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95–011 PDF 2004

WORKING WITH STATE REGULATORS TO

INCREASE INSURANCE CHOICES FOR CONSUMERS

HEARING

BEFORE THE

SUBCOMMITTEE ON 

CAPITAL MARKETS, INSURANCE AND 

GOVERNMENT SPONSORED ENTEREPRISES

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 31, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–77

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

DOUG BEREUTER, Nebraska 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

BARNEY FRANK, Massachusetts 

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 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE AND GOVERNMENT SPONSORED

ENTERPRISES

RICHARD H. BAKER, Louisiana, Chairman

DOUG OSE, California, Vice Chairman 

CHRISTOPHER SHAYS, Connecticut 

PAUL E. GILLMOR, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

FRANK D. LUCAS, Oklahoma 

EDWARD R. ROYCE, California 

DONALD A. MANZULLO, Illinois 

SUE W. KELLY, New York 

ROBERT W. NEY, Ohio 

JOHN B. SHADEGG, Arizona 

JIM RYUN, Kansas 

VITO FOSSELLA, New York, 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

GARY G. MILLER, California 

PATRICK J. TOOMEY, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

MELISSA A. HART, Pennsylvania 

MARK R. KENNEDY, Minnesota 

PATRICK J. TIBERI, Ohio 

GINNY BROWN-WAITE, Florida 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

PAUL E. KANJORSKI, Pennsylvania 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

(V)

C O N T E N T S 

Page 

Hearing held on: 

March 31, 2004 ................................................................................................. 1

Appendix: 

March 31, 2004 ................................................................................................. 73

WITNESSES 

WEDNESDAY, MARCH 31, 2004

Ahart, Thomas, Ahart, Frinzi & Smith Agency, on behalf of the Independent 

Insurance Agents & Brokers of America ............................................................ 40

Counselman, Albert R., President & CEO, Riggs, Counselman, Michaels & 

Downs, Inc. on behalf of the Council of Insurance Agents and Brokers ......... 45

Csiszar, Ernst, Director, South Carolina Department of Insurance, on behalf 

of the National Association of Insurance Commissioners, Accompanied by 

Gregory W. Serio, Superintendent, New York State Insurance Department, 

and Mike Kreidler, Washington State Insurance Commissioner ..................... 14

Dickson, Anthony, President, NJM Insurance Group, on behalf of Property 

Casualty Insurers Association of America ......................................................... 47

Hunter, J. Robert, Director of Insurance, Consumer Federation of America ..... 49

O’Connor, Phillip R., Constellation New Energy, Inc. .......................................... 55

Ochenkowski, Janice, Vice President External Affairs, Risk and Insurance 

Management Society, Inc. ................................................................................... 52

Singer, Roger, Senior Vice President & General Counsel, OneBeacon Insurance Group, on behalf of American Insurance Association .............................. 42

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 74

Fosella, Hon. Vito ............................................................................................. 76

Gillmor, Hon. Paul E. ....................................................................................... 77

Kanjorski, Hon. Paul E. ................................................................................... 78

Ahart, Thomas .................................................................................................. 80

Counselman, Albert R. ..................................................................................... 86

Csiszar, Ernst ................................................................................................... 100

Dickson, Anthony ............................................................................................. 107

Hunter, J. Robert .............................................................................................. 116

O’Connor, Phillip R. ......................................................................................... 146

Ochenkowski, Janice ........................................................................................ 161

Singer, Roger .................................................................................................... 171

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Bachus, Hon. Spencer: 

National Association of Insurance and Financial Advisors, prepared statement ............................................................................................................... 177

Kanjorski, Hon. Paul E.: 

Written testimony of Hon. E. Benjamin Nelson a Senator from the State 

of Nebraska ................................................................................................... 187

Property Casualty Insurers Association of America, prepared statement .......... 191

(1)

WORKING WITH STATE REGULATORS TO 

INCREASE INSURANCE CHOICES FOR 

CONSUMERS 

Wednesday, March 31, 2004

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 call, at 10:07 a.m., in Room 

2128, Rayburn House Office Building, Hon. Richard Baker [chairman of the subcommittee] presiding. 

Present: Representatives Baker, Ose, Shays, Gillmor, Bachus, 

Castle, Royce, Oxley (ex officio), Kelly, Shadegg, Ryun, Biggert, 

Miller of California, Hart, Kennedy, Tiberi, Renzi, Hensarling, 

Kanjorski, Sherman, Inslee, Ford, Frank (ex officio), Lucas of Kentucky, Clay, McCarthy, Baca, Emanuel and Scott. Also present 

were Representatives Hensarling, Maloney and Pomeroy. 

Chairman BAKER. [Presiding.] I would like to call this meeting 

of the Capital Markets Subcommittee to order. 

Today, the committee meets to hear testimony with regard to the 

continuing effort of the committee to provide regulatory relief for 

consumers and the insurance industry in providing services to consumers. As the committee has conducted now 14 meetings in the 

past 2 years on this subject, there really is little need for a lengthy 

introduction of the subject matter to committee members. 

It is clear—and I think all parties affected agree—that some 

changes are not only in order but necessary. And the difficulty is 

in reaching the level of change that should be suggested to ensure 

market stability and additional choices for consumers. 

It is very clear, at least to me, that as the regulatory structure 

becomes less burdensome and complicated, there are more providers of product, there is more competition in the relevant market 

and consumers win by paying lower prices by having many choices. 

Where we find the reverse structure, there are limited numbers of 

providers, premiums generally are higher and consumers lose. 

This is a mission which all on the committee agree has to be undertaken. And we wish to go as far as we reasonably can go in providing a streamlined market structure that enables it to work effectively. 

What has concerned me, to a great extent, in reviewing the financials of this sector of the financial marketplace, the industry 

does not enjoy a very comparable return on equity, as contrasted 

2

with others in the financial marketplace. To some, that would seem 

to indicate victory in regulating the industry. I look at it slightly 

differently. 

I know that without adequate capital and resources, you cannot 

provide the needed services. And our economy suffers. 

Where the most competitive insurance product is not made available, that ultimately costs us all in lost opportunity. I do believe 

that Chairman Oxley has directed and we have worked hard to 

provide a list of recommended reforms which we hope the various 

stakeholders will find to be warranted and necessary. 

Today, we will receive comment from various perspectives on the 

advisability of moving legislatively in this direction and to receive 

any recommendations or modifications that may be deemed advisable in light of the current market structure. I am appreciative for 

those who are here today and willing to participate and want to express my appreciation to all who have worked with the committee 

over the past months in coming to this hearing today. 

This could well be our last hearing before the committee considers adoption of legislation. 

With that, I would like to call on the ranking member, Mr. Kanjorski, for his opening statement. 

Mr. KANJORSKI. Thank you, Mr. Chairman. And thank you for 

the opportunity to offer my thoughts about regulatory reform in the 

insurance industry before we hear from our distinguished witnesses. 

First and foremost, I commend you for continuing to focus our 

committee on issues of insurance regulation. During the last 3 

years, our panel has met on multiple occasions to discuss a wide 

variety of issues related to the insurance industry. 

As a result of these proceedings, we have developed a better understanding of the insurance marketplace. We have additionally 

begun to form a growing consensus in the Congress about the need 

to improve insurance regulation in the United States. 

In the attempt to advance these efforts, Mr. Chairman, you also 

recently developed an initial outline for achieving incremental regulatory reform in the insurance industry. This evolving proposal 

has already sparked considerable debate in the insurance community. 

Although it merits receiving our collective attention, I suspect 

that we will eventually conclude that this reform plan to impose a 

new federal bureaucratic network over an existing state regulatory 

structure will produce unintended consequences. Later today, for 

example, one of our witnesses will detail the shortcomings of this 

outline, with respect to the protection of consumers and the needs 

of small businesses. 

By inserting the federal government into insurance regulation, 

this plan will also almost certainly create new unfunded liabilities 

for our country. Additionally, I suspect that many will conclude 

that this initial proposal falls considerably short of achieving permanent and genuine reform in the insurance industry. 

The outline under consideration today, for instance, envisions a 

weak federal coordinator with little enforcement authority. Calling 

for greater uniformity in insurance regulation, but then giving a 

3

new federal overseer limited powers, is much like watching an old 

man trying to eat an apple after removing his false teeth. 

Some have also suggested that the federal regulatory presence 

envisioned by this proposal could do more to confuse, rather than 

clarify, regulatory responsibilities. During our previous hearings on 

insurance reform, we have received extensive testimony from many 

witnesses advocating the creation of an optional federal charter. 

Although the plan before us today does not address this important issue, the consensus for creating an optional federal charter 

continues to grow. Earlier this year, for instance, the National Association of Insurance and Financial Advisors decided to embrace 

certain federal initiatives that would work to improve the regulation of insurance, including the development of an optional federal 

charter. 

A study released earlier this week also advanced the idea of creating an optional federal charter. The reform package under consideration today would create a system of joint regulation between 

the federal and state governments. 

Rather than overlaying a federal bureaucracy on top of the State 

regulation, an optional federal charter would create a separate, 

streamlined regulatory system. Such dual oversight has worked 

generally well for the banking industry for many decades. And we 

should now consider applying it to the insurance industry as well. 

Moreover, because of its standardized products in a nationwide 

marketplace, the life insurance industry, in my view, is particularly 

ready for the adoption of an optional federal charter. 

Mr. Chairman, the devil—as we often say—is in the details. Because much of the proposed regulatory reform outline is currently 

conceptual, it is difficult this time to anticipate how the legislative 

language would actually work. 

Despite my initial doubts, I want you to know that I am approaching today’s hearing with an open mind because I share your 

goals of making insurance regulation more efficient, uniform and 

effective for consumers. 

In closing, Mr. Chairman, we have reached a fork in the road 

and must decide which path to take. Ultimately, we might decide 

to modify and adopt this concession plan before the 108th Congress 

completes its work. 

We might alternatively decide to create a commission to study 

these matters. We might also decide to begin the considerable work 

needed to create an optional federal chartering system in a future 

session. 

These are important discussions for us to have and important 

matters for us to resolve. Thank you, Mr. Chairman. 

[The prepared statement of Hon. Paul E. Kanjorski can be found 

on page 78 in the appendix.] 

Chairman BAKER. Thank the gentleman. 

Chairman Oxley? 

Mr. OXLEY. Thank you, Mr. Chairman. Let me begin by thanking 

you and Oversight and Investigation Subcommittee Chairman Sue 

Kelly for holding, between the both of you, 14 hearings and 

roundtables over the last 3 years on the need for insurance reform. 

4

Your hard work and commitment to increasing competition and 

effective oversight for insurance consumers created the foundation 

we are building on today. 

In addition, I want to recognize one of the real leaders of our 

time: our first witness and president of NAIC, Ernie Csiszar. President Csiszar has served with bipartisan distinction for both Democrat and Republican governors in South Carolina. And he has 

worked closely with our committee in forging some central goals 

and concepts for improving insurance regulation. 

Too often, the legislative process gets bogged down in turf protection, partisanship and political conflict avoidance. Rare is the leader who can overcome self-interest in the status quo and help create 

the opportunity for change to achieve a greater good. 

I also want to thank New York Commissioner Greg Serio and 

past NAIC President Mike Pickens, who have also been of enormous assistance in working together to build a foundation for a 

consensus, middle-ground approach to reforming insurance regulation. 

All three leaders have been steadfast advocates of retaining the 

strengths of State-based insurance oversight and have helped us 

think through alternatives to federal regulation as we forge a path 

towards uniformity. 

And Mr. Chairman, I would also like to recognize our former colleague, Mike Kreidler, who of course is the insurance commissioner 

now in the State of Washington. And it is good to have you back 

here in Washington, Mike. 

Achieving uniformity will not be easy. At the first meeting of the 

NAIC, the New York insurance commissioner and founder of the 

NAIC, George W. Miller, stated, ‘‘The commissioners are now fully 

prepared to go before their various legislative committees with recommendations for a system of insurance law which shall be the 

same in all states—not reciprocal, but identical; not retaliatory, but 

uniform.’’

That, Mr. Chairman, was in 1871, 6 years after the Civil War 

ended. And since then, the NAIC has testified before this committee and its predecessors numerous times that we are almost 

there, that new programs have been developed, new models agreed 

to. In just a few more years, we will be closer to the illusive goal 

of uniformity promised back 133 years ago. 

As a former state legislator and member of NCOIL, I have been 

one of the strongest proponents for the NAIC and its efforts. As we 

have demonstrated through the 14 hearings in this committee over 

the past 3 years and the numerous hearings held previously in the 

old Commerce and Banking Committees, the States cannot get the 

job done by themselves. 

The collective action barrier to getting 56 state legislatures and 

regulators to act in complete unison is—and will always be—insurmountable absent congressional legislation. 

Representatives Kelly, Chairman Baker and other senior members of this committee and I worked together during the GrammLeach-Bliley legislation to establish what is now referred to as 

NARAB, a targeted, State-based reform proposal enacted into law 

that required a majority of states to adopt reciprocal or uniform licensing regulations. 

5

NARAB has been an enormous success. And all but a handful of 

states have met the goal. 

Agents can now become licensed and sell insurance to their customers nationwide, generally within 1 to 3 months, with greatly reduced red tap and cost. In contrast, company licensing takes a majority of the States over 6 months to review, with 17 percent of the 

States, according to one study, requiring more than 2 years to complete their reviews. 

While the NAIC has tried to create a uniform application form 

and coordinated process for company licensing, without a congressional mandate, the effort suffers from incomplete participation, 

numerous deviations and unenforced deadlines. We can do a lot 

better. 

The success of NARAB can be a model for bringing the States 

closer to fulfilling their own goals. After 3 years and 14 hearings, 

we need to move from oversight to building legislation. 

We are just beginning this process. Chairman Baker and I have 

offered some goals and general concepts for reform. But these are 

intended to be a starting point for discussion. 

We want to strongly encourage members on both sides of the 

aisle and our witnesses here today to fully participate and provide 

input in this early stage of working through a legislative approach. 

It will not be easy. We have a few issues, such as the role of a 

state-federal partnership to coordinate uniform insurance policy, 

that still need to be worked out. 

But we have the opportunity, like President Csiszar and Commissioner Serio, to demonstrate a commitment to leadership and 

accomplish something meaningful and lasting for consumers. I 

hope that you will all join us in this effort and that we do not have 

to wait another 133 years. 

I yield back. 

[The prepared statement of Hon. Michael G. Oxley can be found 

on page 74 in the appendix.] 

Chairman BAKER. Thank the chair for his leadership on this 

issue and for his continuing interest in seeing reform move forward. And the Capital Markets Subcommittee, Mr. Chairman, has 

actually had 14 meetings in the last couple of years. Ms. Kelly’s 

work has been in addition to that, as well. 

So the committee should be fully versed on the controversy at 

hand. I thank the chair for his participation. 

Mr. Scott? 

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

Chairman Baker, Ranking Member Kanjorski, Chairman Oxley, 

I thank you for holding this important hearing today regarding the 

effectiveness and efficiency of state insurance regulation. I also 

want to thank the distinguished panel of witnesses we have before 

us today for your testimony on this important subject. 

While I have not yet seen evidence for the need to create a federal insurance regulator, I understand that efforts to streamline insurance regulation by the States have, indeed, been slow in development. However, since Chairman Oxley and Baker have announced that they are not considering an optional federal charter 

in the road map for insurance regulation and modernization, I am 

6

interested in understanding what targeted areas of reform can be 

considered for streamlined regulation. 

This committee must balance reforms between streamlined regulations for businesses with consumer protections. I believe that 

state insurance regulators best know how to respond to consumer 

complaints. 

For example, in my own home state of Georgia, our insurance 

commissioner, John Oxendine, has helped tens of thousands of 

Georgia consumers address complaints about their insurance providers. These actions have resulted in over $20 million being returned to those consumers in 2003. 

Consumers can call Commissioner Oxendine’s Division of Consumer Services from 8:00 a.m. to 7:00 p.m., Monday through Friday. The commissioner also sends field representatives to each of 

Georgia’s 159 counties at least once a month. I cannot imagine a 

national regulator being able to provide for a local connection or as 

much access to consumer advocates or investigators. 

Today, I look forward to hearing from our panel about practical 

recommendations to earnestly begin streamlining insurance reform 

between the States. 

Thank you, Mr. Chairman. 

Chairman BAKER. I thank the gentleman. 

Mr. Shays? 

Mr. SHAYS. Thank you, Mr. Chairman. Thirty-second comments 

to say: one, very important hearing; two, I know you have done and 

others have done a tremendous amount of work on this issue. 

I have an open mind about what needs to happen. But I will be 

looking at these types of issues. I want to see more competition and 

more choices. 

I would like to see uniformity. I would like to see it easier to 

enter into the marketplace. And however that can be accomplished, 

I will be supportive. 

Thank you. 

Chairman BAKER. I thank the gentleman for his statement. 

Mr. Lucas? 

Mr. LUCAS OF KENTUCKY. Mr. Chairman, let us let the hearings 

begin. 

Chairman BAKER. Thank the gentleman very much for his astute 

insight. 

Ms. Kelly? 

Mrs. KELLY. I want to thank Chairman Baker for holding the 

hearing. The hearings that the chairman mentioned, we found 

many strengths and many weaknesses with the current regulatory 

system. So it is clear that improvements of some sort need to be 

made. 

There are advantages to the State regulatory system. There is a 

regulatory expertise that currently exists at the State level. And in 

addition to that, the States are sometimes more responsive to the 

needs of the local marketplace and the local consumers. 

The committee has located, though, many areas that really need 

improvement. One is speed to market for the new products. Market 

conduct reviews are sometimes exhaustive and duplicative. 

Price controls are well intended, but sometimes ill-advised and 

reduce availability in certain markets. The states are still not able 

7

to achieve nationwide agent licensing reciprocity that we ask for in 

NARAB. 

We are close. But we need the rest of the States into NARAB. 

The insurance commissioners and companies, consumer groups, 

agents, brokers—we have had a lot of witnesses here. And they 

have all agreed that there is a need to modernize the current regulatory system. 

I think we need to consider reforms to reflect the marketplace 

changes and allow the institutions to better serve our customers. 

The greater focus on improving regulation was promising when we 

passed Gramm-Leach-Bliley. 

But the ideas have only gotten us so far. And I think the American people are in a position now where they really expect and deserve some action on our part. 

It is clear that the NAIC will continue to struggle with many of 

the programs. Unfortunately, consumers continue to suffer because 

the State legislatures fail to act on the good ideas of both the NAIC 

and the NCOIL. 

It is clear that the time has come, that we have to have some 

new federal legislation to help the States modernize their own insurance regulation. We need consistency. We need an ease for the 

people in the business to reach their customers. And we need an 

ease for the customers to understand what is going on. 

Prior to NARAB, the States had been trying to get some kind of 

a reciprocity with licensing for years. And as the chairman pointed 

out, the insurance industry itself recommended that that happened 

way back in the 1870s. 

So the success on NARAB is only going to come if we get all of 

the States in. We have to build on that model in other areas of 

state insurance regulation. And we have to help the NAIC get their 

goal of more efficient and more effective regulation. 

I look forward to our witnesses today. And I commend Chairman 

Oxley and Subcommittee Chairman Baker for a lot of hard work 

and leadership on these issues. 

Thank you, Mr. Chairman. 

Chairman BAKER. I thank the gentlelady for her statement. 

Mr. Sherman? 

Mr. SHERMAN. Thank you, Mr. Chairman. As an old tax commissioner, I am thrilled that we are joined today by my distinguished 

friend from North Dakota, Mr. Pomeroy, a former state insurance 

commissioner. And if his interest in insurance is such that he 

would like to switch committees, we will talk. 

[Laughter.] 

Mr. Chairman, it seems to me that there are at least four different areas that are grouped together as insurance regulation. The 

first is getting a product approved so that we know that that product, contract or form is in the best interest of consumers. 

The second is the safety and soundness of the company, so that 

those who are insured know that they will be paid. And that involves both the auditing process and setting standards. 

The third is dealing with consumer complaints against an individual company, dealing with how a particular consumer is being 

treated. 

8

Then the fourth, as the chairman of the full committee mentioned, is professional licensing and enforcement, dealing with the 

individual agents and brokers. And as the chair pointed out, that 

is an area where we have had some success. 

It appears to me that it is only in the first category that I am 

told that we really have problems; and that is, getting a product 

to market. It will be interesting to go through these hearings and 

see whether there are problems in other areas. 

I would hope that, whether it be a federal bureaucracy or better 

coordination of the State bureaucracies, that we will be able to get 

products to market quickly so that consumers will have the maximum choice and that choice will be relevant to their needs at the 

time. 

I yield back. 

