? Do you see a problem with that? 

Mr. IUPPA. Well, I am not an attorney, but I would imagine there 

may be some constitutional issues there. And I will defer to the 

constitutional experts with regard to that. 

Chairman KANJORSKI. Is Ann Coulter in the courtroom? 

Mr. IUPPA. But I think you are going to end up with the same 

kind of disparity amongst the States because you will have different levels of enforcement based on that particular individual and 

that State, even though you may have a uniform product that is—

you know, that crosses State lines and so forth. I think that 

would—I would not suggest necessarily going in that direction, I 

guess. 

Chairman KANJORSKI. Well, you were a former active person 

with the NAIC. What is your value and judgment of where they 

have come so far? 

36

Mr. IUPPA. Well, I think, as I said in my testimony, I think tremendous strides have been made in efforts to try and streamline, 

try and move the ball forward. I think in some areas there has 

been more success than there has been in others. 

With regard to financial oversight, we heard about standardized 

data. Well, there is an annual statement that has over 500,000 

standardized data elements in nit. 

But in other areas, when it comes to things like the product approval, rate approval, the market conduct activities have been very 

laborious. And I can tell you, speaking firsthand as an active member of that organization, to drive or arrive at a consensus on almost 

any issue is incredibly difficult, and in some cases impossible. 

And then even when you do get to that consensus, as others have 

said, and I think you will also hear—insurance commissioners to 

a certain degree even say, you know, we get a model passed at the 

NAIC. Now we have to go back and deal with our State legislatures. 

And with all due respect to my panel mate here and a gentleman 

that I consider a friend—we have known each other for a number 

of years now—each State likes to put its own little twist on the 

model laws. 

You look at the financial accreditation program. I was here back 

in 1988 when that program was being conceived. When that was 

first conceived, there were actually going to be punitive measures 

against States that were not accredited. For instance, their financial exams that they did on their Democrat companies were not 

going to be accepted by the other States. 

Well, as time went on and you had fewer and fewer States who 

were unaccredited, the punitive nature of that program became a 

significant issue, to the point where ultimately there are no punitive measures per se against a State that is not accredited. 

So, I mean, you have some examples where I think it has worked 

well. I think as a practical matter, we need to recognize that it is 

now the 21st Century. Things have changed. You know, I joined 

this regulatory community as a regulator 20 years ago, and it is 

a very different industry today than it was even 20 years ago. 

I think with the pace of change, the fact that this is a financial 

sector industry, that it is dependent upon capital and capital flows 

as well as the customer base, that we need to modernize that system for those companies that are operating in that more global national environment. 

And I think that improvements still need to be made to the State 

system even for those companies and entities that want to be regulated at the State level or are comfortable with it. 

Chairman KANJORSKI. Thank you. I think I have taken my time. 

Ms. Bachmann, now are you going to join us? 

Ms. BACHMANN. Thank you, Mr. Chairman. I appreciate the opportunity to be able to ask a question. And I apologize, too, for not 

being able to hear all of your remarks, although I appreciate having them in written form. 

I want to thank you for all of the various views that you have 

been able to present this afternoon. I have heard from a number 

of organizations. Last Friday I was back in my district, and I met 

with a large insurance corporation there and heard their views on 

37

a Federal charter. And I met with all of my smaller—not all, but 

I met with many of my smaller insurance companies as well and 

their views against this. 

And the issue that I ask each one of them, and the issue that 

I would ask you to comment on in a general way, would be regarding the issues of competitiveness and prosperity. After all, that is 

really what we are after. We want to make sure that you succeed 

wildly. You are a very important part, each one of you, of the financial services industry. We want you to be successful. The large, the 

small, we want you all to be. 

Could you answer for me in a very general way—and in many 

forms, you have been doing this throughout our great discussion 

this afternoon—but in a general way, could you respond to me how 

your opinion on this issue would contribute to prosperity and to the 

issue of competitiveness in the United States? 

Mr. FELTON. I will be glad to tackle that from the life insurance 

perspective because that is really what I am here to talk about. 

Life insurance, unlike these other products, is a product that has 

to be sold. People buy property and casualty insurance. They buy 

their home insurance. They know they have to have it. And they 

buy their car insurance. 

You have to sell life insurance. And if you are in a State that 

doesn’t have a product as competitive as your neighboring State, 

you are at a disadvantage and you are not going to prosper as 

much as you might if you were able to sell a different product. 