Chairman BAKER. I thank the gentleman. 

Mr. Royce, did you have a statement? 

Mr. ROYCE. Thank you, Mr. Chairman. I want to just take a moment and commend you and also Chairman Oxley for your leadership on this issue. 

Consumers, I think, of insurance products are going to benefit 

from more efficient regulation. And it is clear to me that the leadership of this committee is trying to help the marketplace for the 

better. 

But I also have a parochial perspective on this. I am very deeply 

troubled by the insurance regulatory environment that we have in 

my home state of California. And I would just like to share with 

you, Mr. Chairman, the homeowners’ insurance market as an example. 

The regulatory environment in California, in my view, would 

make the old socialist, East Bloc, command and control planners 

proud. Because we have ended up in a situation in California 

where we have the largest marketplace in the United States. And 

yet, California homeowners pay some of the highest premiums in 

the United States. 

I think our experience has been that insurance firms are more 

likely to leave than to expand their businesses in California. And 

that is because of the price control-based regulatory regime that we 

have there. 

And this means that a bad situation in California has the potential to get worse. 

Now California has the largest economy of any state. And it is 

frankly one of the largest economies in the world. 

And I think this committee and this Congress should be deeply 

concerned about the negative economic effects of California’s price 

controls, as well as their limits on new product innovation. But 

there is also the global perspective on this because our Byzantine 

insurance regulatory policy is deterring foreign capital from entering our own markets. 

Effectively, if you are an overseas firm and you are looking to do 

business in the United States, you are not entering one market. 

You are entering 50 markets. And for this reason, our trade negotiators, when they go in to trade or to negotiate to open up markets 

overseas, they run into resistance every time they attempt to exVerDate 0ct 09 2002 15:08 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 G:\DOCS\95011.TXT FIN1 PsN: MICAH
9

pand markets for U.S. financial services products abroad because 

the response is, ‘‘Well, you have 50 markets in the United States.’’

So I am a strong supporter of increasing efficiency in our insurance marketplace. I think consumers will be the greatest beneficiaries. But our economy is also going to benefit as a result of 

that. 

And the last point I would like to make is that enforcement has 

to go hand-in-hand with reform; otherwise, any positive legislative 

package will not be implemented in a number of states. 

And again, I thank the chairman for his leadership. And I yield 

back. 

Chairman BAKER. I thank the gentleman. 

Mr. Emanuel, did you have a statement? 

Mr. EMANUEL. I am just going to second Mr. Lucas’ recommendation. 

Chairman BAKER. Terrific. 

Mr. Bachus? Mr. Bachus, did you have a statement, sir? 

Mr. BACHUS. Yes, thank you, Mr. Chairman. 

And I thank you for holding this hearing. I think this is an important legislative hearing to discuss your Baker-Oxley State-based 

insurance regulatory concepts, to make state insurance regulation 

more efficient. 

These proposals go a long way to expedite a variety of insurance 

products to consumers and lower the cost of insurance premiums 

for small businesses. So I commend you and Chairman Oxley. 

As you know, Chairman Baker, Walter Bell, our Alabama insurance commissioner, was appointed by Commission Csiszar. And he 

is one of our witnesses today. He was appointed to chair the 

NAIC’s Speed to Market Task Force. 

And the task force addresses one of the major issues that you are 

addressing in the Oxley-Baker reform concept; and that is product 

approval. They have met regularly. And I believe they are making 

progress toward the goal of national standards in this area. 

And I for one would advocate giving them the opportunity to do 

this and would hope that they would continue to make substantial 

progress. 

In addition, Mr. Chairman, I want to thank you for your commitment to try to modernize and uniform reinsurance regulation. As 

you know, the U.S. reinsurance industry competes on a global 

basis. Reinsurers are sophisticated entities. And they are disadvantaged when trying to compete on a world stage without uniform 

regulation across all 50 states. 

I look forward to working with you on identifying areas that will 

allow the reinsurance community to compete more effectively on a 

global basis. 

And lastly, I want to take the opportunity to include testimony 

from the National Association of Insurance and Financial Advisors 

for the record and would like to do that. 

Chairman BAKER. Without objection. 

[The following information can be found on page 177 in the appendix.] 

Mr. BACHUS. Thank you. 

Thank you, Mr. Chairman, again for holding the hearing. I look 

forward to hearing from the witnesses. 

10

Chairman BAKER. I thank the gentleman. 

Ms. McCarthy, did you have a statement? 

Mrs. MCCARTHY OF NEW YORK. Thank you, Mr. Chairman. I will 

hand in my statement. But I do want to welcome Mr. Serio, who 

originally came from West Hempstead, which is in my district, and 

has a great deal of respect in New York. 

So I appreciate you being here. And I am looking forward to your 

testimony. 

Chairman BAKER. Thank the gentlelady. 

Mr. Castle? 

Mr. CASTLE. Thank you, Mr. Chairman. I have no statement. I 

look forward to hearing the witnesses. 

Chairman BAKER. Thank you, sir. 

Mr. Inslee? 

Mr. INSLEE. Just want to welcome our friend, Mike Kreidler, who 

has become even wiser after leaving Congress. 

[Laughter.] 

Chairman BAKER. Ms. Biggert, did you have a statement this 

morning? 

Mrs. BIGGERT. Yes, thank you, Chairman Baker. And thank you 

for holding this series of hearings on insurance regulation. I think 

the thoughtful and deliberate hearings that are being held by the 

subcommittee will more than adequately prepare us for any future 

course of action that we will be taking. 

I did want to thank one of my colleagues from Illinois, Dr. Phil 

O’Connor, for coming to testify today. He served as our Illinois insurance commissioner for 3 years and for another two as its research director. 

He has a wealth of experience in this and many other policy 

fields. And we did work together on several commissions while I 

served in the Illinois General Assembly. So I am delighted that he 

is here. 

I do want to take a moment to point out this morning that I believe the open market system for insurance in my home state of Illinois is an example of a system that works well—not just for regulators, not just for insurers, but most importantly, for the consumer. 

I understand concerns that some of my colleagues may have 

about a change from a prior approval to an open market system. 

But let’s look at what this system has produced. Illinois has a very 

small residual market and significantly more auto and homeowners 

insurers competing for business than states with stringent price 

regulation. 

Illinois attracts the largest share of operating property and casualty companies of any state in the nation. And that is good for 

consumers. 

The premiums and loss ratios in Illinois are well below most 

other states with large populations, high traffic density and urban 

concentrations. With no rate controls, regulatory resources have 

been freed up in Illinois, allowing state regulators to initiate other 

innovative safeguards, such as early warning systems and computerized market conduct exams. 

An open market system does not mean a wild or unfettered system; quite the contrary. The Illinois Department of Insurance has 

11

oversight authority and is required to monitor the marketplace and 

report to the General Assembly. 

The department plays an important role. But it does not determine rates. Rates are driven by economic demands, not politics. 

There are numerous stringent consumer protections in place as 

well. The benefits of an open market system have been recognized 

by consumers in Illinois for 30 years, which is why no one has ever 

tried to change the rate system. 

Some of my colleagues may believe that price controls magically 

lower prices below competitive market levels, while at the same 

time stimulate an adequate supply of coverage. To me, this is just 

a myth. 

We have seen the reality of price controls in markets like those 

in New Jersey. A large number of insurers pulled out of New Jersey entirely, citing the unique burdens posed by the State’s auto insurance regulatory system. 

A regulatory system that drives insurers out of the market is not 

an ideal regulatory system. An open market system like that in Illinois, in my view, is closer to the ideal. 

So putting all parochial interests and personal bias aside, I can 

objectively state that Illinois has one—if not the most—efficient 

systems in the country. Illinois has delivered more choice, better 

prices and a stable market to consumers. 

So the open market competition works in Illinois and has worked 

very well for 30 years. My hope is that Illinois can serve as a model 

for other states that want to serve consumers better. 

I look forward to the testimony of Dr. O’Connor. 

And thank you, Mr. Chairman. Yield back. 

Chairman BAKER. I thank the gentlelady for her statement. 

The committee has the pleasure today of having two ringers. On 

the Democrat side, we have the former insurance commissioner, obviously knowledgeable in matters of insurance and is expressing 

today his deep interest in the subject by attending our hearing. 

Welcome, Mr. Pomeroy. Would you care to make an opening 

statement? 

Mr. POMEROY. Mr. Chairman, thank you for allowing me to attend. I look forward to hearing from the witnesses and I will have 

some thoughts on this matter that I would like to share with the 

committee at a later time. 

But I commend you and Chairman Oxley and Ranking Member 

Kanjorski for advancing this issue in a very thoughtful and substantive way. I remember being on the witness side of the table in 

the room when I thought the topic of federal regulation was being 

advanced in a less thoughtful way. I appreciate the way this issue 

is proceeding, and I thank you for allowing me to participate. 

Chairman BAKER. I thank the gentleman for his interest and 

participation. 

And on the Republican side, we have a member of Financial 

Services, but not on this subcommittee. We welcome the gentleman 

from Texas, Mr. Hensarling. Would you care to make an opening 

statement, sir? 

Mr. HENSARLING. Yes, thank you, Mr. Chairman. And thank you 

for allowing me to attend. 

12

The title of this hearing is ‘‘Increasing Insurance Choices for 

Consumers.’’ As a former student of economics and a small businessman, I understand that when we are talking about increasing 

choices for consumers, we must of course discuss decreasing the 

regulatory burden on businesses. 

The best and most effective consumer protection will always be 

a competitive marketplace. And I believe this committee and Congress can play an important role in ensuring that American consumers have access to the most affordable and most varied insurance products available. 

Now I do not trust any single company to make their products 

affordable and varied. And I do not trust any particular industry 

to make their products affordable and varied. 

I do, however, trust competition in the marketplace to do just 

that. One only has to look at history to show the possibilities that 

exist by stripping away excess regulation. 

When Congress decided to deregulate the airline industry in 

1978, the number of cities served by more than one airline increased by 55 percent. And service was extended to more than 140 

additional airports. The impact on airline travelers was estimated 

at $11 billion in savings. 

When Congress deregulated the trucking industry in 1980, the 

number of carriers doubled, while rates for small shipments decreased by approximately 25 percent. 

From airlines to trucking to natural gas—and the list goes on—

history has shown us that deregulation can bring down real 

prices—by 25, 30, even 40 percent over time. Thus, history also 

shows us, in order to get to a point of effective competition in the 

insurance industry, we must carefully examine what has been inhibiting choice and driving up costs for consumers. 

I believe the most important factors have been the price controls 

and the large, expensive regulatory burden imposed on the insurance industry by many state governments. The sooner we can move 

to a more competitive market-based system, where financially 

sound companies have low barriers of entry and are free to compete 

with minimal interference, the better off consumers will be. 

I happen to be a homeowner from Texas, the State that the Census Bureau deemed in their last survey to have the highest average 

premium for homeowner’s insurance in the nation. Thus, I understand the negative impact price controls can have on competition 

and how this can ultimately adversely affect the consumer. 

My constituents in Texas are paying, on average, more than double for their homeowner’s insurance than what consumers pay in 

states with limited or no price controls. And they frequently contact 

me and ask me to help do something to help them find more options for cheaper insurance products. 

Recent studies have shown that consumers living in states with 

minimal or no price controls pay significantly less for most types 

of insurance than do consumers residing in states with significant 

price controls. 

I look forward to working with you, Chairman Baker and Chairman Oxley, to address the problems that price controls and other 

government-imposed regulations have had on the insurance indusVerDate 0ct 09 2002 15:08 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\DOCS\95011.TXT FIN1 PsN: MICAH
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try and the availability of affordable insurance products for consumers. 

I thank the chairman and yield back. 

Chairman BAKER. I thank the gentleman for his statement and 

for his interest in the matter and giving his time today to the committee. 

Is there any member wishing a further opening statement? 

If not, Mr. Kanjorski wishes recognition for a unanimous consent. 

Mr. Kanjorski? 

Mr. KANJORSKI. Mr. Chairman, it seems like insurance—or 

former insurance—commissioners are falling out of the woodwork. 

But I would like to offer for the record a statement from the former 

state insurance commissioner of Nebraska and now the outstanding Senator from Nebraska, Ben Nelson, for purposes of insertion into the record. 

[The following information can be found on page 187 in the appendix.] 

Chairman BAKER. Without objection, so ordered. 

I thank the gentleman. 

At this time, we would wish to proceed to our distinguished 

panel of witnesses. I have a deep appreciation for the difficulty of 

the task each of you have undertaken and want to express my true 

appreciation for the level of work and effort committed to trying to 

resolve the concerns that many have outlined this morning in their 

opening statement. 

I do believe we have made significant progress. I believe we are 

on the verge of adopting legislation, which all stakeholders can 

view as being very constructive and moving in an appropriate direction for the consumers we all serve. 

Director Csiszar from the South Carolina Department of Insurance has been steadfast and continued in his leadership. I have 

great regard for your work. 

I also want to welcome the other two gentlemen to the table this 

morning. Before I proceed though, I think Ms. Kelly from New 

York has a word she would like to offer at this time. 

Ms. Kelly? 

Mrs. KELLY. My word to offer is that it is a great pleasure to 

have Greg Serio back with us. He is the superintendent of insurance from the great State of New York. 

Greg was confirmed as New York’s 39th superintendent back on 

May 9, 2001. He served 6 years prior to that as first deputy superintendent and general counsel of the department for 3 years. 

In addition to being a very well respected member of the NAIC 

where he serves in a leadership capacity, Superintendent Serio is 

a good friend. And we feel he is a great asset for the State of New 

York. 

It is a pleasure to see you here today, sir. And I look forward to 

hearing from you. 

Thank you, Mr. Chairman. 

Chairman BAKER. Thank you, Ms. Kelly. 

And also to introduce to the committee formally Mr. Mike Kreidler, from Washington State, who is also a former member. I wish 

to extend our welcome to you today, sir. 

14

Today, Mr. Csiszar appears not in his capacity as the director of 

insurance of South Carolina, but in his capacity as spokesperson 

for the National Association of Insurance Commissioners. Please 

proceed at your leisure. Your formal statement will be made part 

of the record. 

STATEMENT OF ERNST CSISZAR, DIRECTOR, SOUTH CAROLINA DEPARTMENT OF INSURANCE, ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS 

Mr. CSISZAR. Thank you, Mr. Chairman. It is indeed a pleasure 

for me and my colleagues—Mike and Greg—to appear before you 

this morning. 

And I can without any hesitation begin this statement by affirming to you that not only are we desirous to become partners in this 

process, to offer our expertise to the committee in this process. We 

are eager to do so. 

We are eager to participate as we move forward from what you 

have generously shared with us, this conceptual framework that we 

currently have in front of us, and moving from that conceptual 

framework to a more detailed legislative kind of agenda. 

So I want to restate and reaffirm the fact that we are also of an 

open mind. We have a good deal of expertise that I think—all of 

us and the committee members in particular, we offer it to them—

that will help in this process. 

We are by nature problem solvers when we deal with our constituents. And we know we have some problems in this regulatory 

system. And we know, as commissioners, as much as you as members of the committee realize, that reform is needed. 

We are of course particularly pleased that the framework for this 

reform is not a dual charter of an optional or non-optional type. We 

are pleased to see that this is the so-called ‘‘federal tools’’ approach. 

And while we are really in no position to comment on the details, 

because it is all conceptual at this point, as I said, we are very 

eager to be at the table and to work with you in developing these 

concepts, flushing out these concepts into what will eventually, presumably, be legislation. 

I think the spotlight that this committee, through its hearings, 

has brought to the issue has been good. I think it has instilled a 

sense of urgency amongst commissioners, as well as amongst others who have an interest in this, such as our legislatures and our 

governors. 

And I think we welcome just that very process. The congressional 

oversight, I think, is always welcome. And we are eager, as I said, 

to continue with this process. 

Now let me just review very briefly—I know some of you have 

heard many of these things before—but let me just reaffirm and review briefly what is in progress at the NAIC and why we think 

that a State-based system of regulation is, indeed, better than any 

other form of regulation if the State-based regulation can indeed be 

reformed with the vision, with the concepts that we have in front 

of us. 

We have not been, as you know, standing still in the years since 

Gramm-Leach-Bliley. On the speed to market, which Mr. Bachus so 

15

kindly mentioned, yes, Walter Bell is indeed in charge. We have a 

very aggressive agenda. 

We have the interstate compact. It is three different issues really: the interstate compact and the implementation of that compact 

in the States; the development and implementation of standards 

for the product to go through that compact as the single point of 

entry; and then of course our electronic filing system, which is an 

integral part of this as well. 

Let me just briefly give you some updated numbers. As you 

know, the interstate compact has been endorsed both by NCOIL, 

the National Conference of Insurance Legislators, as well as by 

NCSL, the Conference of State Legislators. 

Roughly 20 jurisdictions are looking at introducing that compact 

in their legislative sessions. Two of them have actually passed it—

Colorado and Utah. I understand there are two more—Virginia and 

West Virginia—where the legislation is sitting on the governor’s 

desk, but has not been signed yet. 

We are aggressively pursuing the introduction of that compact 

this year and in the year to come. Very personally, I can tell you 

in South Carolina, we are going to be introducing that compact in 

the coming legislative session. 

As regards standards, this is again key. The compact is nothing 

but a skeleton unless you have those standards that apply to the 

particular products. 

We have identified 24 different product categories. These 24 

product categories are working their way through this group headed by Walter Bell. Our timetable is that by our December meeting 

this year—which will be in wonderful Louisiana, in New Orleans—

by New Orleans, we are going to have those standards in place. 

They will, in essence, flush out the interstate compact. And between the two, there you have your single point of entry. There you 

have your uniformity and, as I said, aggressively pursue that compact for adoption. 

On SERFF, by the way, I can only report that our filings have 

tripled this year. In fact, in 2004, we expect somewhere around 

140,000 to 150,000 filings to come through that electronic system. 

The average turnaround date on those, by the way, is 17 days. 

So I think we have made very, very good progress. And I can assure you, we will continue to make good progress by year end. 

As regards company approval, we have our alert system. We are 

continuing to work on making that system more user-friendly and 

developing a more uniform approach to certificates of authority. 

And I think we have made good progress. 

And again, by year-end, I expect to report back to you that we 

are in good shape on company approval. 

On the NARAB issues, here actually you have a clear example 

where the licensing of agents and brokers is an area where there 

is in fact some federal help needed. Here is a case where a good 

many of the difficulties we have had in moving from reciprocity or 

even inter-reciprocity and from reciprocity to uniformity, where a 

good deal of the difficulty has arisen because of our inability to tap 

into the FBI database. 

16

Here is clearly a case where Congress, I think, can help us overcome that. And we will be, I can assure you, in step with you in 

making progress towards uniformity in this area. 

On market conduct, we have most recently proceeded to implement a handbook that is now a standard procedure for market conduct. That has always been one of the problems that different 

states did things different procedurally, not just substantively. 

We are implementing an analysis process. This analysis process 

will be uniform. We are collaborating between states. 

While there is no resolution to this issue, we are actively looking 

at how the new NCOIL model in market conduct overlaps with our 

work and to what extent we can make ourselves run in parallel 

with the NCOIL mode. That is currently under consideration. I 

cannot report to you a final result yet. But I can assure you, again, 

that we are making progress in this area. 

On the financial side, we realize that on the financial side, which 

is the crown jewel of what we do, the solvency issues, we know that 

reform is needed there. We know that we can update, for instance, 

our risk-based capital figure. We know that we need to move from 

the traditional post-review, looking back for 3 or 4 or 5 years to a 

forecasting approach, to a risk-assessment approach, if you will. 

Kevin McCarthy, who is the commissioner in Florida, he and 

Tom Gallagher are chairing that group. And we are very, very actively making good progress in that area, even on the rating issue, 

the personal lines rating issue, which is clearly the most contentious issue, I think. 

This whole notion of where competition fits in all of this, even 

here I can report to you that 36 states actually have competitive 

rating models in place. Fifteen states, however, have a very strict 

prior approval process. 

But that is a contentious issue, has been a contentious issue for 

the last 100 years and continues to be one today. And it is good 

to keep in mind that on those issues, Mr. Chairman, we also, regardless of what we as commissioners may think, we also have 

other constituents to deal with, ranging anywhere from our legislature to our governor to the attorneys general. And in some states, 

the trial bar has also actively become involved on issues of that 

kind. 

I might also point out that even though we realize that significant reforms are needed, the system has actually worked fairly 

well. I think it is interesting to note that we have not had the same 

kinds of problems that we have seen with Tyco and Enron and the 

others, where directors, auditors, bankers, executives have compromised themselves really through self-dealing, sometimes to the 

point of criminal activity. 