So it is tough to make a living in life insurance, and the optional 

Federal charter would give the agents a chance to sell the same 

products nationwide. Because right now they can’t do that, and 

that puts them at a competitive disadvantage. 

Mr. NUTTER. I would answer with respect to the reinsurance 

market. I represent the reinsurance, much of which is written by 

companies that are offshore, not in the United States, or have U.S. 

subsidiaries that are offshore. 

There is no question that the 50-State system is a cumbersome 

system, if you will, for a company that is managing its capital on 

a global basis, seeking to write coverage in the United States, often 

on a multi-State basis. 

So for our sector of the industry, a single regulator, national or 

Federal, that would streamline the process of approval, licensing, 

and solvency oversight, would be a much more efficient system for 

providing capital, and that capital will help make it a more competitive industry for the insurers and their consumers. 

Mr. HUNTER. I represent consumers, and when you talk about 

competitiveness and making the insurance industry profitable, we 

want that. We don’t want insolvent insurance companies. But we 

do not want excessive profits for the property/casualty industry. 

For example, it is heading for its fourth record in a row, even 

with Katrina and all those losses. It is clear that what they are 

paying back to consumers is now down to 50 cents out of every dollar. It has become a very inefficient system. 

They are making too much money right now. And the market is 

softening up, so we are going toward now down the slide down the 

other side of the cycle. But that economic cycle has nothing to do 

with regulation. 

38

Ms. BACHMANN. Could I ask as well if you could comment on the 

argument I hear from the littler guys who say, we don’t want the 

burden of answering to two masters? 

Mr. HUNTER. Well, I don’t think they would have to if they were 

a little guy. They can be State-regulated or Federal-regulated. 

Under an optional Federal charter, they could choose who to be—

they may have to pay for both because you are going to have two 

systems, one on top of the other. 

Ms. BACHMANN. And again, I am not advocating any particular 

position here. But one of the arguments that I am getting with the 

idea of answering to two masters is that the smaller guys are saying, inevitably they will have to answer to two masters. It won’t 

be just one. And if you would just comment. 

Mr. HUNTER. Inevitably, if there is an optional Federal charter, 

there will only be Federal regulation. 

Mr. GILLIAM. I will jump in as a smaller guy. I don’t know if you 

were here a little earlier, but one of the comments I made is we 

are a regional insurer. We are in 34 States. We are not across the 

country. I will put ourselves in the medium category. 

If we pass an optional Federal charter and leave the current 

State system unmodernized, it will create a tremendous unlevel 

playing field because those of us who are familiar and want to stay 

in the State system will stay in the broken State system, while the 

big companies go to the Federal system. And it will be so unlevel, 

at some point we will feel like, well, gosh, do we have to change 

to a Federal company? 

And then we will get the game of people jumping back and forth. 

You know, they will have one company that is Federal and one 

State, and it is going to be a morass of people jumping back and 

forth and playing the system. And a lot of companies our size can’t 

afford the cost of jumping back and forth like that. 

Mr. IUPPA. Yes. I want to go back to your first question about 

the competitiveness and so forth, and perhaps give you even a different look at it. And I am looking at it from the competitiveness 

of this country globally. I mentioned earlier that, I mean, we are 

basically the largest insurance market in the world. Depending on 

how you tally up the figures, it is either us or the E.U. or Japan. 

But there are an awful lot of other countries out there right now 

who are going to be competing for the capital that in the past 

would necessarily have come into the United States that others are 

now beating a path to that capital. And that capital is beginning 

to flow into the emerging markets. 

I have had the opportunity to work with regulators from emerging markets for several years. And when you talk to these people, 

one of the first things they look to do is set up an insurance market 

because they know that you can’t grow prosperity, you can’t grow 

a middle class, unless you have an insurance marketplace. 

As people begin to acquire assets, whether they be commercial 

assets for small businesses or their personal assets—homes, property, and so forth—where you begin to develop an insurable interest, that is what contributes to the middle class and the prosperity. 

And I think that we need to have a regulatory system here in 

the United States that recognizes that there are a variety of players in the insurance marketplace that go down to the single State 

39

entities, and in some cases that may only write business as a county mutual, to large multinational companies that do business 

throughout the world. The needs are going to be different. 

We want to be sure that capital continues to flow into this market. We want to be sure that the capital that is here has the ability 

to be used in innovative and creative ways, and provide additional 

products into the marketplace. 