We have not seen that kind of activity in the insurance industry. 

And I think in many ways state regulation, because it is closer to 

the market, it is closer to the consumer, to some extent, at least, 

I think we can attribute that result to the effectiveness of state 

regulation. 

So in summary, rather than going into details, I will leave it 

open to questions, but in summary, we are with you. We want to 

be at the table. We will help you. We offer our expertise to you. 

17

Please take advantage of it. And we will walk step in step with 

you as we make progress in this entire process, in this entire federal tools approach. 

So that is where we stand. Mike and Greg, I think, want to make 

some brief comments. And I will stop with that. 

[The prepared statement of Ernst Csiszar can be found on page 

100 in the appendix.] 

Chairman BAKER. Please proceed as you choose. 

STATEMENT OF MIKE KREIDLER, WASHINGTON STATE 

INSURANCE COMMISSIONER 

Mr. KREIDLER. Thank you, Mr. Chairman. I come in part here 

because I think I reflect the diversity of what we see in membership of the NAIC. I think it represents the diversity that you have 

in the Congress, you will also find diversity among the commissioners across this country of ours. 

As I look at it, I come from a slightly different perspective. I 

come from a perspective of not being somebody that has spent their 

life working in the insurance industry or as a regulator. 

And I think I can stand back and look at it from much the same 

perspective of many of the members who had the opportunity to 

serve in their state legislatures and view what took place in insurance regulation and the role that states play and then also to take 

a look at it from the perspective of the problems and challenges 

that we face. 

No one is saying that there are not problems and changes that 

are necessary and we agree that there are places where the Congress can effectively assist as we go forward in making changes in 

the system. I would however point out that there are areas where 

the need is more acute, from the standpoint of the nature of the 

products then in other areas. The areas that have been identified 

by the committee certainly are very much recognized by members 

of the National Association of Insurance Commissioners, are in life 

insurance products. These very much are products that need a 

standardization and a uniformity. 

I am proud of the success that we have shown and are exhibiting 

in the area of an interstate compact. We also have three states currently that are in the process of beginning the process of accepting 

applications through a memorandum of understanding. And they 

are three of the largest states that we have. 

I would believe that we will wind up having one uniform system 

for those particular types of products. And we are moving aggressively in that direction. 

I would commend the committee for helping to put pressure, so 

to speak, on the insurance regulators to recognize that these 

changes are necessary and needed. There are always going to be 

forces that would like to go slower rather than faster, that change 

sometimes comes hard. 

But the pressure that we feel and the changes that we are bringing about are ones that are very consistent with what you have 

heard before this committee and what we feel as insurance regulators. 

One area where I am particularly concerned as we approach this 

tools list of various items is: where do the consumers fit into this 

18

equation? I really do believe that the issues related to consumer 

protection are of an acute nature. 

Let me give you some idea. We had over 200,000 contacts with 

my office in the last year from consumers. We have over 700 cases 

that we are currently working with consumers. 

This is an issue where you have a promise by insurance companies to fulfill an obligation that is very different from that of financial services associated with banking. They are changes that need 

to be approached cautiously. 

When we get into some of these areas that we have before us 

right now in the area of property and casualty, for example, whether it is homeowner’s insurance of automobile insurance, there is a 

great deal of difference between the States—whether it be their 

tort laws or whether it be because of the kind of urban versus rural 

distribution; whether it be because of any number of factors that 

cause the rates to be very different from one locale to another. 

In the area of commercial forms in commercial insurance, I think 

there are some changes that you could help us with. One of the 

challenges that we face right now is getting some of the agents that 

are independent agents in the State of Washington comfortable 

with deregulation. For example, striking a balance of their needs 

with the larger agents and brokers and the companies, is being 

able to strike that bargain as to where does the consumer need protection? And where does an unregulated market take effect? 

States would like to go further, but frequently run into resistance 

because there is a bit of a provincialism here of trying to keep that 

standard too high. I think that is one place where you could essentially further help us to address that problem by pushing on that 

issue. But again, do not push it too low. 

If you are a business that does not have a professional risk manager on staff, you are not going to be in a position to go into a market that is unregulated and be able to make the sophisticated 

choices. You are much more like the homeowner or the automobile 

insurer that is going to be concerned about what your product has 

and you do not have the sophistication to make a determination. 

So that threshold of deregulation is important to us. 

When it comes to the issues related to agent licensing, Commissioner Csiszar pointed it out. One of the problems that we face 

there when it comes to agent licensing is that there has been resistance here at the national level to do what we have done in the 

State of Washington for years, which is to give the insurance regulator the authority to take a look at the FBI database. 

In fact, our independent agents aggressively supported to make 

sure, when the FBI came through and we questioned whether we 

had direct statutory authority in the State of Washington to access 

that database, they actively supported us doing so. I can tell you 

right now that there are out-of-state licenses that have been requested in the State of Washington where you have individuals 

with felony convictions in the financial services area that are 

agents in good standing in some states and we quite frankly would 

not like to see them doing business in our state. 

You could help us by making sure that all states have that kind 

of access and are doing that kind of FBI fingerprint check on every 

individual who does business in their state. 

19

These are some places where you can assist us in doing those 

changes. I would urge caution in the breadth of what is outlined 

right now in the tools, in no small part because of its impact on 

consumer protection. 

What may be good for the companies may not be good for the 

consumers. And consumers need a seat at this table that is very 

strong and making sure that their rights are adequately protected. 

Thank you, Mr. Chairman. 

Chairman BAKER. Thank you very much. 

Superintendent Serio? 

STATEMENT OF GREGORY SERIO, SUPERINTENDENT, NEW 

YORK STATE INSURANCE DEPARTMENT 

Mr. SERIO. Good morning, Mr. Chairman. And thank you for having us again. 

Mr. Kanjorski—and thank you to Ms. Kelly and Ms. McCarthy 

for the kind introductions earlier. 

Let me take a perspective that one of your members took a few 

minutes ago and amplify that just for a minute; and that is on: 

what is the end goal of the modernization? We want competition 

in the marketplace. And I think we share that with you. 

We want consumer protection, as Commissioner Kreidler indicated. We want that. And I think we all share that issue as well. 

Just to give you a context that this is the right thing to be working on and focusing on, in terms of modernization of the insurance 

regulatory system, the activities that we have already undertaken, 

both in partnership with the Congress, as well as individually 

through the NAIC, have yielded those kinds of consumer protections that we are all benefiting from right now. And this is a context. And this is an objective that I think we are trying to keep in 

mind as we go forward, working with you, on the concepts of the 

design and on the design of the details of your conceptual draft. 

And that is that in New York and in other states, we have been 

able to retask a lot of our insurance resources—scarce state resources. And everybody knows the difficulties the States are having 

with respect to their budgets. 

But by taking on the modernization initiative, largely at the impetus of the House Financial Services Committee in the GrammLeach-Bliley bill a few years ago, and then taking on that with the 

Statement of intent with the NAIC an the restatement that we 

issued last year, we have been able to make firm inroads into 

added consumer protections by retasking. 

A lot of our human resources at the department, our staffs that 

used to open up envelopes, handle paper, take phone calls, as opposed to the types of modernizations that we have been able to do, 

leveraging technology, leveraging uniformity between the States 

and really making it a more efficient system, we have been able to 

retask those resources into added consumer service representatives, into added frauds investigators, into added and real-time financial surveillance. 

There is an end result here that I think sometimes we miss as 

we talk about the details and getting through the devils of the details and things of that nature; and that is that is a laudable objective that we subscribe to entirely. Because we, as the managers of 

20

the 51 or 54 state regulatory insurance agencies and in the District 

of Columbia and in Puerto Rico and the Virgin Islands, we know 

the need to retask and reuse and retool our existing agencies to 

make them better at what we are asked to do—and that is, protect 

the consumers and do better in the job of financial surveillance, 

real-time, market monitoring to make sure that those things that 

have been filed are being used the way they are supposed to be in 

the marketplace. 

This is one of the things we have already found by the activities 

we have undertaken at the NAIC, by the uniformity and the reciprocity that NARAB really pushed us to do. And I am very pleased 

and probably would not have been asked to come if New York had 

not passed a producer licensing bill, as we did last year. That is 

having real tangible benefits. 

So as we go forward, and as we create the balance between what 

is good for the companies, good for the consumers, let’s realize at 

the end of the day that this is also good for the efficacy of the regulatory process because it is allowing us to put our resources where 

they need to be the most, in terms of protecting those consumers. 

Thank you. 

Chairman BAKER. Thank you very much. 

Commissioner Csiszar, as Superintendent Serio was just outlining in his New York case, where the transition from prior regulatory structure to a more streamlined structure had a couple of 

benefits to his constituency. Viewing the South Carolina experience, having gone through the regulatory modifications from your 

view, it appears that there are two different distinguishable 

changes that have occurred. And I would like you to speak to those. 

On the one hand, it seems as though more product is now available for consumers and that the competitive market results in better pricing opportunities for consumers, which is the direct goal we 

hope would occur. But along the line of limited state resources, it 

would seem that getting your staff out of a stricter regulatory oversight posture with regard to, say, product approvals and shifting 

those individuals over to enforcement is the real secondary benefit 

because it enables you to do the real consumer protection advocacy 

that you might have had more limited resources in the prior model. 

Are either or both of those observations accurate? 

Mr. CSISZAR. Well, let me speak first of all as the commissioner 

of South Carolina in responding to that. Clearly, in South Carolina, 

we reached the realization that our market is not the same as the 

California market, for instance. 

Companies do not trip over themselves to write in South Carolina; not least because we are a rounding error on an income statement or a balance sheet. So we realized that we had to do something different if we wanted to make our market more attractive. 

And the route we chose, the route the legislature chose—it was 

not me. The legislature chose the route of, in essence, moving from 

a prior approval to what is nothing more than a rate man system 

on the automobile side. And we are trying to replicate that on the 

homeowner’s side this year by actually going through a transition 

from rate man’s into a file and use or use and file system. 

Now having said that, a California market may very well be different because if you are a company—a large company in parVerDate 0ct 09 2002 15:08 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 G:\DOCS\95011.TXT FIN1 PsN: MICAH
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ticular—you probably cannot afford not to do business in California, just because of the size of the market. But certainly, what 

we have seen in South Carolina as the primary benefit is availability, affordability impact—clear availability and affordability impact. 

And the second issue, I think again, to some extent, this is driven by Gramm-Leach-Bliley. But to some extent it is also, I think, 

the realization that when you look at what is it that is essential 

about the insurance product? 

And yes, while there are many things that can be expected from 

the purchase of the product, the most fundamental thing to be expected is the payment of the claim when a claim comes due. And 

that claim may come due tomorrow or the day after the purchase 

or it may come due 25 years from now. 

So when you look at fundamentally what is it you have to do to 

protect the consumer from the standpoint of the company being 

there when that claim needs to be paid? Solvency, of course, immediately comes to mind. 

So we have managed in South Carolina to focus much more on 

solvency, number one, and at the same time also dealing with consumer complaints. Because as my colleague from Washington stated, we too in a small state like South Carolina, we had 50,000 either inquiries or complaints; 50,000 over the phone. 

And that does not count emails. And it does not count mail. 

And by the way, each one of those does get answered. They do 

not disappear into the cracks. 

So it has allowed us to really focus on those two areas. And that 

has been the benefit in an environment—a state environment—

where yes, the budget dollars are scarce these days. 

Chairman BAKER. My time is just about expired. But I want to 

do one follow up. Advocates of optional federal charter rightfully 

claim that by establishing an alternative federal mechanism for the 

marketing and sale of insurance product, you have the absolute assurance that you can operate in all states in a similar fashion. 

One of the problems in an incremental approach comes on the 

enforcement side. If you look at the fair degree of success of 

NARAB, there are still elements that have not yet come into compliance some years after its adoption. 

So it gets us to the question of if we are to seriously consider incremental, the appropriateness of some federal enforcement ability 

to ensure that states participate in a time certain. Is that, given 

the argument between optional federal charter and incremental, incremental with weaponry maybe, doesn’t that seem to make some 

sense? 

If we are really going to move the ball forward in a fixed period 

of time, to enable legislatures to act, to enable commissioners to 

conduct their review professionally, you cannot have it immediately. But after some period of time, if states have not adopted 

what generally all parties have agreed to as an appropriate method 

of conducting business, do we not have to have some enforcement 

ability in whatever we do? 

Mr. CSISZAR. Let me start by saying that from my standpoint, 

Mr. Chairman, the dual optional charter is the worst of all possible 

solutions, really. I would rather at that point say, ‘‘Let the States 

22

get out of this business and have the federal government take the 

whole thing.’’

You have all kinds of complications, from premium taxes to guarantee funds to so on. To me, the dual optional charter really is not 

the solution. 

Forget about bureaucracies now and costs and so on, just from 

a purely business standpoint. I think I am not an advocate of that 

approach at all. 

Having said that, yes clearly I think you have to make sure that 

states take this seriously and enforce it. And I can only speak 

again from my state on this one. I know when Congress speaks in 

our state or when our congressional delegation speaks, state legislatures listen and the governor listens and the attorney general listens. 

So I think the very, very fact that you are engaging in this process and maybe producing a piece of legislation will speak louder 

than anything. 

Chairman BAKER. I thank you. I appreciate your attorney general. I wish I could get another attorney general to listen, but that 

is another subject. 

Mr. Kanjorski? 

Mr. KANJORSKI. Thank you, Mr. Chairman. Following along on 

that question, Mr. Csiszar, is there any reason why, taking just life 

insurance, that it is not uniform across the country? Is there something distinctive about the people of South Carolina that they are 

different from California? 

Mr. CSISZAR. Quite frankly, Mr. Kanjorski, I think the greatest 

case, the best case for uniformity can be made by looking at life 

products. 

Mr. KANJORSKI. Okay. 

Mr. CSISZAR. There is no question about it. 

Mr. KANJORSKI. Well, let’s follow that along. I do not have the 

numbers, but you probably could tell me. What portion of the insurance business written in South Carolina—or nationally, if you 

know—is represented in the life business? 

Mr. CSISZAR. I cannot give you the figure on a national level. But 

I know in South Carolina, it would be significant, probably equal 

though with property and casualty, about 50-50 or 60-40. 

Mr. KANJORSKI. Well, it would seem to me that life experience 

in life insurance is not too dissimilar in all the States. And listening to some of the comments of my colleague before—and yours—

that really you are interested in protection of the consumer in the 

difficult areas. 

I do not imagine that there are an awful lot of people that are 

calling an insurance commissioner about their life insurance policy. 

Or am I mistaken about that? 

Mr. CSISZAR. I disagree there. I mean, for instance, we have had 

significant cases of churning, for instance, in the life industry. We 

have essentially market conduct-related types of cases. 

I would say the volume on the life side is probably no different 

than the volume on the property and casualty side. 

Mr. KANJORSKI. Okay. That is very interesting. And that is a 

good observation that I was not aware. 

23

What would you say if the Congress does nothing or if we pass 

the proposed conceptual proposal, that we do not quite know how 

it will work yet? If we just do that, when would you think that life 

insurance would be uniform throughout the 50 states? How fast do 

you think we are going to get there? 

Mr. CSISZAR. Well, I think this is where clearly we are taking the 

view that we can deliver on that issue. We can deliver. And that 

we can deliver before 2008 on that. 

Mr. KANJORSKI. Am I to understand then that it is your testimony that by 2008, regardless of where you live in the United 

States, you would be able to get a uniform policy of life insurance? 

Mr. CSISZAR. I think between the pressure that you are exerting 

on us and the effort that we are making to implement the interstate compact and the national standards, under that compact I 

think we can get it done. 

Mr. KANJORSKI. How do we resolve this question of a global market when we have our trade representative meeting around the 

world and he is representing 50 sovereign entities with most of 

them clearly smaller than most of the other nations in the world 

he is dealing with? How does it get some uniformity there in terms 

of the impact our trade representative can have on globalization? 

Mr. CSISZAR. The answer I would have there is really a question, 

Mr. Kanjorski. I will be interested to see how the expanded European Union is going to treat that very same question because they 

are the ones who have been making this argument for uniformity 

in the 50 states. 

With the expansion of the union later on this year, they are 

going to have the similar situation. In fact, our trade representatives will be empowered to ask them that same question. 

Mr. KANJORSKI. Well, I am just wondering why? I am not a person that is anxious to get to federal regulation of anything. But it 

would seem to me, from some of the past testimony that we have 

heard from particularly the life insurance companies, that there is 

sort of uniform agreement that there is nothing peculiar about this 

industry that is not national in scope and subject to a national 

standard and subject to national uniformity. 

If that is the case and as we are moving along this regulatory 

process, if we singled out the life insurance business and offered an 

optional federal charter there, why would that not have a positive 

impact for the various state commissioners, to have more resources 

to regulate the difficulties that they may have in the other categories of insurance that are more parochially related to the jurisdiction they have control over? 

Mr. CSISZAR. I think I go back, first of all, to my earlier comment 

that you do have the same kinds of problems—consumer issues, for 

instance—on the life side that will still require treatment at a local 

level, number one. Number two, I think even though you speak of 

it as a uniform kind of industry and perhaps the dual charter in 

response to that uniformity, my response to that, Mr. Kanjorski, is 

that we can deliver at the State level. And the expertise currently 

is at the State level. 

If we can come back to you and say we have implemented the 

interstate compact. We have these standards across the 24 product 

categories—by the way, those are life product categories that we 

24

are speaking of, life products and long-term care products—if we 

can deliver on those, then there is the solution to the uniformity 

issue. 

Mr. KANJORSKI. Would you feel your association and the majority 

of the commissioners would be adamantly opposed to a national life 

optional charter? 

Mr. CSISZAR. Very much so. Very much so. 

Mr. KANJORSKI. Based on the fact that you are losing some of 

your jurisdiction? Or it is just the wrong thing to do? 

Mr. CSISZAR. Look, I for one, this is the first time I am in public 

service. I come out of the private sector. I do not have a turf issue. 

As I tell people, whether I work in this job or not, my dogs will 

get fed when I get home at night, you know? So it is not a turf 

issue. 

Mr. KANJORSKI. You are lucky to have dogs. 

Mr. CSISZAR. But to me, it really is an issue of where can the 

best job be done? I have often maintained publicly that the issues 

we are discussing, we really should not be discussing state versus 

federal here? We really should be discussing regulation that is outmoded and requires reform and that improved regulation that 

comes from that reform. 

I have called it good regulation versus bad regulation. 

Mr. KANJORSKI. The other thing—and I will just take one more—

the only observation I want to make is that I heard the chairman 

of the committee mention those promising words made 133 years 

ago. And it seems at this point that we are always 3 to 5 or 10 

years down the road. 

We are already 5 years from H.R. 10. So it has been a long time 

in coming. And I probably personally now am starting to lose my 

confidence that the 50 states—all 50 of them—are capable of coming together and resolving some of these problems. 

I wish they would. I wish they had already. But I am not terribly 

optimistic anymore. 

Mr. OSE. [Presiding.] The gentleman from Connecticut? 

Mr. SHAYS. Thank you, Mr. Chairman. I would like you gentlemen to outline to me the most serious challenges you think face 

consumers today because we do not have uniformity. 

Mr. CSISZAR. I apologize, Mr. Shays. I only heard part of the 

question. 

Mr. SHAYS. The question was this: I want you to outline to me 

where the consumer suffers today because we do not have uniformity and we do not have speed to market and so on. 

Mr. CSISZAR. I am not sure that suffering is really the right word 

because when you look at uniformity, the part of the industry that 

seems to have the greatest need for uniformity really is on the life 

side. And there seems to be a plethora of products out there on the 

life side. 

Now that is not to say that you cannot find new products and 

more innovative products and release them into the market 

quicker, if we speed to market. But we certainly do not see any 

sign of suffering on the consumer’s part. 

And that is the side that is driving the uniformity issue. On the 

property and casualty side, certainly we have availability and affordability issues, as we heard in California for instance, on homeVerDate 0ct 09 2002 15:08 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\DOCS\95011.TXT FIN1 PsN: MICAH
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owner’s. But uniformity is really more a life issue than a property 

and casualty issue. 

Mr. SHAYS. I served in the State House for 13 years and I understand why we wanted state regulation of banks. I understand why 

we wanted state regulation of insurance. 

Tell me why the arguments for banking, why insurance would be 

different than banking? Because state regulation of banking turned 

out to be a total and complete disaster in New England. 

Mr. CSISZAR. I think the nature of the product makes this very 

different. What we have is, in many ways, insurance is a mandated 

product. It is treated as a nuisance purchase by consumers. They 

really do not want it, but they get it because they have to. 