And the other thing, as I said, we are now competing with other 

parts of the world where for the last century, at least for the first 

three-quarters of it, we weren’t. I think that is a dynamic that we 

can’t lose sight of. 

Mr. EILAND. From a State legislature and legislator perspective, 

what can we do, I think is your question, on ensuring competitiveness. We can make sure that we have, where we can, a streamlined 

and efficient regulatory scheme in this country. But by the same 

token, we can’t force uniformity where there is none. 

And in certain product lines especially, you are going to have 

wide-ranging products and coverages across the country. And simply having a Federal regulator try to regulate that from Washington, D.C., is not going to work because you are going to have 

to have Federal regulators in Washington State and in Oregon 

State and in Rhode Island and everywhere else so that they can 

see how that particular market is functioning. 

So the main thing is to make sure that you have an efficient regulatory scheme. By the same token, we also have responsibilities 

for consumers, to make sure that they get good value for what they 

are buying, and can afford it in many instances. 

Ms. BACHMANN. Thank you. 

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

The gentleman from Georgia, Mr. Scott. You had additional questions? 

Mr. SCOTT. Yes. Thank you. We have such a distinguished panel 

that I did not want to let another question that is on my mind go 

by. And I would like to get your take on this. 

We are faced with a world view here of our financial services industry. And we are having budget deficits. We are having trade 

deficits. We are borrowing over $2 trillion from a handful of nations around the world. Our debt is—the sky is the limit. And now 

I understand we are running deficits with our financial services 

products in the world. 

And I would like to ask you two questions about this, if you 

would care to comment. Why do you believe the United States has 

consistently run a deficit in insurance services with the rest of the 

world? That is the first part of the question. If we can get a response as to why is this happening from your point of view. 

Which leads to the second part of the question, which is—and I 

am beginning to get worried that the growing internationalization 

of our financial services industry may mean that these governments may find it difficult, in isolation from other nations and 

other jurisdictions, to find a way to deal with their regulatory reform in isolation as opposed to being with other countries and other 

nations and other international developments. 

In other words, what I am saying is that we are now an international player. I mean, we have always been, but in a much bigVerDate 0ct 09 2002 18:20 Jan 31, 2008 Jkt 039915 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\39915.TXT HFIN PsN: TERRIE
40

ger way. Our indebtedness and our deficits give us an Achilles heel. 

And I am just wondering, why is this happening, number one? And 

number two, is it something for us to be worried about in the growing internationalization of the financial services industries, and in 

terms of these countries finding it difficult to deal with their own 

regulatory reform in isolation from other countries, other jurisdictions, and other international developments? 

Mr. EILAND. I will take the first stab at that. It seems to me that 

the reason we have a trade balance on insurance services is because other countries, the insurers in other countries, especially reinsurers and Lloyds of London, like our regulatory system here. It 

is predictive. They can come in here. They can insure. They know 

the system. And then can make money, and have for hundreds of 

years. And so that is the first. 

The second is many of our own insurance companies may be reluctant to go to other undeveloped or underdeveloped countries 

where their system is not as well-established, where their risks 

may be greater, where they have risks that we are not used to like 

terrorism. And so there is plenty to do here at home, so they stay 

here at home. 

Mr. SCOTT. I see. Yes? 

Mr. IUPPA. Yes. I am not sure I can really respond to the first 

part of your question. But I did want to talk a little bit about sort 

of these other countries and operating in isolation and so forth. 

I think one thing to keep in mind is that, as I mentioned in response to some of the earlier questioning, was that there are an 

awful lot of emerging markets now that have come into being with 

newly acquired independence and whatever the case may be. And 

they are all putting together regulatory schemes when it comes to 

financial services. 

One of the things that I was able to engage in because of my 

prior position was I would often hear from some of these countries 

and ask, why do you have a State system? Why don’t you have a 

single regulator, a Federal regulator? And again, part of it is historical. It is the system we have. 

But when you look to these countries—and they don’t just send 

people here to the United States to look at our system. They send 

them to Europe. They send them to Japan, the other developed 

countries. And they all seem to be going towards a model that is 

Federal in nature, and even moreso than here, they are increasingly consolidated regulators where you have an entity analogous 

to the FSA in the U.K., which is a model that has been pointed to 

and a model that is being moved towards in a lot of these emerging 

markets. So I think that there is a growing move in that direction. 