They have to because either the law requires it or their mortgage 

company requires the purchase of the product. When they purchase 

the product, it is not like they are opening up a bank account or 

getting a loan in order to buy something desirable like an automobile or a home. 

What they are really hoping for is, when they buy the product, 

is that they never have to use that product. And really, what they 

are getting from the insurance company, even though it is this 40-

page piece of paper, what they are really getting is nothing more 

than a promise. 

And here the issue is then what can the process or what kind 

of regulatory process can you bring to the table that assures that 

promise will be fulfilled, as indeed promised? So I think it really 

is a different kind of product from a banking product. The nature 

of the purchase, the nature of the buyer’s expectations are very different here from a typical banking product. 

Mr. SHAYS. I wrestle with this bottom line. And what I wrestle 

with is that I want consumers to get the latest products as quickly 

as possible. And I want there to be as much competition as there 

possibly can be. 

And I am struck by the fact that that is not the case under our 

current system. Why do you think this legislation would resolve 

that? 

Mr. CSISZAR. I think certainly the pressure that you are exerting 

through this legislation and the fact that we are at work on an 

interstate compact—well, we have the interstate compact; we need 

to implement it—the fact that we are working on those standards 

of uniformity, the fact that we are turning things around through 

our SERFF system in 17 days and not 2 years, the fact that that 

message is getting through to the larger states. As Mike said, for 

instance, we have an MOU now between Texas and California and 

Florida on some of the life products. That very fact, I think, is 

going to change things. 

Secondly, if you look at new products and introducing new products, again I go back to the fact that I think the State-based system 

is much preferable to a federal system because it allows you to experiment without betting the ranch. If you have a new product and 

an innovative product, you can test that product in a state and see 

how it works. 

Mr. SHAYS. I do not understand the last point. I mean, you could 

test a product whether or not you had national or not. 

26

Mr. CSISZAR. That is true. But on the other hand, the Statebased system allows some flexibility in terms of only introducing it 

in that state, if it is permissible in that state, and testing it in that 

state. 

No, I understand what you are saying. You are saying you could 

take and introduce the product anywhere. That is true. 

But I really think that there is a flexibility in that State-based 

system, much as what we have seen with our welfare system, 

where the ‘‘one size fits all’’ does not always fit, where a state has 

to be allowed to, in essence, do its own thing. 

Mr. SHAYS. I thank you. And I likewise will be very curious to 

see what the EU does as we try to penetrate that market more. 

Thank you, Mr. Chairman. 

Mr. OSE. The gentleman from Georgia? 

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

Mr. Csiszar, could you tell me how state price controls have 

harmed small business owners? For example, are consumers restricted in their ability to have auto collision repair in highly regulated states? 

Mr. CSISZAR. I do not think I can really answer that question 

with any hard evidence, other than evidence out of South Carolina 

again. And I can tell you in South Carolina, it was not even the 

issue of whether they could get it repaired or not. In South Carolina, we had a real availability issue. 

We had a reinsurance facility that covered both personal automobiles, as well as commercial automobiles. That market, that residual market, that reinsurance facility became the largest insurance company in the State. 

And the end result was that, while insurance was available, it 

was not really competitive because very few other companies wrote 

in the State because of this large residual market. So we had to 

solve our problem in South Carolina based on the size of the residual market. 

The losses, by the way, from that residual market were charged 

back to the consumer. So if you are asking how did the consumer 

suffer? He suffered, either on the personal auto or a commercial 

auto, by having to pay something called the ‘‘recoupment fee.’’ And that recoupment fee, the losses in the facility were at $240 million, $250 million every year. That all got charged back. So that 

is probably the direct impact that we experienced in South Carolina, at least. 

So I can only answer it from that perspective. 

Mr. SCOTT. But do you see that this is may be one of those areas 

where there may be some evidence where the cry for national regulation might have some substance? 

Mr. CSISZAR. Again, the problem with national regulation, as we 

see it in South Carolina, the homeowner and the automobile owner 

in South Carolina does not want to pay for the losses of that individual in California or in Florida. 

Mr. SCOTT. Okay. Are property and casualty insurance inherently state and local issues, in your opinion? 

Mr. CSISZAR. Sorry, I missed the last part. 

Mr. SCOTT. Are property and casualty insurance inherently state 

or local issues? 

27

Mr. CSISZAR. They are inherently state issues, local issues. As 

Mike said, torts come into the picture. And tort law is on a state 

basis. 

Coverages are very local. For instance, in our state, we only need 

earthquake coverage in one particular part of the State and that 

is the Charleston area because it experienced an earthquake in the 

late 1900s. 

Nowhere else in the State do we have that kind of earthquake 

activity. So there are some peculiarities, both based on geography, 

also based on population. As Mike said, rural versus urban, for instance. Automobile insurance in an urban area is a different creature from one in a rural area. 

Mr. SCOTT. What is the effectiveness of rate controls in the 

States? 

Mr. CSISZAR. Those who have them in place will tell you that 

they are God’s gift. And those who do not have them in place think 

they have a better market. There is no unanimity on this issue, 

Mr. Scott. 

Mr. SCOTT. Do you think they are holding down rates? Or are 

they restricting competition? 

Mr. CSISZAR. Again, I can only speak for my state. In our case, 

the reinsurance facility became a method of rate suppression. And 

hence, we had to get rid of it. 

In other states, others tell me, my colleague in North Carolina 

tells me that his prior approval system is working just fine. And 

if you look at the statistics, he is somewhere around average always, much like Illinois is. 

So it is hard to tell. Different models. 

Mr. SCOTT. One final question. What do you think of the idea of 

creating a self-regulatory organization to oversee insurance matters, similar to the securities industry? 

Mr. CSISZAR. I think the industry would love it. But I do not 

think it would be the right solution to the problem. 

I really think that our regulatory system, Mr. Scott, has worked 

fairly well. While I am the first one to sit here and admit that God, 

yes, we do need some reform on the uniformity issue, for instance. 

In other respects, it has worked quite well. We have not had a 

savings and loan fiasco. We have not had a BCCI in this industry. 

We have not had the problems that the mutual funds are experiencing. We have not had an Enron in this. So I can go on and on. 

I think in that sense, we have really served the consumer well. 

Mr. SCOTT. Our Ranking Member Kanjorski, as I understand his 

opinions on this, is not necessarily clear that the States can handle 

this and that we may have to look at a national reform, a national 

regulator. Could you tell us, in your own opinions, what damage a 

national regulator would do? 

Mr. CSISZAR. It will eviscerate the State system. You might as 

well start from scratch. And I feel that there is such expertise at 

the State level. And I think there is such good response to the consumer at the State level, that that step is not necessary. 

Now I will agree with Mr. Kanjorski that the proof will be in the 

pudding. We better deliver on this one. I would be the first one to 

say that if I come before this committee 2, 3 years from now—God 

forbid I should still be in this position—but if I do come before this 

28

committee 2 or 3 years from now, you can hammer me over the 

head because we do need to deliver. 

But I think the timing is such that we can deliver. And we want 

to be given the chance to be able to deliver, to prove to you. 

So we welcome the oversight. I welcome the pressure that this 

exerts because it instills a sense of urgency in us to do this and 

to get it done. 

Mr. OSE. The gentleman’s time has expired. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. OSE. The gentlelady from New York? 

Mrs. KELLY. Thank you, Mr. Chairman. 

I chaired a hearing on market conduct oversight in the Oversight 

Subcommittee last May. And I was amazed at some of the requirements that contribute to the cost of doing business in some of these 

states. 

Like I am going to just give a few examples. Massachusetts has 

a checklist for their speed to market initiative that is 230 pages 

long. Wisconsin requires companies to put a slash through all zeros 

on policy form transmittal, which requires going over the form by 

hand to put the slash in. 

Nevada requires their filing fee document to be on the top page. 

Arizona requires insurance company names to be fully spelled out. 

There are no abbreviations. 

Colorado requires an original signature on every state form. Missouri requires a stamp of an insurance company’s name on each attachment of a rate filing. 

Nevada requires pink paper to be used when submitting the filing fee document page—pink paper. It is Nevada. Kentucky has requirements for stapling. But if you file in Kentucky and in Ohio, 

you have to pull the staples out because Ohio does not allow paper 

clips or staples in their filing. 

Now this is ridiculous. And it is a cost-consuming kind of thing 

to have this kind of stuff going on. 

So my question is: if Congress required a nationwide uniform 

documentation and market conduct review, would the consumers 

benefit in the immediate future? I am asking all of you that question. 

Mr. CSISZAR. I will begin and I will let Greg take over as well. 

But I will add another one to you. It took me about 3 or 4 years 

to find out that we were not accepting parentheses in our documents because somebody 20 years ago decided that that is the way 

to slip in things into an insurance policy, by putting it into parentheses. 

It is embarrassing when I listen to something, to that litany, it 

is absolutely embarrassing to me that we sit here to even have to 

discuss this sort of thing. This is sheer, utter nonsense—utter nonsense. And I do not think you will get any disagreement from the 

commissioners on this. 

Part of the problem has always been the bureaucracy. You know, 

as I said, it took me 3 years to find out we were not accepting parentheses. 

Part of it I think is the bureaucracy and driving that change 

through the bureaucracy. Part of it I think has to do with the fact 

that you have these desk drawer rules. 

29

So I think the market conduct process, as we envision it now, 

whether it be ultimately through a model we are developing or in 

the midst of developing or through the adoption of the NCOIL 

model, will specifically avoid that sort of thing, plus the fact that 

fact that you have SERFF in place now. And it is a common filing 

through SERFF. You do not have all these added little rules, unless you file on a state-by-state basis without using SERFF. 

But we now have what, 50 states? All states are on SERFF. So 

I think a lot of this will go away. But I have heard these things. 

And I blush and I am embarrassed when I hear about them. 

Mrs. KELLY. Well, my basic question is: do you think the consumers would benefit in the immediate future if we require a uniform documentation? SERFF may be the answer to that, but is 

that going to help consumers? I am really looking at how this is 

going to help folks. 

Mr. SERIO. Yeah, I think it will. Whether you do the uniformity 

approach or we do it through the interstate compact and other initiatives and get out of the paper business altogether. It cannot be 

overstated the importance of SERFF, both for the States and for 

the companies to together be a part of this. 

We have to balance this out. And you heard all the horror stories 

in market conduct. And we were enforcing the law of pink paper 

against the companies. 

At the same time though, you have the balancing of the incomplete applications, the applications that had things in parentheses 

because they were trying to do something else other than what the 

product was purported to be. Getting to uniform standards, getting 

to uniform mechanics of filing and approving these products cannot 

do anything but help the consumer, from a couple of perspectives. 

Number one, the cost that is built into the product of designing 

the product and getting the product approved, right off the bat, 

that is a built-in cost of the product. 

Second of all, it is the cost to the consumer as taxpayers, not just 

of the insurance department where we are largely funded by assessments on the industry, but it is all the other apparatus in state 

and federal governments—the consumer protection boards, the attorneys general, the others who will undoubtedly get into the middle of this consumer issue—where the taxpayer is paying for this 

several times over. 

Bringing uniformity, bringing clarity—maybe that is almost a 

better word for it—bringing clarity of the process and the requirements on each side, what is required of the departments, as well 

as what is required of the companies, I think that clarity can only 

help the consumer. 

When Governor Pataki was first elected in 1995, his second executive order was to shed all of our regulations of the type of things 

that you just spoke about: get rid of the desk drawer rules; get rid 

of the commas and the paper clips and all those other issues that 

did not bring any value added or any added value to the protection 

of the consumer and the delivery of the business in the State of 

New York. 

And other states have done this. Other governors have done the 

same thing. 

30

That is really what has to happen in terms of this wholesale approach to clarity. And I think the electronic processing certainly 

goes a long way to getting that. 

Mrs. KELLY. Thank you very much. 

Mr. OSE. We have heard a lot about Kentucky. Now we are going 

to hear from the gentleman from Kentucky. 

Mr. LUCAS. Thank you, Mr. Ose. 

I am an old life guy. And I come from those prejudices. And I 

admit those upfront. But after 31 years of frustration with getting 

product to market, that is sort of in my craw. 

And I guess one of the things, when I came to Congress, I 

thought there was a lot more knowledge here with the body corporate of insurance matters, both P&C and life. And I was surprised to find out there was not a lot of knowledge. 

Mr. David Woods in his NAIFA testimony brought out one thing 

that I thought showed the lack of understanding here in this body 

about life insurance in particular. In the victims’ compensation settlement after 9/11, we passed a law that people who provided for 

their families with life insurance—and really, for the price of a set 

of golf clubs, you could have bought a couple of boatloads of insurance to protect your family. 

But the victims’ compensation did not take into account stocks, 

bonds, savings accounts, inheritances. But if you had life insurance, then that was subtracted from your settlement, from people 

who were responsible about their families. 

That has always bothered me a whole lot. That does not have 

anything to do with anything here, but I feel better about having 

said that. 

[Laughter.] 

And also, the other thing, we talked about 1861 and it is 2004. 

And according to my math, that is 144 years instead of 134 years, 

but what is 10 years? It is like a nanosecond when it comes to insurance regulation, right? 

But you know, I have been for the optional federal charter. And 

I stated that. And it is probably the most astounding thing I have 

said since I have been here in Congress, the reaction I got. 

But basically, I think what we need to do is to level the playing 

field. And frankly, I do not care how we do it. Just let’s do it. 

And, I mean, for all the duplication there is in the 50 states 

about the same duplicitous things that people go through. It might 

take a couple of years to approve a product when in fact the 

banks—and I have been involved with banks and mutual funds, I 

have been involved with those too—you know, they can go have a 

product right away and the life insurance company takes forever. 

That is not right. 

And so all I am suggesting that we need to do is let’s just do 

something. And let us level this playing field. 

And my thought is, if we do not do something about it, we might 

do something up here that you may not like. And so let’s move. 

And I do not know that I have a question. And I might state too 

that the Kentucky Insurance Commission modernized back in the 

1950s and went to paper clips. So I want you to know that we are 

moving right along. 

[Laughter.] 

31

Mr. OSE. The chair recognizes the progress in Kentucky. 

The gentleman from Alabama? 

Mr. BACHUS. Thank you, Mr. Ose, for recognizing me. 

I would start with Mr. Serio. Mr. Serio, do you think that properly targeted federal legislation may either assist or encourage or 

push certain states to coordinate and achieve more full participation in some of the key NAIC programs that you all have? 

Mr. SERIO. Yes. I do not think there is a question about it. I 

think we saw it with NARAB. And I think you were very helpful 

with that. 

I think we have seen the States acknowledging that the partnership that they have with the federal government and with the Congress as the policymaking body specifically, where we dealt with it 

in the Fair Credit Reporting Act reauthorization and the preemption in that case because in that case, that was the best way to go. 

But I think that, again coming back to the old line of the devil is 

in the details, we want to make sure that whatever we work on together makes sense back at that local level. 

Because so much of this business—and I will even go so far as 

to say even with the discussion we have had so far today, that even 

life insurance, while uniform in terms of its product design—and 

that is why the NAIC has been focusing on life products in the 

interstate compact standards as the first place to go—it is still 

largely a locally distributed product. So I think that balance between federal policy, state implementation, state regulation, is a 

good balance that I think we have seen the success of that formula 

several times over. 

Mr. BACHUS. And let me ask you and Mr. Csiszar both, Walter 

Bell’s committee is working, other committees, is it possible for you 

all to actually, if you run into a road block, to actually recommend 

to us some specifically-targeted federal legislation that might actually you may find needed to break through on some of these? 

Mr. SERIO. I think that is part of the ongoing dialogue. I can tell 

you that the NAIC and the individual states have had what has 

been an unprecedented level of involvement, cooperation and partnership particularly with the House Financial Services Committee. 

So I think before we can come in and advise the committee that 

there is a problem, I think the committee will know it because of 

the ongoing dialogue that we are having and because the chairs 

have made themselves available to come to the NAIC and speak to 

the commissioners directly and because the NAIC has been expending as many resources as it has to have New York, South Carolina, 

Washington and other commissioners—Delaware is here today—

come to Washington and pursue this dialogue. I think it will almost 

become unspoken that when you see if there is some difficulty, you 

will see that as a recognition that we can probably use some assistance in terms of moving forward on what has been the uniform 

goal of uniformity, both between the States and the federal government. 

Mr. BACHUS. All right. 

Anybody else? 

Mr. KREIDLER. If I could just offer a quick comment relative to 

Commissioner Walter Bell’s work on speed to market? One of the 

32

real challenges was to be able to come up with product standards 

for life and annuity products. They have done a commendable job. 

And we are in the process of approving those product standards 

by the NAIC. And it is a critical part of moving forward with the 

interstate compact. 

Because once you have product standards, you have something 

that state legislators can take a look at and say, ‘‘We are not going 

to disadvantage consumers if we go to these particular product 

standards. Therefore, we are willing to step into an interstate compact.’’

I mean, we all know that interstate compacts have not been 

warmly received by a number of states as a general concept, particularly if they are going to be a depository for nuclear waste or 

something of that nature. But in this case, we have product standards. 

And it is the work of Commissioner Bell through speed to market, where we have those now. And I think you are going to see 

states moving aggressively now to join the interstate compact because they have something in hand now. They have these product 

standards. And that means speed to market. 

And so I am very optimistic right now we are going to see a lot 

of progress. And Commissioner Bell from your state has played an 

incredibly important part of making that happen. 

Mr. BACHUS. Okay. And my next question to any of you all that 

care to answer: does it make sense to have some sort of a statefederal council to help coordinate certain areas of insurance policy 

or to speak for the industry? I will give you an example. 

Now we have the federal government regulates insurance in a 

number of fields, like the terrorist insurance. On legislation, we 

had flood insurance, health insurance. 

And I often hear that there is nobody at the table representing 

the insurance industry, say in trade talks. You know, there is 

someone that speaks for the financial industry. But there is no one 

at the table for the insurance industry. 

Does some sort of federal-state council, I mean, if we could establish that with your input, would that be something you would be 

willing to pursue? 

Mr. CSISZAR. Let me take that question and my colleagues may 

want to comment on it as well. A couple of things about that. 

I think one of the reasons why we are even discussing this issue 

of representation at the federal level has to do with the fact that—

blame us. In years past, not until very recently, the NAIC has not 

been at the table. 

There has not been anyone really here in Washington; and I 

think deliberately so. When you look at the Gramm-Leach-Bliley 

process, for instance, we did not get involved until the very end. 

You know, by then, the train had left the station. 

So I think the first comment I would make is I do not think you 

are going to have as many of these representation issues as we did 

in the past because we are here now and the industry is here and 

the consumers are here as well. That is number one. 

Number two, the fear that I have about setting up any kind of 

separate federal body is that it becomes the prototype for something like what we have with the OCC. And quite frankly, as you 

33

know, there are a great many of the problems, most recently this 

preemption of predatory lending laws, stemming from the fact that 

you have had someone like the OCC representing the banks here. 

What I would propose to do and what I have proposed to the industry—and in fact, the industry approached us. I should not say 

the industry—the ACLI and I have had discussions. Many of these 

representation issues come down to tax issues. 

Why don’t we form a joint NAIC industry group to address these 

tax issues in Washington? We are here for you. We have the expertise. I think that representation can come as a natural part of that. 

So rather than having this risk of an OCC confusion between 

what does that coordinator do? And where does coordination stop 

and regulation begin, for instance? Rather than having that take 

place, my suggestion would be that the industry and the NAIC get 

together and do this themselves. 

Everybody else does it the same way, really. I mean, you do not 

see a manufacturer represented by an OCC on a tax issue, for instance. So I think we can——

Mr. BACHUS. But of course, you have the Department of Commerce with manufacturers. With the financial institutions, you 

have the Treasury, the Fed. There is no one. 

Mr. OSE. The gentleman’s time has expired. 

Mr. BACHUS. Okay. Could I change subjects and ask one more 

question? 

Mr. OSE. The gentleman asks unanimous consent for one further 

question. 

Mr. BACHUS. And I am just making this almost more of a statement to preserve time. I mentioned in my opening statement the 

reinsurers. You know, reinsurers contract with insurance companies, not with consumers. 

So I would simply say—and I hope you agree—that it could meet, 

the States could meet more uniformity in how they treat the reinsurers and that you do not have the consumer component. 

Mr. OSE. The gentleman’s time has expired. 

Mr. BACHUS. And they are all nodding their heads in agreement, 

I think. 

[Laughter.] 

Mr. OSE. Let the record show. 

The gentleman from Washington? 

Mr. INSLEE. Thank you. I wonder if you can talk, just sort of 

from the consumer’s side of the coin for a minute, about the prospects of specifics on protecting consumer’s rights if we do have legislation? Just one idea, there are numerous ones I suppose could 

be considered, but this issue of privacy. 

You know, we are outsourcing a lot of functions overseas now of 

a lot of back room operations. And there have been concerns expressed about maintaining consumer privacy. There are 1,000 other 

things that we might incorporate in a consumer bill of rights or a 

consumer’s kind of interest specifically. 

Is that something that we ought to at least think about if there 

is legislation? If so, how should we think about it? 

General question for the wisdom of the panel. 

Mr. KREIDLER. Mr. Inslee, I would say that having some statement here of assurances that changes are put forward by the ConVerDate 0ct 09 2002 15:08 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 G:\DOCS\95011.TXT FIN1 PsN: MICAH
34

gress to make sure that consumers, with these changes, are not 

disadvantaged, that they have protections under the current state 

system. And as changes are being advocated, hopefully on a very 

targeted basis. 

But even with those changes, if you could make sure that there 

are not compromises made for consumers. I think that is an important part of making sure that what might be good for the sellers 

of insurance is also good for the people who purchase them and 

that their rights are adequately protected. 

Mr. INSLEE. I think I missed some of your testimony. You talked 

about access to FBI files or at least fingerprints. 

Could you give us an example of why that may be important? 

Mr. KREIDLER. We had a very good example—actually, many of 

them, but one of them in particular—where had an individual who 

was in good standing in one state that does not require a 

fingerprinting background check as a part of being licensed as an 

agent or a broker in their state, that applied for a non-resident license in the State of Washington from that state. And when we did 

the background check—this is a person who completed the form 

and said they had no felony convictions in their history. 

And when it came back, I believe the number was nine felony 

convictions, several of which were in the financial services area. 

This is somebody that obviously never responded when we pointed 

this out to them, so they did not attempt to get licensed in our 

state. But in that state where they are a resident and are an agent 

in good standing, they continue to do business. 

I think that is one reason why I think that there should be uniformity in order to achieve that producer or the agent licensing 

standard uniformity across the country. This is one of the things 

that, quite frankly, should be there in order to make sure that we 

do not have some bad actors out there that are going to cause some 

real problems for consumers. 

Mr. INSLEE. Thank you. 

Mr. OSE. The gentleman yields back. 

The gentleman from California? 

Mr. MILLER OF CALIFORNIA. Thank you, Mr. Chairman. This is 

an issue that I have great passion about. I used to be on the legislature in California and the insurance commission. And we have 

talked about things. And I think you have been very articulate 

talking about insurance regulations and the need for more efficiency and uniformity and basically to become more effective to 

consumers. 

And in the past 5 years, I have grown more passionate about the 

concept of an optional federal charter. And I know you disagree 

with that. 

So talking in the direction you are about coming up with some 

form of uniformity, although it seems like legislatures have been 

a barrier to that in a past, and effort toward a system that is more 

systematic in reforms and regulatory uniformity from state to state 

to accomplish what you are talking about, sounds good. But I have 

a letter from John Giramendi in California. And he is not interested in this. 

So in order to have some form of national uniformity in the industry, you have to have an agreement that everybody is going to 

35

be willing to participate. Now in an optional federal charter, it is 

optional. 

If an insurance company wants to be an optional federally chartered insurance firm, like banks are, they can. If they want to be 

a state, they can. 

But how do you expect to achieve any kind of uniformity based 

on what you said in your opening comments? And I applaud you 

for your concept. I do not disagree. 

But how do you expect to have any form of uniformity when 

states like California, with large populations, have already announced their opposition to this concept? 

Mr. KREIDLER. One thing I would point out is that several of the 

very large states are already in the process of considering an interstate compact. And I think it is only a matter of time—shortly—

of being able to convince their legislatures to participate, particularly now that we have the product standards. 

It has been introduced in the State of New York. It is going to 

be introduced in Florida and Texas. 

I think we are going to see a number of those larger states coming in. At some point, there may be a need to address the problem 

federally to make sure that some of the outliers come in, if in fact 

that happens. 

Mr. MILLER OF CALIFORNIA. So you are acknowledging that there 

might be a little more requirement of a federal participation in this 

process as it goes along? 

Mr. KRIEDLER. I think if you get to the point where you have 

that almost near unanimous already, it may be necessary. There 

are always legislatures that can be a little bit more cantankerous 

in addressing uniformity than others. They had the same kind of 

problems that the Congress has among its members in trying to get 

unanimity on complex issues. 

But if I might just say about the issue of an optional federal 

charter, we have a good example of what happens when you have 

the ability to effectively forum shop for regulation. In the State of 

Washington, there is currently—and it has been written about in 

the New York Times—a large company that deals with financial 

services, that was going to be put out of business a decade ago in 

the State of Washington and really reigned in. That company made 

the jump to a federal regulator by being listed on one of the major 

exchanges and then coming out from underneath the State regulation. 

They are currently, just recently within the last year, have gone 

into federal bankruptcy court. The major asset of that corporation 

is a life insurance company, which I now have in receivership. 

This did not need to happen. It would have stopped way back 10 

years ago if you did not have the chance to effectively shop from 

one forum to another. 

Mr. MILLER OF CALIFORNIA. But on that vein, I will give you a 

great current example in California—worker’s compensation insurance. And you have businesses lining up to move out of California. 

This is one example of one state, that their insurance commissioner 

said they do not like the approach we are taking today in this hearing. 

36

And you have other states that are not having a problem with 

it. Yet even though it is recognized that it is costing us jobs, it is 

killing businesses in California, you have state legislators that are 

in a mindset that they are just not willing to change because they 

do not want to change. 

And you have insurance commissioners who like having total 

control over what goes on in their state and legislators who want 

to have total control and do not want anybody outside influencing 

or dictating to them what they are going to do. How do you change 

that in reality, in the way you are proposing to go, when it is very 

optional on their part? 

Mr. KREIDLER. Well, one item I can point to right now, California 

is participating in a memorandum of understanding with Texas 

and with Florida. And from the standpoint of premium volume nationally, it is a very large percentage, where you can make one filing on a life product and you will be able to be approved in three 

states at one time. 

So they are showing progress in that——

Mr. MILLER OF CALIFORNIA. Life products are much simpler. But 

that is a good start. 

Mr. KREIDLER. Life products is where we have the biggest issue 

relative to uniformity across the country. Property and casualty are 

much more regional and state driven. 

But I believe that you are going to wind up with some states, as 

I said, that are, just because they take a very provincial interest, 

who may need a nudge in order to finally get them——

Mr. MILLER OF CALIFORNIA. Or a gun. 

Mr. KREIDLER. But I would not be surprised to see California, 

quite frankly, join the interstate compact. 

Mr. MILLER OF CALIFORNIA. I am anxious to see this process as 

it proceeds. I applaud Chairman Baker and Oxley for starting 

these hearings because I have come to believe strongly in the past 

5 years. Ten years ago, I did not believe it. But 5 years ago, I started to believe there was a need for an optional federal charter. 

Maybe this is an option to that. And I am anxious to watch us 

go through the process because I believe there is a very severe 

problem out there nationally in this industry. 

I think we need to do everything we can to help them and help 

consumers at the same time. They go hand in hand, the way I look 

at it. And so I am anxious to see any proposal that can come forward to help alleviate some of the situations we are in. 

Mr. OSE. The gentleman’s time has expired. 

The chair would advise members we have one vote on pay parity 

on the floor at the moment. We have a couple more speakers, including Mr. Pomeroy, who has joined us. 

The chair’s pleasure is to continue for as long as we can, then 

we will take a short recess, to the extent we have to, and then reconvene accordingly. 

The chair would recognize Ms. Maloney. 

Mrs. MALONEY. First of all, I would like to welcome Mr. Serio 

from the great State of New York and congratulate him on his 

work. But I would like to ask the last speaker, if I heard you correctly, you were saying that this company that went bankrupt, it 

37

was because of moving from various charters that they went bankrupt. Is that what you are saying? 

Mr. KREIDLER. What they had the option of doing is essentially 

moving out of state regulation by effectively coming under federal 

regulation that would preempt the State from having a regulatory 

responsibility. 

Mrs. MALONEY. And then you allege that that was the reason 

that they were in receivership. Is that what you said? 

Mr. KREIDLER. They would have been stopped 10 years ago. And 

the risk to .. 

Mrs. MALONEY. So you feel that if it had been under the State 

only and not able to shop—as you said, go to federal or whatever—

this problem within the company would have been found. Is that 

what you were saying? 

Mr. KREIDLER. My point would be that if you go to an optional 

charter, there inevitably is going to be forum shopping involved, 

relative to how they do business and how they believe that they 

will be more favorably treated. I would say this relative to insurance regulation: either leave it with the States or take it all to the 

federal government. But trying to find something in between will 

invariably open the door for that kind of forum shopping that will 

be a disservice overall to the financial services community. 

Mrs. MALONEY. I yield my time to the distinguished former insurance commissioner from North Dakota, Earl Pomeroy. And I 

would like his comments on this. 

Mr. POMEROY. Thank you very much, Congresswoman Maloney. 

I just have a couple of observations. And I know we have a vote 

on. 

I believe state insurance commissioners have started down a 

dead end by advancing multistate compacts. I have never seen one 

passed. Superintendent Serio, if you can get the New York legislature to adopt participation in a multistate compact for purposes of 

bringing their filing standards into line with other states, that 

would be one tremendous legislative achievement. And I will be 

shocked. 

But I look forward to seeing it. So much has been achieved over 

the 150 years of State-based regulation by state coordination: common policy forms, something as sophisticated as common risk-based 

analyses for purposes of determining reserve requirements, a national network of guarantee funds to help consumers when companies are insolvent. All of it achieved without actually requiring 

each state legislative body to take their own step. 

When we established the standards, legislative action was required at the State level if a state was to comply with the standards and get the beneficial treatment that flowed from that. But 

to actually expect through the compact route we are going to get 

uniformity, I think is unlikely. 

You have also given a flat bulls-eye for Congress to evaluate, in 

a simplistic and maybe not particularly fair representation, what 

is occurring at the State levels. They will see three, four states and 

they will say, ‘‘It does not work,’’ without really looking further at 

all that has been achieved through the State level. 

On the other hand, I believe that the chairman’s proposals would 

require members like the sitting chair, Congressman Ose, to vote 

38

at the federal level to lift state consumer protection authority from 

their state insurance commissioner. That also, I believe, is a 

stretch, to believe that that is likely to be achieved federally. 

Over my 8 years of being insurance commissioner in North Dakota, I came to believe that the regulatory format designed initially 

by Dr. Phil O’Connor, who will be testifying in the next level, and 

implemented in Illinois, did achieve a very functional marketplace. 

The results were evident through the way that market worked. I 

admired it. 

I am not sure it is Congress’s job to save a state from themselves. I generally like to think the market takes care of this. 

If I screwed up when I was insurance commissioner, we had capacity ramification. I had to un-screw up so that the market came 

back. 

I think that we do achieve some significant tension to make 

states move toward having their markets function. I think people 

looking for a federal response that is going to save them from state 

legislatures are unlikely to see it, especially in short order. I mean, 

it is just unlikely that we are going to preempt, I believe, such a 

wholesale authority of consumer protection that exists at the State 

level. 

On the other hand, I think there are other parts of the chairman’s proposals that maybe do allow us an expedited way to truly 

put in place a uniform speed to access system without this cumbersome, unwieldy and unlikely state compact. And that is where 

these talks could really have some interesting outcomes as they 

proceed. 

Thank you for indulging me, Mr. Chairman. And I yield back. 

Mr. OSE. The gentlelady yields back. 

Mr. Shays? 

If the gentleman from North Dakota wishes, we would be willing 

to give him time, having been so patient. 

Mr. POMEROY. That is very kind. And I would be interested—

quickly, because we are going to have to run and vote and it is a 

good long ways from here. 

Mr. OSE. We have about 7 minutes to go on the vote. 

Mr. POMEROY. President Csiszar, I would like your response to 

my thoughts. 

Mr. CSISZAR. I do not think anyone has any misconceptions, certainly the commissioners, how difficult it is going to be to get the 

interstate compact in place. However, the very fact that I think, 

under the umbrella of the interstate compact, we are developing 

national standards essentially for products, those national standards will be there regardless of whether a state adopts the interstate compact or not. 

So the collaborative effort that you are describing that has 

worked in the past is not precluded by an interstate compact. In 

fact, I think it will be eased. 

One of the problems we have had with even discussing the interstate compact is the fact that we do not have the standards to go 

with that compact, okay? But the compact and the standards, in a 

sense, are independent of each other. So the collaborative effort 

that we can undertake once we know what those standards are 

going to look like, that can continue, I think. 

39

But at the same time, the fact that you have pressure coming 

here from Washington does not hurt, so far as we are concerned, 

you know? 

Mr. POMEROY. Superintendent Serio, what do you think? 

Mr. SERIO. Since the interstate has been introduced in the State 

senate at the request of the insurance department, I have maybe 

a little more faith that the New York legislature will look at it. And 

I think one of the things we have tried to do and by the NAIC taking on the interstate compact as a model, that was actually originally put forward by NCOIL so many years ago, we have taken 

some of the mystery out of it. 

In New York, which is involved in dozens of interstate compacts, 

both policymaking and operational, I think we are working towards 

reducing the mystery of this as an insurance policymaking mechanism. So I think on the one hand, we have good hope. Three states 

have already passed it and signed it into law. I think there are two 

or three others that have it on their governor’s desk or will be 

shortly. 

So within its first 4 months, it has had some positive developments. But as Commissioner Csiszar said, the bottom line is that 

the uniformity push is already happening. And whether it comes 

through an interstate compact or comes through some assistance 

from the Congress or just through the regular activities of the 

NCSL and NCOIL in the State legislatures, we are already well on 

our way to that uniformity standard in whatever way it manifests. 

But I think the interstate compact, because it has been done 

with the cooperation of the NCSL and NCOIL and the NAIC, I 

think the interstate compact has a better than fair chance at this 

point because of that coordination, maybe for the first time, between the commissioners and the State legislators who are going 

to be asked to act on it. 

Mr. KREIDLER. One feature here that does not require any legislative action right now is a memorandum of understanding. And we 

already have three of the largest states already essentially beginning the process of accepting filings for life products right now. And 

that is not going to require any legislative change in order to see 

that process work. 

And they represent something like 20 to 30 percent of the premium volume in the whole country. So this is one where we are 

already seeing some progress in this direction. 

Mr. POMEROY. See, I actually think, had interstate cooperation 

been based on pemorandums of understanding, as opposed to interstate compact requiring legislative action, you might have been better off. Of course, legislators want to get their hand in insurance 

regulation, but not for the purpose of conforming with national 

models, but to tinker in the business. That is what state legislators 

do. 

Mr. OSE. The chair is going to intercede here. We have about 4 

minutes. 

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

Mr. OSE. The gentleman yields back. 

We are going to take a 5-minute recess. Mr. Baker is on his way 

back. 

40

In that period of time, if we could get the second panel together. 

We thank the first panel for their testimony and participation. We 

are adjourned—we are recessed for 5 minutes. 

[Recess.] 

Chairman BAKER. [Presiding.] If I can ask everyone to take seats, 

we will reconvene our hearing. I wish to welcome participants on 

our second panel. As is the usual custom, your official statement 

will be made part of the record. 

We request that, to the extent possible, your statement to the 

committee be limited to 5 minutes. And be assured that members 

will be coming and going through the course of the afternoon. 

The combination of the vote and the lunch hour, I think, has 

caused our numbers to be decimated a bit. But they shall return. 

But not to unreasonably detain anyone, I felt it appropriate to 

proceed with our witness and to first welcome Mr. Ahart of the 

Ahart, Frinzi and Smith Agency, but appearing here today on behalf of the Independent Insurance Agents and Brokers of America. 

Welcome, sir. 

STATEMENT OF THOMAS AHART, AHART, FRINZI AND SMITH 

AGENCY, ON BEHALF OF THE INDEPENDENT INSURANCE 

AGENTS AND BROKERS OF AMERICA 

Mr. AHART. Thank you, Mr. Chairman. 

As mentioned, I am an insurance agent from New Jersey. I have 

been in the business for about 30 years. And I am also a past president of the Independent Insurance Agents and Brokers of America, 

which I served as president from September 2001 to September 

2002. 

I think that being in the business for 30 years puts me in a pretty good place to speak as far as consumers and agents go. As 

agents, we are in between both the consumer and the companies. 

We deal with companies every day. We sit and listen to consumers and work with their problems every day. 

To begin, I would just like to say that the IABA strongly supports the approach that you, Mr. Chairman, and Chairman Oxley 

have developed. Specifically, we praise the approach of targeting 

the use of federal legislation to modernize the core areas of state 

insurance regulation. Also, we strongly support state regulation. It 

has worked well for years in areas including consumer protection. 

Consumers want and like to deal with someone in their own state 

who understands the problems and the needs in their specific regions. 

But even though state regulation has worked well over the years, 

global modernization and improved technology have created demand for more uniformity among states. The demand for more uniformity has created a need to modernize state regulation. 

Again, we agree with the Oxley-Baker reform road map that is 

using targeted, focused and limited federal legislation, while at the 

same time preserving state regulation. 

Let me address some of the major issues in need of reform; specifically, speed to market issues and licensing issues. With respect 

to speed to market issues, there is a need to improve the ability 

of new products to be introduced. 

41

With technology, there are a lot of businesses now that are creating new exposures for themselves that are not able to be protected because new products are not able to be approved quickly 

enough. And so we would like some kind of reform that helps those 

issues where products can be developed quicker and approved 

quicker. 

We would look to use a file and use proposal, whereby companies 

could begin using—could file a product and then use it after 30 

days. It would give time for the States to still regulate, look at a 

product. But it would speed up the approval process. 

In addition, we would like to eliminate price controls. Being from 

New Jersey, I have a pretty good background on price controls, especially in the auto insurance market. In the 30 years I have been 

in business, I can go from JUAs to excess profit laws to all kind 

of different laws that have created problems in availability and 

competition in the area of New Jersey. 

This past year, we have actually had some reform, whereby some 

of the price restrictions have been reduced. And companies are 

starting to come back into the marketplace. And it is becoming better. But we definitely need more help in that area. 

As far as agent and broker licensing, most states have enacted 

licensing reform statutes that provide reciprocity to licensed agents 

and brokers. However, various difficulties still remain. 

Some larger states have not enacted the licensing reciprocity. 

And some states adopting reciprocity have deviated from the NAIC 

model; and therefore, are not uniform. 

The bottom line is it is still very tough and time consuming to 

be licensed in multiple states. And yet, there is an increased demand from our consumers, both personal and businesses, to be licensed in multistates—where they are having branches in different 

states, where people are buying homes in different states. And we 

are continually asked to be licensed in more states to comply with 

their needs. 

In addition, insurance companies still have a very difficult time 

expanding their licensing into other states. And it often takes 

years—not weeks or months. 

Therefore, we propose the following with respect to agent broker 

and company licensing. With respect to national license reciprocity, 

we urge the subcommittee to expand the NARAB reciprocity mandate to all states. 

Next, we need licensing uniformity. Additional uniformity is necessary in certain licensing areas. And a targeted federal proposal 

should help establish greater consistency for agents and brokers. 

Third, we seek the outright preemption of all remaining mandatory counter-signature laws and similar barriers to effective 

multistate commerce. And with respect to insurance company licensing, we support a move toward a uniform set of standards or 

a common process for licensure of insurance companies that would 

apply in every jurisdiction. 

If Congress enacts the law based on the road map, IABA recognized that a dispute mechanism is necessary to address disputes 

that arise under the act. Some arbiter will likely be needed to determine whether the States are acting in a manner consistent with 

a new law. 

42

We believe in any such process or mechanism must be limited in 

its power and authority. Also, any new structure must not become 

a back door federal regulator. 

Perhaps more than any other area, we would be interested in 

working with the committee on this portion of a proposal. And we 

look forward to working with you to make sure that no federal entity takes on any formal regulatory or licensing power. 

So in conclusion, we would just like to say that we recognize that 

there are problems within this current state regulation. We believe 

strongly in the fundamentals of it. There are good things about 

state regulation. 

We believe in your road map, which would attack specific areas; 

namely, speed to market issues and licensing issues. And with 

that, we thank you for letting us testify and look forward to helping you put together any formal legislation. 

Thank you. 

[The prepared statement of Thomas Ahart can be found on page 

80 in the appendix.] 

Chairman BAKER. Thank you for your statement and your assistance. 

Our next witness is Mr. Roger Singer, senior vice president and 

general counsel of OneBeacon, who appears here today on behalf 

of the American Insurance Association. Welcome, sir. 

STATEMENT OF ROGER SINGER, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, ONEBEACON, ON BEHALF OF 

AMERICAN INSURANCE ASSOCIATION 

Mr. SINGER. Good afternoon, Mr. Chairman. 