And just with regard to the isolation piece, through the International Association of Insurance Supervisors, it has effectively become the de facto international standard-setter for insurance supervision in the world. It is analogous and on par with the Basel 

Committee for banking supervision as well as IOSCO for the securities marketplace. 

There are standards that are being developed there for use in an 

international basis, and you are beginning to see those standards 

come out. You are beginning to see those standards be put into effect in various jurisdictions. And the emerging markets in parVerDate 0ct 09 2002 18:20 Jan 31, 2008 Jkt 039915 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\39915.TXT HFIN PsN: TERRIE
41

ticular are very hungry to adopt those international standards because they see that as a means of legitimizing their economy, legitimizing their regulatory approach. 

So it goes back to my earlier response to the question on competitiveness. I mean, we are really competing not only amongst ourselves commercially, but we are competing against many other 

countries in the world today that we didn’t have to before. 

Mr. NUTTER. If I could supplement that, if your time permits. I 

represent the reinsurance market. All of our companies are licensed in the United States. They are probably all licensed in all 

50 States. And yet much of the reinsurance is written by companies that have U.S. subsidiaries but are foreign-owned, foreigndomiciled, or written directly offshore. 

That is exactly what you would want for a country of the risk 

that this country has, catastrophe risk and other kinds of risk. You 

do want to spread it throughout the world’s capital markets. That 

is the real function of reinsurance. 

Depending on the timeframe you look at, there probably is a net 

inflow of reinsurance payments into the United States largely because of the catastrophe events of 2001, 2004, and 2005, notwithstanding the profitable years of 2006 and probably 2007. 

Secondly, to Mr. Iuppa’s point, we would probably say that a 

number of other jurisdictions have taken on a more progressive 

role with respect to regulation of the reinsurance market. The E.U. 

has created a passport system that is not unlike what we have endorsed. And the sponsors of H.R. 3200 have included a mutual recognition piece that would allow the United States to recognize 

other countries that have satisfactory regulatory regimes so that 

U.S. companies can do business in their countries and companies 

in their countries can do business here on a mutually recognized 

basis based upon their home country’s regulation of those markets. 

So it is not all bad, if you will, that there may be trade imbalances between countries in our area because it depends on the loss 

experience of the companies doing business here. 

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

Chairman KANJORSKI. Mr. Baker? 

Mr. BAKER. Just a couple of quick questions, Mr. Chairman. 

Thank you. 

Mr. Iuppa, speaking as a Zurich official, what would you guesstimate annually is the number of filings for new product approvals 

that a company of the size of Zurich would engage in on an annual 

basis in the various insurance domestic jurisdictions? 

Mr. IUPPA. I am going to imagine that is certainly into the hundreds, and perhaps thousands. And, I mean, as an example, we 

have a commercial auto policy where the policy itself is probably 

about 15 or 20 pages long. But along with the basic policy, there 

is probably about 500 pages of amendatory language in order to 

take into account all the filings in all the States. 

Mr. BAKER. But is it safe to say that it is several hundred a year 

from one single company perspective? 

Mr. IUPPA. Easily. Easily. 

Mr. BAKER. Mr. Eiland, I want to acknowledge the correspondence that the NAIC forwarded to the OFC. I do appreciate it. And 

42

just make note of one element of the content of that correspondence 

with my office, Mr. Chairman. 

In a prior meeting, I inquired as to the new compact approval 

process for new product and how was it progressing. And at the 

time, there was uncertainty about the number of products. In the 

correspondence, it indicates there were eight filings that were approved. 

I just wish for the record, Mr. Chairman, to establish that Zurich 

only has several hundreds of filings annually in the domestic marketplace. One can only imagine it must be literally in the thousands, if not tens of thousands, for the entire industry. 

And to hold that number up in contrast with the current compact 

approval process, I think, points to the continuing disparities between where we want to go and where we seem to be. 

I yield back. I thank you. 

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

To the panel, I want to thank you all very much. I found it very 

interesting and very diverse, to say the least. 

The Chair notes that some of the members may have additional 

questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

Before we adjourn, the written statement of the National Association of Insurance and Financial Advisors will be made part of 

the record of this hearing. Without objection, it is so ordered. 

Chairman KANJORSKI. The panel is dismissed, and this hearing 

is adjourned. Thank you. 

[Whereupon, at 4:29 p.m., the hearing was adjourned.] 

(43)

A P P E N D I X

October 30, 2007

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