Thank you. As you said, my name is Roger Singer. I am the general counsel of OneBeacon insurance group. It is a multi-line property and casualty insurance company—companies, really. We have 

28 companies in our group, licensed in all 50 states. 

We sell products throughout the country, but mainly in the 

northeastern states. On behalf of OneBeacon and the American Insurance Association, thank you very much for inviting us to testify 

here today. 

I also want to thank the subcommittee for leading the charge on 

the fundamental issue of state insurance regulatory reform. The 

concepts outlined in the subcommittee’s action plan, particularly 

speed to market, if implemented correctly with enforceable national 

oversight, will protect consumers while bringing them the important benefits of an open, competitive marketplace. 

I have been general counsel at OneBeacon for 15 years now. 

Prior to that, from 1987 to 1989, I was the Massachusetts insurance commissioner and spent approximately 10 years before that in 

various state government roles and I worked for the Federal Trade 

Commission on trade issues. 

I have agonized on both sides of this issue, both in the public sector and the private sector. And I hope my perspective will be useful 

to the Subcommittee. 

OneBeacon’s national scope and regional focus gives us experience with the full range of insurance regulatory systems employed 

and administered by the States and the District of Columbia. Let 

me start with a few numbers we assembled. 

43

Fifty-six, the number of U.S. insurance regulatory jurisdictions 

operating independently of one another. And I think I have personally dealt with 53. 

Five hundred and fifty, the number of state requirements relating to the filing and review of rates and forms. Four hundred and 

fifty-four, the number of filings made by OneBeacon last year, just 

in our eight core states in the Northeast. 

Add up the months and even years that it takes to review a company rate or form filing and one does not have to be an actuary 

to calculate the cumulative inefficiency the State insurance regulatory process imposes on the marketplace. 

With this regulatory backdrop, I would like to focus my remarks 

today on three concepts outlined in the subcommittee’s action plan: 

first and most important, speed to market; that is rate and form 

approval; secondly, national oversight; and third, company licensing. 

Like other AIA members, OneBeacon supports a market-based 

optional federal charter system as the best way to achieve needed 

reforms with the least disruption to the State system. However, we 

are pragmatic about the pace of reform in the short term. 

Done correctly, with appropriate reliance on market forces, the 

types of targeted reform the subcommittee is advancing could and 

would lead to national uniformity, reduced regulatory red tape and 

enhanced consumer protection. We understand the subcommittee’s 

goal with respect to rates is to eliminate price controls and to instead rely on Illinois-style free market competition. 

We applaud the goal because government price controls do not 

work to the benefit of anyone, especially the consumers of the insurance product. The Massachusetts automobile insurance market 

provides a stark example of the unintended consequences of price 

controls. 

In Massachusetts, auto insurance rates are set by the insurance 

commissioner unless the commissioner determines that sufficient 

competition exists to assure that rates will not be excessive. The 

determination often turns on whether a finding of competition will 

result in immediate rate increases. 

Inevitably, because of the political risk that rates might rise in 

the short term, such a finding is never made and rates continue to 

be set by the commissioner. This was the case when the very first 

decision under this law was made in the 1970s. It was the case 

when I was insurance commissioner in the late 1980s and is still 

the case today. 

There is plenty of evidence that eliminating Massachusetts’ price 

control system would result, over the long term, in lower auto premiums and a healthier market. Compared to Illinois, Massachusetts falls far short on a number of counts, including average annual auto insurance premium, number of drivers in the residual 

market and the number of insurers actively competing for business 

in the State. 

These differences are not surprising. Price controls can have the 

politically expedient short-term effect of holding insurance rates 

down. However, if left in place, the controls act as an artificial 

pressure cooker that hurts competition, masks systemic costs and 

leads to higher prices. 

44

I would like to spend just a minute talking about the regulation 

of policy forms. In jurisdiction with strict product controls, government review can take months or years from filing to approval. 

Product denials are often based on unpublished, arbitrary desk 

drawer rules with tenuous connections to state law. 

This process is especially frustrating for companies trying to roll 

out products regionally or nationally. The system provides no incentives for insurance product innovation. In turn, consumers have 

fewer marketplace choices and no real basis to compare insurers by 

the products they offer. 

Three principles should underlie the Subcommittee’s review of 

policy form regulation. First, if premarket form regulation must be 

retained as a general rule, a market-friendly construct should be 

adopted, whether that is an informational filing or file and use system. 

Second, government review of forms must be based on clear and 

specific statutory standards. 

Third, commercial policy forms should not be subject to any state 

review or approval. Any commercial policy holder should be able to 

buy insurance products tailored to their specific needs. And those 

products should be available without delay. 

I believe you will hear concurrence on this point from my colleagues representing RIMS and CIAB. The reason I brought this 

large stack of paper—it is not my testimony—on the table here 

today is when I came down here, I went looking for a filing that 

represented a product from my company. 

We have a subsidiary that is a true Internet-based auto company. And it probably would not be—it is not—attractive to all consumers. But tech-savvy consumers like it. 

It is truly Internet-based. You just go on the web. You do not 

talk to anybody on the phone. You buy your product. You get your 

policy and print it on your home printer. 

You pay by credit card. Many consumers would not be comfortable with that; but many are. And we are building a pretty 

good business. 

However, for that company—it is called Esurance, a sub of 

OneBeacon—for Esurance to do business in this state and each of 

the 50 states where it wants to file a form—and one of the advantages of the Internet is that it can make changes quickly and consumers can benefit from changes in product design and changes in 

price and the efficiency of Internet production—it has to make a filing. 

And this is an example of a filing recently made by Esurance in 

one state. If it wants to change to a new product, it has to make 

a filing in all 50 states. 

Some will be more extensive—not many—than this; and some 

will be simpler. But the issue is that this product that is available 

to customers all over the country is tied down to a pretty antiquated system of form approval. 

Turning to the issue of national oversight, attainment of the subcommittee’s goals for true marketplace reform will require strong 

national enforcement of preemptive federal standards. It is unrealistic and raises constitutional problems to expect states to enforce 

45

federal standards, let alone to enforce them uniformly and consistently. 

Insurer experience with the Gramm-Leach-Bliley Act of 1999 provides ample evidence of the need for national oversight and dispute 

resolution. As a result, we strongly encourage creation of a national 

enforcement mechanism. 

Finally, I will just say a word or two about company licensing. 

I am often involved in getting companies licensed. And as we have 

heard here earlier today, it is a process that varies from state to 

state. 

Many states have windows in which you have to apply. And if 

you do not make the window that year, you wait until the next 

year. 

What is being decided by the State in almost every case—well, 

what should be being decided—is simply whether the company is 

appropriate—a very, very important decision—and solvent and, financially and in other ways, responsible to write insurance in the 

State. For that to have to be decided individually by 50 different 

states with strapped resources seems to us an extreme inefficiency, 

which does nothing to benefit insurance consumers. 

Finally, I would just like to say I want to thank the subcommittee for addressing these much-needed reforms in key areas. 

And thank you for the opportunity to testify. And of course, I would 

be willing to answer any questions. 

[The prepared statement of Roger Singer can be found on page 

171 in the appendix.] 

Chairman BAKER. Thank you, Mr. Singer. 

Our next witness is Mr. Albert R. Counselman, president and 

CEO, Riggs, Counselman, Michaels & Downs, Incorporated, appearing today on behalf of the Council of Insurance Agents and 

Brokers. Welcome, Mr. Counselman. 

STATEMENT OF ALBERT COUNSELMAN, PRESIDENT AND CEO, 

RIGGS, COUNSELMAN, MICHAELS AND DOWNS, INC., ON BEHALF OF THE COUNSEL OF INSURANCE AGENTS AND BROKERS 

Mr. COUNSELMAN. Thank you, Mr. Chairman. I am Skip 

Counselman. And as the CEO of RCM&D in Baltimore, I represent 

an organization which is Maryland’s largest insurance brokerage. 

We provide risk management, commercial and personal insurance 

and employee benefit programs to a wide range of clients. 

I also represent today the Council of Insurance Agents and Brokers, as a past chairman of that organization, the CIAB. We heartily embrace your road map, Mr. Chairman, to insurance regulatory 

reform. 

Years of work have led to this proposal. And we believe it lays 

the groundwork for aggressive reforms that will go a long way toward providing desperately needed modernization in insurance regulation. 

The pace of financial services convergence and globalization are 

far outstripping the pace of individual reform efforts by the States. 

Even though the States have made some strides in simplification 

and streamlining, as we have heard this morning, thanks to what 

you, Mr. Chairman, and to Chairman Oxley and to what CongressVerDate 0ct 09 2002 15:08 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 G:\DOCS\95011.TXT FIN1 PsN: MICAH
46

woman Kelly have accomplished in the enactment of NARAB, there 

still remain glaring irregularity and inefficiencies despite those efforts. 

There are three major areas that could greatly benefit from immediate reforms, all of which are consistent with your road map. 

The first is to make the NARAB licensing reciprocity requirements 

apply to all 50 states. 

The NAIC, despite its reform agenda, is not in a position to force 

dissenting states to adhere to any standards it sets. We believe the 

reform proposal should build on the NARAB provisions, taking it 

a step further by mandating that all 50 states enact uniform licensure laws or laws permitting an agent or a broker licensed in one 

state to be licensed in all other states on a reciprocal basis and preempting all state insurance laws that discriminate against nonresident agents and brokers. 

While life is better for insurance firms such as ours because of 

NARAB, we still have to maintain in our firm 458 licenses. And 

there are many, many inconsistencies, none of which really have 

anything to do with standards of professionalism. 

We encourage and are certainly for the highest standards. As we 

heard testimony this morning about the need for FBI record access 

that some states require, we certainly also agree with that, that we 

want the highest standards to apply throughout the country. So 

let’s finish that job. 

The second area is speed to market. My firm sells and services 

primarily commercial property and casualty insurance. This part of 

the industry faces severe challenges, due to a number of factors: 9/

11, increased liabilities for asbestos, toxic mold, D&O liability, 

medical malpractice, years of declining investment returns and consistent negative underwriting results. 

The end result has been increased prices and declining availability of insurance, all of which is exacerbated by the current 

state-by-state system. The worst examples are the policy form and 

rate pre-approval requirements still in use in many states. 

More than a dozen states have completely deregulated the commercial marketplace for rates and forms. But many other states 

still have them. 

We think the Illinois model is a good model. One quick example 

that I have personal experience with, with our association, we 

sponsor a captive insurance company that provides errors and 

omissions insurance to 65 of our member firms who are located in 

35 states. 

A couple of years ago, we needed to raise our rates and revise 

our coverage form to broaden the coverage. We had to refile the 

form in all of those states. And it took 2 years to get the approvals. 

It also cost us over $200,000 to achieve the refiling. That was a 

waste of resources. 

As I said, we support the complete deregulation of rates and 

forms for commercial lines of insurance and elimination of command and control regulation. Mr. Shays asked earlier: how do consumers suffer from overregulation? And the answer is: both in cost 

and in limitation of the insurance coverage forms that are available 

as a result of the slow process that we go through to get a rate regulation filing done. 

47

Third, we think you should explore ways that alternatives to the 

traditional regulated marketplace can be fostered to provide a viable alternative for sophisticated insurance consumers. Increasingly, 

business is done through the surplus lines marketplace, which offers coverage for risks that are not available from admitted carriers. 

The regulatory structure governing surplus lines coverage is a 

morass. When activity encompasses multiple states, regulatory 

compliance is almost impossible. The rules, particularly with respect to collection of premium taxes, are conflicting and inconsistent. 

There should be incentives or requirements for the States to rationalize their irrational surplus lines requirements. As an example, this is 36 pages from the State of New Jersey, available on 

their website, which explains how to do a surplus lines filing premium tax filing, which is something agents and brokers must do 

when they place a surplus lines policy. 

It is very specific with their instructions, including exactly how 

to keep the pages in order and how to number each item on each 

page. That would be fine if all 50 states abided by these same 

rules. But unfortunately, there are different rules in every state. 

Finally, we think that risk retention groups have created a very 

good alternative market for liability coverage. And we would urge 

you to expand the risk retention act to allow coverage of property 

damage, as well as liability exposures. 

Mr. Chairman, all of the regulatory modernization efforts put forward by the NAIC in the past years have been the direct result of 

major external threats—either the threat of federal intervention or 

the wholesale dislocation of regulated markets. The states’ progress 

on producer licensing reform, thanks to NARAB, is a prime example of this. 

We believe your road map is an excellent vehicle to keep the 

pressure on and force the States to make the reforms necessary to 

address the glaring deficiencies of the State system. 

Thanks for the opportunity to work with you and your fine staff 

as you move forward. Thank you very much, Mr. Chairman. 

[The prepared statement of Albert R. Counselman can be found 

on page 86 in the appendix.] 

Chairman BAKER. Thank you, Mr. Counselman. 

Our next witness is Anthony Dickson, president, NJM Insurance 

Group, appearing here today on behalf of the Property Casualty Insurers Association of America. Welcome. 

STATEMENT OF ANTHONY DICKSON, PRESIDENT, NJM INSURANCE GROUP, ON BEHALF OF PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA 

Mr. DICKSON. Good afternoon, Mr. Chairman. And thank you, 

members of the committee. I am Tony Dickson, president of the 

New Jersey Manufacturers Insurance Group and here as chairman 

of the board of governors of the Property Casualty Insurers Association of America. 

PCI is the most diverse national property casualty trade association. This diversity provides PCI with a unique perspective on insurance regulation. 

48

PCI’s board of governors unanimously authorized the filing of our 

statement and my presence here as an indication of our willingness 

to continue to serve as a resource to this committee. As an example 

of PCI’s membership diversity, Mr. Chairman, the NJM Insurance 

Group writes 99 percent of its business in New Jersey, with premiums in 2003 totaling just under $1.3 billion. 

NJM is one of the largest property casualty insurers in the State. 

New Jersey Manufacturers Insurance Company operates in the 

fashion of a mutual insurer, returning dividends to its policy holders. 

PCI members share the common vision that competition and 

market-oriented regulation is in the best interest of the industry 

and the customers that they serve. PCI members believe that the 

current insurance regulatory system must improve. 

Mr. Chairman, PCI shares your goal of strengthening and improving the State regulatory system without creating an optional 

federal charter, a federal regulator or a dual federal-state regulatory system. PCI believes that the greatest chance to achieve our 

shared goal of State-based improvement is a narrowly targeted 

package designed to address the core problem of the current regulatory system: namely, antiquated price controls that impose barriers to market-based pricing systems. 

While other areas of reform are important, the single most significant element, overshadowing all other reform proposals, is the 

goal of insuring a truly competitive marketplace with open rate 

competition. PCI urges the subcommittee to place its highest priority on these reforms. 

PCI supports open competition rating laws, as exemplified by the 

Illinois model, as the most desirable approach to rate regulation for 

the entire industry. Studies verified that consumers in states 

where competition is the primary regulator of price benefit from expanded choice, innovative pricing and improved insurance availability. 

For example, Illinois, which has had competition-based pricing 

since 1971, has an exceptionally healthy personal lines insurance 

market. More recently, South Carolina has shown that competitive 

market reforms produce significant benefits for consumers. 

In 2003, Mr. Chairman, my own state of New Jersey enacted a 

package of reforms of its automobile insurance regulatory system. 

Led by Governor McGreevy, legislators of both parties and supported by Commissioner Bakke, the Automobile Insurance Competition and Choice Act included: better information and choices for 

consumers, toughened anti-fraud measures, enhancements of the 

expedited rate filing statute, changes in the excess profits law and 

other positive regulatory provisions. 

We are already seeing some improvements in competition as a 

result of these reforms. And New Jersey drivers now have access 

to more companies and, in several instances, at reduced rates. PCI 

urges the inclusion of the strongest open competition provisions in 

any reform legislation. 

The existence of regulatory rules that have not been codified or 

formally adopted—often referred to as ‘‘desk drawer rules’’—is also 

particularly frustrating to insurers. PCI supports the elimination of 

49

these inefficient and arbitrary obstacles to effective market operation. 

Access to credible aggregate prospective loss data through required reporting by all insurers is essential for both small and 

large companies to ensure effective and competitive markets. PCI 

commends the chairman for reaffirming the McCarren-Ferguson 

Act, including the limited antitrust exemption for such loss-cost 

data. 

We appreciate the chairman’s efforts to pursue a coordinated system of standardized market conduct review based on market analysis to identify a pattern of abuse and on-site review of company 

systems and controls. PCI believes that market analysis must be 

the cornerstone of any market conduct action. 

With respect to producer licensing, PCI urges the subcommittee 

to reduce regulatory burdens by providing a single level of licensing. Varying state standards for company licensing can serve as a 

market entry impediment and limit consumer choice. As a result, 

PCI supports efforts to streamline market entry. 

With respect to enforcement, Mr. Chairman, there is no clear 

consensus among the property casualty industry on the appropriateness of a federal or NAIC supervisory or management role in 

insurance regulation. However, all agree that the greatest threat to 

efficient markets is dual or multiple layers of regulation. 

Creating new oversight institutions or layers of reporting will 

drive up the cost of insurance products, make it harder for smaller 

companies to compete and ultimately reduce consumer choice. Attempts to unnecessarily expand the regulatory or oversight role of 

the NAIC or to create new or duplicative layers of quasi-regulatory 

authority at the federal level are almost certain to introduce needless controversy into any reform measure. 

Mr. Chairman, PCI stands ready to work with the committee on 

State-based insurance reforms that achieve our shared goals, as 

fully outlined in our prepared statement, and avoid duplicative layers of regulation. 

Thank you, sir. 

[The prepared statement of Anthony Dickson can be found on 

page 107 in the appendix.] 

Chairman BAKER. Thank you very much, sir. 

Our next witness is a returning veteran witness: Mr. Robert 

Hunter, director of insurance for the Consumer Federation of 

America. Welcome, Mr. Hunter. 

STATEMENT OF J. ROBERT HUNTER, DIRECTOR OF 

INSURANCE, CONSUMER FEDERATION OF AMERICA 

Mr. HUNTER. Thank you, Mr. Chairman, Mr. Bachus. I am Bob 

Hunter. And I am the director of insurance for CFA. And I formerly served as federal insurance administrator under Presidents 

Ford and Carter and as Texas insurance commissioner. 

Attached to my statement is a letter signed by over 80 groups, 

representing consumers, labor organizations, low-income Americans, housing groups and minorities, asking Chairman Oxley to reconsider the road map for legislation to override state regulation. 

The standards proposed in the road map are, in our view, startling 

in their anti-federalist sweep. 

50

They do away with decades of deliberations by state legislators, 

largely eliminating their role in the future in preempted areas. The 

road map would override the vote of the people of California in 

adopting the regulatory system of Proposition 103 and regulators 

would become functionaries carrying out federal standards. 

How Congress would force state compliance with these edicts 

without the threat of a federal takeover, which was also promised, 

is unclear to me. The road map does not tell us what the sticks or 

carrots might be to entice a commissioner to enforce a federal 

standard that he or she might think would disadvantage the consumers of the State. 

The road map makes grievous error, we think, in overriding all 

state price controls. It ignores the differences between insurance 

and other products. 

And serious attempt to increase competition in the insurance industry and protect consumers must take into account these differences. Some of the steps that must be taken to ensure that free 

markets could function well are first, a degree of imposed uniformity of insurance forms is required for consumers to understand 

and compare the complex legal document that is the insurance policy. People cannot read it and compare them. They just do not understand them. 

Second, better information about policy prices, the level of service 

and financial soundness must be provided to consumers, as the 

NAIC also said in their written statement. Unlike other products, 

insurance has inelastic demand because states require auto insurance and lending institutions require property insurance of businesses and individuals. 

If competition is to be effective, supply and demand must be balanced, perhaps by requiring limits on underwriting such as mandating offers of insurance to drivers who meet good driver qualifications and to home and business owners who meet building 

codes. The road map proposes none of these things to make competition work for the benefit of consumers. 

It would leave consumers, including small businesses, vulnerable. And I have to remind you that, of the 5.7 million businesses 

in America, 3.4 million or 60 percent have fewer than five employees. And therefore, they are not sophisticated buyers of insurance 

with risk managers and so on. They really need help. 

Other people who are at risk are low-and moderate-income consumers and minorities. The road map, I think, puts them at more 

risk. 

A crucial aspect of rate regulation that the road map would 

eliminate is the approval of classifications, which is part of price 

regulation. Many states have moved to ban and limit the use of 

credit scoring, for example, or redlining by certain territorial definitions and control of other criteria that disadvantaged poor and minorities; the latest one being that we are going to charge you more 

if you previously bought the limit of liability required by the State, 

but did not buy higher limits, we are going to charge you more for 

that. 

A lot of states are very upset about that. But who would stop 

that under the road map? These protections would be eliminated. 

51

Insurers would also be free to imagine whatever classes they 

would choose, including intrusive classes, that are on the horizon, 

such as the use of the human genome for life insurance. Congress 

has already acted on health. But life insurance could be human genome-based. 

And tracking drivers with global positioning satellite systems for 

auto insurance, that has already been tested. 

The road map points to Illinois as a regulatory model. There are 

almost no states with fewer protections for consumers than Illinois. 

Illinois does not regulate rates at all, under its non-system, as 

I am sure Mr. O’Connor will tell you. It is a non-system because 

the Illinois legislature did not pass it; they just became deadlocked 

and the existing legislation expired under sunset. 

Since 1989, in Illinois, auto insurance rates have risen by 35 percent, greater than the national average of 30 percent, while California’s rates, under the prior approval system put into effect by a 

vote of the citizens of the State, have fallen by eight percent. That 

is like 45 percent difference between California and Illinois. 

Prior to modernizing its system, California had the same old, 

tired deregulatory system that the road map now proposes for all 

states. America deserves better than the weakest consumer protection. Americans deserve the best. 

If you go forward with the road map, we would urge you to look 

at the nation’s best system, California, as your model. 

Under the road map, businesses would benefit from a single 

choice of law, probably the home state of the policy holder. But if 

a state tries to attract large corporations by weakening its laws, it 

could be to the detriment of its residents and consumers across the 

country. 

You should also be made aware, as I have told you this before 

Mr. Chairman, that as you move on these areas—and I think it is 

good that you do move—but as you move, some good changes are 

occurring and some bad changes. Consumers support changes that 

get rid of unnecessary red tape like yellow pages and pink pages 

and all that. We do not like that either. We pay for it. 

And we have helped work at the NAIC, with coming up with 30-

day limits on how long it would take to approve policies and so on. 

We are for all that. 

But we are very worried about harmful change. States do not always act because they think it is proper, because insurers are telling them the only way to keep their support, to head off a federal 

takeover, is to gut consumer protections. And that is dangerous. 

And we hope that the subcommittee would speak out against that 

sort of activity. 

I have responded to your three questions in my printed testimony, Mr. Chairman. In a nutshell, CFA supports expanding the 

risk retention act to spur the creation of private alternatives to 

overpriced insurance that occurs in period hard markets. 

We also offer a number of proposals to improve uniformity of regulation and protect consumers. The implementation of national 

standards should not be done in a way that stifles innovation of the 

States or undermines needed regulatory variation. Thus, CFA supports minimum national standards that would improve uniformity 

52

and better protect consumers, while allowing states to exceed those 

minimum standards. 

Some of the model bills proposed by NAIC and NCOIL would 

provide adequate minimum consumer protection at the national 

level, as I indicate in my testimony—things like getting rid of the 

final counter-signature law problems. We would support deregulation of property casualty rates for truly large commercial risks, as 

long as small-and medium-sized businesses were protected. 

And we would consider endorsing the NCOIL market conduct 

model bill if and when NAIC adopts it and we then discuss together how to make sure that works well. 

Finally, I analyzed the road map’s concern with property casualty profitability and the fear of a collapse in my written statement. And I conclude there is no chance of that happening. 

On behalf of the over 80 groups that signed the letter, I ask that 

this subcommittee not move forward with the ill-advised road map 

concept. CFA looks forward to working with the members of the 

subcommittee and with state regulators on proposals that will improve uniformity of regulation and speed to market without sacrificing consumer protections. Unfortunately, the road map does not 

achieve that balance. 

Thank you, sir. 

[The prepared statement of J. Robert Hunter can be found on 

page 116 in the appendix.] 

Chairman BAKER. Thank you, Mr. Hunter. 

Our next witness is Ms. Janice Ochenkowski. Did I pronounce 

that correct? 

STATEMENT OF JANICE OCHENKOWSKI, VICE PRESIDENT EXTERNAL AFFAIRS, RISK AND INSURANCE MANAGEMENT SOCIETY, INC. 

Ms. OCHENKOWSKI. Absolutely. 

Chairman BAKER. Thank you. Vice president, external affairs, 

Risk and Insurance Management Society, Incorporated. Welcome. 

Ms. OCHENKOWSKI. Thank you. And good afternoon, Mr. Chairman, Mr. Bachus. 

Mr. name is Janice Ochenkowski. And I am the vice president 

of external affairs for the Risk and Insurance Management Society, 

known as RIMS. It is the largest professional organization for the 

risk management community. 

In addition, I am also a senior vice president responsible for risk 

management at Jones Lang LaSalle, which is a global commercial 

real estate company based in Chicago. And I have been working 

there for over 20 years. 

I appreciate the opportunity to appear before you today on the 

issue of insurance choices for consumers. RIMS is in a unique position to participate in this hearing, as we represent commercial consumers of insurance that we have all heard about so much today. 

RIMS members, which number over 4,000, support the advancement of efficient insurance purchasing abilities. RIMS membership 

spans the country and consists of entities of all different industries 

and sizes, including 84 percent of the Fortune 500 companies, but 

also 950 small businesses, which we define as those with fewer 

than 500 employees. 

53

Nearly 2 years ago, RIMS spoke before this committee on the different insurance vehicles that are available to risk managers in 

their search to provide as much protection as possible for their 

companies’ assets. We made a case for immediate and significant 

reform of the State insurance system. 

RIMS also expressed its hope that one day an optional federal insurance charter would be made available for insurers operating in 

different states. 

It is still RIMS’ belief that an optional federal charter will 

streamline insurance purchasing for consumers and make the U.S. 

insurance system significantly more efficient. However, the reality 

is that some view an optional federal charter as too extreme a solution. And it seems to be an idea whose time has not yet come. 

Chairman Oxley and Subcommittee Chairman Baker’s proposals 

to reform state regulation are reasonable and attainable. And they 

will provide a much-needed opportunity for national uniformity and 

free market competition, without excess regulation. 

RIMS fully supports the Oxley-Baker reform proposal and urges 

Congress to enact these reforms as soon as possible. 

In this increasingly competitive marketplace, commercial insurance consumers like myself need choices, flexibility and speed. Operating throughout the country as the insurance buyer for Jones 

Lang LaSalle, I witness every day the numerous inefficiencies in 

the current state insurance system. 

Insurance policies have pages of state regulatory language that 

do not really affect the consumer and do not provide protection. 

These inefficiencies must be addressed. And I applaud the members of this committee for presenting us with a meaningful blueprint for reform. 

RIMS also recognizes the efforts of the NAIC in moving the U.S. 

system fully into the 21st century. The NAIC has made real strides 

in personal lines insurance reform. But much more needs to be 

done for commercial consumers. 

You see, the NAIC can only develop model laws; it cannot force 

state legislatures to adopt them. And even when models are adopted, inevitably, changes are made, which results in 50 different approaches to the regulation of the industry. 

The Oxley-Baker proposal offers a chance to bring the best of 

state regulation and federal oversight together in a way that will 

preserve the State’s role, yet streamline and modernize the system 

for the benefit of the consumers. 

I would like to address some areas of concern for RIMS and the 

risk management community, including market rates and forms 

and lead state concept for multistate companies. Several years ago, 

there was momentum at the NAIC to adopt a model law and regulation with respect to commercial lines and form deregulation. The 

NAIC adopted one short version of commercial lines regulation; 

however, a more comprehensive version has not been adopted. 

A few states have no requirements at all for filing rates and 

forms for commercial lines of insurance. RIMS supports the OxleyBaker principle that a uniform standard be adopted that provides 

for free market competition of rates and forms for commercial lines 

of insurance. 

54

Our experience is that in a free, open and competitive market, 

risk managers will be able to negotiate the best rates, the best 

terms and conditions for coverage needed by our companies. RIMS 

believes that a national standard of freedom from form regulation 

should encompass surplus lines policies as well. 

Currently, surplus lines policies and rate forms are not regulated 

by the States. However, we think it would be prudent to include 

freedom from rate and form regulation in any federal statute governing commercial property and casualty insurance. 

My home state of Illinois has been cited frequently as a model 

for commercial lines modernization. In Illinois, the insurance market is strong and competitive. And insurance is widely available for 

consumers. 

Some states have requirements that, before an insurance buyer 

can obtain insurance from a surplus line market, a diligent search 

of authorized insurers must be made to determine if insurance is 

available. We believe commercial consumers should be allowed to 

access the surplus lines market without having to make this determination. 

RIMS recommends that legislation permit commercial consumers 

to purchase insurance from any eligible authorized insurer without 

making a diligent search of authorized insurers, as required by 

some state laws. Most RIMS member companies are entities like 

Jones Lang LaSalle that do business throughout the United States. 

In placing insurance, we as risk managers have to consider all of 

our exposures, no matter where they are located. 

When we purchase insurance, however, we are subject to the individual state requirements with respect to our exposures in individual states, even if it is something as minor as a single vehicle 

that is a part of a large fleet program. RIMS supports the OxleyBaker concept of a leading state regulator for commercial policies 

covering multistate exposures. 

Under this concept, the State of the company’s principal place of 

business would govern the insurance transaction, including the 

terms and conditions of the policy and the requirements that the 

producer be licensed. 

Finally, I would like to address the issue of a federal enforcement 

mechanism to ensure state compliance with the proposed federal 

standards. The Oxley-Baker proposal calls for a federal coordinator 

with little or no real influence to work with the proposed federalstate advisory council. 

RIMS supports the concept of a federal coordinator, but believes 

that for national uniformity to work, this individual should have 

some authority to determine that state laws comply with federal 

uniform standards. Obviously, this will be a sensitive area, yet one 

that must be addressed if these reforms are to be given a chance 

at producing national uniformity and free market competition without excess regulation. 

RIMS looks forward to working with your committee and the 

Congress on these critical issues. Thank you for the opportunity to 

speak today. I appreciate your time, interest and leadership and 

welcome any questions. 

[The prepared statement of Janice Ochenkowski can be found on 

page 161 in the appendix.] 

55

Chairman BAKER. Thank you very much. 

And our next witness is Mr. Phillip R. O’Connor with Constellation New Energy, Incorporated. Welcome, Mr. O’Connor. 

STATEMENT OF PHILLIP O’CONNOR, CONSTELLATION NEW 

ENERGY, INC. 

Mr. O’CONNOR. Mr. Chairman and members of the committee, 

thank you. I am Phillip R. O’Connor. I testified in June of 2001 to 

your subcommittee. 

I should note I am not here on behalf of Constellation New Energy. That is my day job. I am really here, having been the director 

of the Illinois Department of Insurance at one time and as someone 

who has, over the past 20 years or so, conducted a lot of research 

in this area of comparing prior approval and open competition 

states. 

First of all, just in terms of the general work of the committee, 

I think on the road map, its great merit is that you have managed, 

through the past couple of years of hearings and analyses, to separate out those issues and those areas where the States have made 

an enormous amount of progress the past 20 or 30 years—financial 

solvency, guarantee funds, a whole host of things—and on the 

other hand, areas where there remain quite a bit of lack of harmony, lack of uniformity and so forth. 

And it seems to me that 60 years ago, in the same week that allied forces landed on Normandy and liberated Rome, the U.S. Supreme Court made the decision that insurance was interstate commerce. And this is really the first systematic review of how well the 

States have handled the delegation of regulatory authority that 

came in the wake of that decision. 

And I think the committee deserves a great deal of credit for 

having taken that job on and for narrowing down the issues. 

My job here, I think, is to talk just very quickly about the general distinctions or performance outcomes of those groups of states 

that are prior approval versus those groups of states that are competitive. The academic literature is really unanimous on at least 

one point; and that is you cannot find any systematic benefit from 

prior approval regulation. 

Now people may be able to find some case study or some anomaly. And they may be able to point to some particular alleged benefit. 

But when you compare the two systems, there is a long list of 

distinctions. So really, at best the finding can be that prior approval does no good; raising the question of: why is it that we do 

it? Why do we spend millions of dollars on it? 

On the other hand, the general tendency of the academic literature is to point out that there is a variety of dimensions, upon 

which competitive states tend to perform better than prior approval 

states as a group. And I list those out in both this testimony today 

that I have filed and that in 2001. 

But let me talk a bit about the Illinois system because it has received so much currency in the past couple of years. And I have 

to admit that sometimes when I hear my friend Bob Hunter talk 

about the Illinois system, I get the sense that my state has some 

evil twin out there that I am not familiar with. 

56

The truth is, it is a system. Now Bob is right that it was an accident. But I would contend it is a happy accident. And leveling criticism at the Illinois system for having been an accident is a little 

bit like criticizing penicillin because it was accidentally discovered. 

The point is it has worked—and it has worked extraordinarily 

well—the past 30 years. 

Now let me identify the main elements of the Illinois system because indeed it does hang together quite well. The fundamental 

point is that the Illinois system has, in effect, opted for antitrust 

principles in insurance pricing so that insurers cannot agree or 

collude on their prices. 

There are a variety of other things though where the State has 

stepped in to regulate very specific elements where the General Assembly believes that there is either potential for abuse or where 

they thought a particular problem had to be remedied. 

Now it is true in work comp and in medical malpractice, we have 

competitive systems. But those are a bit different. They are like the 

competitive rating laws in other states where if there is a finding 

of non-competitiveness, there can be regulatory oversight. 

The Illinois law prohibits unfair discrimination. You cannot base 

a rate on race, color, religion, national origin. You cannot reject an 

auto insurance application in the underwriting area solely by reason of a physical handicap. 

And the Department of Insurance and the attorney general can 

pursue other unfair competitive practices related to rating that 

have not been specifically defined. But if they can demonstrate in 

court that these are unfair competitive practices, the State can step 

in. 

For auto liability rates, a municipality cannot be subdivided for 

rating. That was to recognize the obvious point that in Chicago—

a big city—we have one court system that applies to everybody. 

And therefore, liability is addressed on a unit basis there. 

The General Assembly has targeted discounts in various public 

policy areas where there was a desire for some kind of promotion 

or recognition—auto anti-theft devices, senior citizen, driving training. Insurers can, through state licensed data collection agencies, 

mainly groups like the ISO and so forth, collect their loss data together. And they can do trended loss cost data on that. 

But they cannot agree on final pricing. Only each group and insurance company have to set their own prices. 

In auto and homeowner’s, companies have to file with the insurance department illustrative rates so that consumers and the insurance department can take a look and get a feel for what is happening in the market. And they have to file non-renewal and new 

policy counts by zip code. 

In addition, a cancellation and non-renewal information is filed 

by zip code in homeowner’s, for instance, which is one of the tools 

we used back in the late 1970s to solve what was thought to be the 

residential insurance redlining problem. And we solved that back 

well over 20 years ago. And we did it through market mechanisms. 

Our residual markets—yes, those rates indeed are prior approved. But they are prior approved on the basis that the director 

is going to avoid creating underpricing so that those residual markets act as a kind of magnet for too much market share. The FAIR 

57

plan and the auto assigned risk pool have infinitesimally low populations. And the work comp pool, even in the hard market in 2003, 

had well under 10 percent of total premium. 

My point to you is that the Illinois system, in reliance on the 

antitrust principles of no agreements on final pricing and no regulation of final pricing, is nonetheless able to target very specific 

areas where a public policy case has been made and the Illinois 

General Assembly decides to take action or where the General Assembly has given discretion to both the director of insurance and 

to the attorney general to take action. 

One final point on California. The interesting thing in California 

is, in my view—and we can argue about this all day long—is that 

California inadvertently did in 1989 with insurance rates, freezing 

them at extraordinarily high levels that resulted from a peculiar 

set of circumstances, where that circumstance was in great part 

cured and the rates would have come down anyway. 

They froze the rates at these very high levels and unfortunately 

repeated that mistake in the spring of 2001 when the State intervened in the electric market and went out and bought huge 

amounts of forward electricity at extraordinarily high prices; thus, 

freezing for consumers anomalous prices in a very short period of 

time. 

But again, we could argue about that all day long. The point is 

the Illinois system has worked over 30 years extraordinarily well. 

The Illinois General Assembly, whether under Republicans or 

Democrats, has never seen fit to pass out of either House legislation that would reverse that course. 

[The prepared statement of Phillip R. O’Connor can be found on 

page 146 in the appendix.] 

Chairman BAKER. Thank you very much. I appreciate each of 

your perspectives. It is very helpful. 

I know, Mr. O’Connor and Mr. Hunter, we have a rather dramatic departure in the analysis of the data. And I can understand 

how that analysis can differ. 

The one thing I would be interested to know from either or both, 

with regard to levels of consumer complaints, I often want to know 

from a company, for investment purposes, what the customer satisfaction surveys look like. If people are buying their TV sets and 

they are bringing them all back in 30 days for a full refund and 

if you knew that, you would probably have a pretty good outlook 

about where that company was going over the next quarter. 

I think equally valuable from a regulatory perspective is how 

many people write letters, show up with complaints, file actions 

and what the history in Illinois versus California might be. If the 

system is working in the competitive market as well as I think it 

is and if the California model is convoluted and unreasonably constrained, those numbers ought to be reflective of that analysis. 

Do either of you happen to have any access to information of that 

sort or numbers that might help build a case one way or the other? 

Mr. O’Connor? 

Mr. O’CONNOR. Well, I do not have them on hand. However, I 

would point out that both Illinois and the California Insurance Departments operate fairly similar policyholder and consumer complaint systems. 

58

I believe Illinois and I believe California publishes the ratios. 

And I believe there is a classification system in Illinois where there 

is an effort to identify, generally speaking, what the complaints are 

about. 

During my period of time when we initiated those systems, generally speaking, price was not the thing people complained about, 

nor availability. It was usually issues about claims and that kind 

of thing. 

One of the terrific things in Illinois—and this has been true for 

a long time—is that because of the system of pricing, it is extraordinarily easy for a consumer to shop right through the yellow pages 

and get indicative quotes over the phone from any number of 

agents or insurance companies. And that has been something that 

I think has been recognized in any number of reviews of the Illinois 

system. 

But the Illinois Department of Insurance, I think, is perfectly 

able—as are other states—to provide the information that would 

answer your question. 

Chairman BAKER. Thank you. 

Mr. Hunter? 

Mr. HUNTER. ON the NAIC website now, because we pushed for 

it for years and they finally have adopted it—is something called 

a consumer information source that has the data by countrywide, 

by state, broken out by company, all different ways you can look 

at it. It has been my experience that what drives complaints more 

is the individual company than where they are. It is corporate culture. 

For example, on my right here is New Jersey Manufacturers. 

Their complaint ratio is almost nonexistent. They are a very excellent company. 

They come in with low rates. If I lived in New Jersey, I would 

be dying to be one of their insureds. They have very few complaints. 

Chairman BAKER. Mr. Dickson ought to be paying you for that. 

[Laughter.] 

Mr. HUNTER. Same true for USAA, for example. And it does not 

matter whether they are in a regulated or a non-regulated environment, they always have great results. 

New Jersey Manufacturers is an example of a great company 

does great even under tremendous regulatory constraints. And so 

I would say you could go on the NAIC website and get that information. I did not have that question or I would have done it for 

you. 

But if you go on www.NAIC.org and look for the consumer information source, you can get that data. 

Chairman BAKER. But could I conclude from your observation 

that if we had a non-regulated file a new system and you had good 

companies, consumer complaints would remain low? Or is it your 

allegation that if you go to that system, that is going to automatically trigger anti-consumerism activities? 

Mr. HUNTER. I do not know that it matters a tremendous 

amount. A lot of the complaints have to do with claims. That is not 

going to change based on the type of regulation you have upfront, 

although better market conduct might cut those number of claims. 

59

So that is one of the reasons we have supported here possibly 

federal involvement in some market conduct areas. 

Chairman BAKER. Thank you. 

Mr. Singer, from your perspective from a Massachusetts view, 

what do you attribute the loss of auto insurance providers in any—

the numbers of folks who are leaving? What is it that causes them 

to assess the marketplace environment and withdraw from providing that coverage any longer? 

Mr. SINGER. Mr. Chairman, I think the reason that today there 

are only 20 insurance companies writing automobile insurance in 

Massachusetts, as opposed to over 250 in Illinois, is because the 

very, very rigid rate control has driven capital away. Companies do 

not want to expose their capital to what they see as—what is—a 

very restrictive rate control regime that at times makes it unable 

for them to earn a profit. And they do not want to expose their capital to that. 

The result is, with so little capital available in the market, I 

think the impact is that rates are higher than they would be otherwise if there were more competitors. It has impacts in other markets too because we do not have personal lines, auto carriers, those 

large personal lines companies do not write homeowner’s in the 

State. So it has an iterative effect on other coverages also. 

Chairman BAKER. Thank you. 

Mr. Counselman, you may not have this information readily 

available. It appears, at least from a non-expert view looking in, 

that states imposing price controls on auto insurance seem to have 

more of their consumer base in the residual marketplace than 

states with a free market pricing system. Can you speak to that? 

Mr. COUNSELMAN. Mr. Chairman, you are correct. I do not have 

figures with me. But from experience—and we do write insurance 

and the council’s members write insurance throughout the United 

States—that where there are price controls, our experience has 

been there is less availability of market because fewer companies 

are willing to operate in that given state under those circumstances. 

We know, for the last number of years, commercial insurance 

companies and personal insurance companies have had serious 

profitability problems. And they have looked at where they feel 

they had the best opportunity to be successful and where they had 

the least opportunity to be successful. 

And more often than not, it is in the regulated, price controlled 

areas they choose to exit. So there is less market available. So for 

those of us who are agents and brokers, we find ourselves with 

fewer solutions for our customers in a price controlled environment. 

Chairman BAKER. Yes, Mr. Dickson? 

Mr. DICKSON. Thank you, Mr. Chairman. I just wanted to amplify a bit on my neighbor’s remarks here. When companies are not 

present in a marketplace, it causes tremendous strains on those of 

us who remain to try to provide a market. 

New Jersey, over the years, has been an example of that. We are 

committed to that state. But we cannot do it alone. 

We cannot be the last lifeboat in the water. There has to be a 

competitive marketplace. We need help. We cannot see our resources strained so that the service to our policyholders suffers. 

60

Chairman BAKER. Thank you. My time has expired. But I will be 

back. 

Mr. Kanjorski? 

Mr. KANJORSKI. Thank you, Mr. Chairman. 

Maybe I will start with this first question. As you see the conceptual outline that is presently being floated, Mr. Hunter, what do 

you think the effect would be on a small business, if you have any? 

Mr. HUNTER. I think it would be very dangerous for small businesses because the same kinds of problems that impact individuals 

impact those very small businesses. The artisan truck and so on 

has to go buy auto insurance for its truck. 

It has to go buy property insurance for its place of business, if 

it has one. It has to buy comp insurance for its employees. 

They need help. They do not understand the complex product any 

more than the person on the street. They do not have risk managers helping them. 

They are not sophisticated buyers of insurance. And therefore, 

they are subject to all of the same kinds of classification games or 

being misled into taking the wrong product. They need the same 

kinds of protections. We think the road map would eliminate them. 

Mr. KANJORSKI. You were in the hearing room during the other 

panel. And I am not sure if I could distill exactly what the panel’s 

testimony was. But I seemed to understand, for Mr. Csiszar at 

least, that there would be some movement in this compact situation by 2008, particularly since the Congress is giving some impetus now by even considering doing something. 

But what if we were to change that perspective and instead of 

going with the present conceptual outline that we lay down a dual 

course, establish a commission to study the federalization of insurance at different levels or with different industry—the charge to 

prepare an optional federal charter, say for the life insurance industry, as a starter—and then giving them a drop-dead date, 2007 

or 2006. Either the compact is complete and in operation and effectively on its road to solving the problem so we do not have to take 

federal jurisdiction, or a kick-in that at least we would establish an 

optional federal charter for life insurance. 

And the question that I really have for you from a consumer’s 

perspective: how detrimental or how advantageous would an optional federal charter be for consumers? 

Mr. HUNTER. Obviously, the devil is in the details, we have heard 

several times today. 

Life insurance is not a simple situation. I think life insurance 

has a much different picture than the property casualty insurance 

industry. And I think the property casualty insurance industry is 

a millstone around the life insurance industry’s neck in terms of 

getting federal relief. 

The life insurance industry is much more uniform across the 

country, much more subject to having a workable federal charter. 

We do not like optional charters because we think that it produces 

the rates to the bottom. 

But if you did a federal minimum standards or a federal takeover 

with decent consumer protections, we could consider that. But we 

do point out, there are differences between life insurance products 

that are very important to consider. 

61

One would be, for example, term life insurance, I think you could 

totally deregulate. And people understand term life insurance and 

so on. 

You get into some of the cash value products, people are very 

confused. They need help. They need information. It is a very difficult product. 

The third product I would cite would be credit life insurance, 

where you have a reverse competition driving the rates up. States 

have had to cap those rates. You have to have some kind of a control on the rate in that area. 

So they have three totally different products within the life insurance industry that would have to be dealt with in any bill that 

you might propose. But otherwise, I do not like the optional charter. But I do understand that life insurance has different needs. 

If you divorce life insurance from property casualty, I think we 

could talk. I am a little worried about setting up something that 

would cause the race to the bottom. But if we do the consumer protections and do that somehow, then I think we would have something we could talk about, yes. 

Mr. KANJORSKI. Well, I am just rolling in my mind the idea that 

we would use this triggering mechanism to drive the process now. 

If I remember, we were here about 5 years ago when the national 

insurance commissioners were telling us that they would have everything solved by now. 

And here we are. And they moved the goalposts off another 4 

years. 

Mr. HUNTER. I would defer to Mr. Pomeroy, who was president 

of the NAIC. I think he is right. I think it is very hard to get legislators to pass all those things. 

I think he is correct. I think getting a national basis would be 

pretty hard to do. And I do think that they need some kind of federal help. 

Mr. KANJORSKI. Did anyone else on the panel have any idea of 

what I am talking about, this triggering mechanism to run concurrently with what the plans are by the State commissioners now? 

That if they do not adhere to a certain time schedule or get an accomplishment, it kicks in. But in the meantime, we get a commission working and studying how we would implement a federal 

charter, particularly life insurance? 

Mr. COUNSELMAN. Congressman? 

Mr. KANJORSKI. Yes? 

Mr. COUNSELMAN. I would like to comment on that. Also from 

the standpoint of the small business owner, the small business 

owner is at a disadvantage in the market where it is difficult to 

obtain insurance, obviously. And one of the things that we experience with the small business owner is it is a competitive market 

if you are doing something that is very standard. 

There are many insurance companies—large ones and small 

ones—wanting to write insurance for small business owners. But if 

you are doing something that is not so ordinary and standard—let’s 

say software developers, for example, but there are many examples—then it is more difficult to get insurance. And then there 

needs to be a mechanism to respond to those specific needs. 

62

One of the issues is in that particular niche, there may only be 

500 or 1,000 or 5,000 of them total in the United States, scattered 

in different states. And they need a mechanism to respond to their 

insurance need. 

It is not practical for a huge insurance company that is writing 

a multitude of risks to decide that they will file a special program 

just to satisfy a few hundred or a few thousand insureds. And so 

they do not. They do not respond to that need. 

If they had a mechanism that they could respond to that specific 

need—and that might be a federal charter, for example—then that 

small business owner has an opportunity to buy insurance that 

they otherwise would not have. So that is why I would comment 

that a dual look at that, at the federal issue, the federal charter 

issue, while not eliminating what is going on in the States, can 

make a lot of sense and actually can protect a lot of small business 

owners who currently are not getting what they need. 

Mr. KANJORSKI. Yes? 

Mr. AHART. Just a quick comment. I am not sure why you would 

wait to see, like in 2007 or 2008, whether something was working 

or not. Under the current road map, it seems that life insurance 

is really no different than property and casualty and that what 

they need is uniformity for products, uniformity for licensing. 

And that can be done through the road map by having federal 

legislation target that specific area which can give the uniformity 

that it needs through the States, therefore preempting the States 

on those issues. And you could get results right away, rather than 

waiting to see if something is happening in 2007, 2008 and then 

at that time doing something. 

Mr. KANJORSKI. Well, I am not suggesting not doing something. 

But as I gather these conceptual things, there are not any triggering mechanisms or actual standards or federal charters that 

would be put into place. It would be merely keeping a coordinated 

view, advisory view of what is happening. 

And my own sense is that it is not going to move many people 

to really get down and dirty and decide to do something about the 

corrective mechanism. So what I am thinking about is to build 

right into it; that as we are monitoring, we establish a commission 

to report back to the Congress with some ideal legislation that we 

could pass at a given time, or in fact would be enacted if not 

passed. 

It would make it actionable within 30, 60, 90 days of the report 

so we could move right into the thing. But give the States this opportunity of a couple of years, but not indefinitely. 

If we wait until 2008, they are going to come back and say, 

‘‘Well, we have 45 members of the compact. We are still working 

on five.’’ Then we are back to 4 years. 

It is going to take us 2, 3, 4 years to move into this area, it would 

seem to me. So we probably should look at doing it. 

But I appreciate your responses, gentlemen. 

Chairman BAKER. Thank you, Mr. Kanjorski. 

Mr. Bachus? 

Mr. KANJORSKI.—and ladies. 

Mr. BACHUS. Thank you, Chairman Baker. Chairman Baker’s 

staff did some research on this, how long we have been waiting for 

63

uniformity. And at one of our very first insurance reform hearings—this was 3 years ago—Michigan Insurance Commissioner 

Fitzgerald stated that ‘‘uniformity or a very high level of standardization, I think is the goal, not only of the commissioners, but certainly of the industry and would benefit the consumers of this 

country.’’

Chairman Oxley then asked both Commissioner Fitzgerald and 

Ohio Commissioner Covington the question: ‘‘If Congress sets a 

goal of 3 to 4 years for achieving comprehensive uniformity by 

NAIC for product approval, do you and Mr. Fitzgerald feel confident you can meet that goal?’’

Mr. Covington responded, ‘‘Chairman Oxley, I think we have to 

meet that kind of goal. As we have said before, the current system 

is not good for consumers. And it is not good for insurance companies. We must meet that goal.’’

Then Mr. Fitzgerald responded, ‘‘I agree with that. If over the 

next 2 or 3 years,’’—that is now gone—‘‘you have not seen significant progress, then I think there needs to be questions raised about 

whether we can be effective at the State level or solve the problems 

that you have identified and that we have identified.’’

So I mean, I think that may give you an answer of what may 

happen in 2008. And I know that Chairman Oxley—I mean, Chairman Baker—has waited 2 or 3 years. 

He has held 14 hearings. He has heard from over 100 witnesses. 

And yet, the unanimous opinion appears to be that NAIC has still 

not achieved significant uniformity, although everybody agrees it 

needed to be done 3 years ago and it could probably be done in 3 

years. 

So that is just a bit of encouraging news. 

[Laughter.] 

But I think that may tell you why——

Chairman BAKER. Do not bring me a problem, would you please. 

[Laughter.] 

Mr. BACHUS. And you are still being urged—Chairman Baker is 

still being urged to be very cautious and go slow because we are 

on schedule. 

Let me direct this question to Mr. Ahart. Could you explain how 

congressional passage of targeted federal legislation that improves 

the core aspects of state insurance regulation would benefit your 

agency and consumers? 

Mr. AHART. Sure. It really would get to the speed to market 

issues, which pretty much would be the licensing issues for both 

companies and agencies and also the issues on new products and 

on price controls. And first of all, on the licensing issues, as I mentioned in my testimony, we have more and more consumers all the 

time, personal lines that are buying homes in another state or on 

businesses that are opening branches in other states. 

And even though their home base is where we are in our state—

New Jersey—we still are required to be licensed in those states to 

be able to handle all their needs. And they do not want to be dealing with different agents in every state that they operate in. 

And so as they expand—and it is so easy to expand anymore 

with technology—as they expand, we need to be licensed in those 

states. Even businesses with worker’s comp, they have people that 

64

travel that technically can bring suit in some of those other states 

or be hired in those states. 

We need to be licensed in those states to take care of them so 

we would be able to provide the protection the consumers need. 

And it would certainly help the agency keep those consumers. 

As far as the product development and the rate controls, again 

New Jersey is a great example. As more restrictions we have, availability is down. 

And the competition is down. And pricing goes up. And our residual market goes up. 

And as Congress, under this road map approach could take those 

specific issues and pass legislation just to address those issues and 

yet keep consumer protections under state regulation and things 

like that. So it is not doing everything. It is keeping the good stuff 

with the State and attacking those specific problems that need it. 

Mr. BACHUS. Okay. Thank you. 

Mr. Counselman, you testified about the success of NARAB. Do 

you think replicating that success in the area of speed to market 

reforms would be possible without legislative action or congressional action? 

Mr. COUNSELMAN. Congressman, I think congressional action 

would be necessary because I think there has to be an outside impetus for states to cooperate and feel it necessary to pass the required amendments to their laws. And I think NARAB proved that 

that formula works because there was a specific goal set out and 

the States knew that they needed to accomplish that. 

They have still not accomplished it in 50 states. They only had 

to achieve it in 29 states. And some of the largest states still have 

not complied in all aspects of NARAB by passing uniformity. 

So even NARAB can be improved upon. But I think in speed to 

market and the ability to file forms, the same sort of carrot and 

stick relationship can be developed with the States so that we actually can make use of what the States have already established and 

encourage them to improve that. And that is good for the consumer. 

Mr. BACHUS. Okay. Thank you. 

Mr. Baker, I would just like to maybe mention, I do not know 

if it is a question, but I did hear two things that the panel said, 

one of which I would just maybe like a clarification on, and that 

is from Mr. Singer. 

You talked about eliminating review and approval of forms for 

commercial lines. You sort of focused on that, not personal lines, 

whether I guess it is at the State level or the federal level. 

But is it not equally important for personal lines for consumers 

to benefit? I mean, is there any valid reason for the distinction? Or 

are you not saying it is not necessary for individual lines? 

Mr. SINGER. Congressman, I guess what I would say is that commercial line businesses, even small businesses, are more capable, 

I would think——

Mr. BACHUS. The sophisticated buyer type? 

Mr. SINGER. And we sell a lot of small business products. And 

we try to make that product very easy to understand. We have to 

sell it on price. 

65

We have to sell it on understandability. We have to web-enable 

it so the agent and the customer can see it very easily. 

I think there is much less justification in that context—in a business context—to require all the process that is necessary for rate 

and form approval. It slows up delivery of the product to the customer. 

Mr. BACHUS. Would you agree that consumers would also benefit 

greatly from access to product without delay too? 

Mr. SINGER. I think in every case where you can reduce the process, what I really testified about was the going through the lengthy 

process in 50 different states to bring a product to market. 

Mr. BACHUS. Yeah, and that is in commercial lines. But the same 

problems in personal lines would——

Mr. SINGER. Yes. Same problem. 

Mr. BACHUS. Okay. 

Mr. DICKSON. We would certainly agree. PCI recognizes that the 

Illinois model is one that has worked. It would help availability in 

personal lines all across the country and particularly in some difficult states such as we have experienced in the past in our own 

state of New Jersey. 

Mr. BACHUS. Okay. 

And Mr. Hunter, I know you are going to respond. Let me ask 

you this. 

Mr. HUNTER. Okay. 

Mr. BACHUS. As you are responding to that—and I will close with 

this—you made the Statement that minorities are disadvantaged 

by the use of credit scores. 

Mr. HUNTER. Yes. 

Mr. BACHUS. How about an individual who is a minority that has 

a good credit score? Is that sort of stereotyping? I mean, does that 

assume——

Mr. HUNTER. No, there is research that shows that there is a disparate impact on minorities of the use of credit scores in insurance. 

Missouri has just published it. The State of Maryland did too. 

Mr. BACHUS. But how about a member of a minority that has a 

good credit score? 

Mr. HUNTER. They would probably get a break. But the problem 

is, many minorities are impacted adversely by the use of credit 

scores. 

And credit scores, there is no basis for it. There is no thesis. All 

they have is a correlation. There is no argument. 

I have debated Fair Isaac and Allstate and all these people. No 

one can tell me why, if I am laid off because of the bad economy 

and it takes me 9 months to get my job back and I fall behind on 

a couple of bills because of that, why I am a worse driver next year 

or a worse homeowner. It just is not true. 

And they say, ‘‘Well, we have a correlation.’’ Well, California Department of Motor Vehicles found a correlation between hair color 

and driving record. 

Mr. BACHUS. I guess what I am saying, are you saying that insurance companies, if they get a credit score from a person and he 

happens to be a minority and he has a good credit score, that they 

would use, that they would——? 

66

Mr. HUNTER. They get a better break on the basis of a credit 

score——

Mr. BACHUS. But it is not because of the color of their skin? 

Mr. HUNTER. Yeah, but minorities are way more adversely impacted, according to the studies. Plus CFA’s very careful analysis 

of credit scoring shows that it is a horrible situation of error. The 

credit scores are just dead wrong. 

We looked at 500,000 credit scores. And we found that around 

just the prime, sub-prime lending number of 620, 20 percent of 

America was misclassified. I mean, there are just so many errors. 

It is just a very bad system. 

Mr. BACHUS. You are aware, you know we passed legislation 

overwhelming which ought to help address that and let people repair their—in fact, I think you all supported that. 

Mr. HUNTER. We did. And we appreciate that. 

Chairman BAKER. Thank you, Mr. Bachus. 

Mr. HUNTER. But I do want to comment though, I agree with the 

NAIC on the personal lines question. The NAIC’s testimony today 

states this: ‘‘Based on many years of effort, we do not believe a single national rating or product regulation model for personal property casualty lines is appropriate or feasible, whether imposed by 

the States or the federal government.’’ And I agree with that. 

Chairman BAKER. Okay. 

Mr. Frank? 

Mr. FRANK. I have one important question that I had not intended to ask. But I cannot leave here still wondering. Which hair 

color are the bad drivers? 

[Laughter.] 

Mr. HUNTER. Gray. 

[Laughter.] 

No, actually darker is worse. And it may be correlated——

Mr. FRANK. That is a pro-blond statement then. 

Mr. HUNTER. Yeah, pro-blond. 

Mr. FRANK. That would be welcome, the anti-stereotype thing. 

I noted—and I apologize for not being able to be here earlier, but 

I did read through the testimony—a clear statement of disappointment with, almost exasperation with the States’ record here—that 

they have taken too long. There was a reference to difficult states. 

And apparently the general sense here is that the insurance industry lobbied very successfully in the 1940s to have this industry 

be a state regulated industry and now is telling us, from the representatives here and others I have heard from, that they are unhappy with the States, that the States are not doing a very good 

job. 

Is it incompetence? Are they not trying? Why have the States so 

disappointed with this? Why the need for a fairly drastic change in 

the federal-state relationship? 

Yes, sir? 

Mr. AHART. Yeah, congressman, I think first of all, they are still 

doing a very good job for the most part of it. The problem is, with 

changes in our society—with new technology, the modernization 

and globalization. 

67

People are moving. It is easier for people to operate in more than 

one state. And therefore, it brings into play the need for uniformity, rather than just dealing with——

Mr. FRANK. It is solely because people operate in more than one 

state? 

Mr. AHART. What is that? I am sorry. 

Mr. FRANK. This is solely a problem of multistate operations. 

Mr. AHART. I think it is a problem of uniformity. 

Mr. FRANK. Well, no. But uniformity is a response. That is not 

the problem. 

I have to tell you, with regard to uniformity, do not be surprised 

at a lack of uniformity from what were intended to be 50 separate 

decision making entities. I mean, indeed, uniformity is at one end 

of the pole. Federalism is at the other. 

And I have to say, as I have been listening to this committee’s 

work more closely in the last year since my job changed, about all 

aspects of it than before, I am struck by this pattern that we hear. 

And this may be a fundamental change in America, with regard to 

even the business community. 

We hear it with regard to the Office of Comptroller of the Currency needing to reemphasize his preemptive powers. We had it 

last year with the emphasis on preemption. Some people wanted to 

go even further in credit scoring. 

Now the insurance industry really is asking us to begin the process of reversing a decision it initiated 60 years ago with regard to 

where the focus is. I mean, have we reached a point where, because 

of technology and other factors, the States are not to be given much 

economic power? 

You know, after the Supreme Court’s redistricting decision, Everett Dirksen said—inaccurately at the time—‘‘pretty soon the only 

people who will care about States is Rand McNally.’’

[Laughter.] 

I mean, it does sound to me like, from the economic standpoint, 

that is what we are talking about—no uniformity and they are difficult and they are not making good decisions. So maybe we ought 

to look. Because we do not want to just do it piecemeal. 

Is this in fact part of a general view that the States have become 

increasingly irrelevant economic decisionmakers? 

Mr. COUNSELMAN. Congressman, if I may? 

There is a fundamental change in our business—especially in the 

last 10 years, but it has been going on for 20 years—and that is 

what Mr. Ahart was talking about. Our businesses that we insure, 

our customers, they are operating throughout the country or in different parts of the country. 

And it used to be that they operated primarily in one location, 

except for a handful of Fortune 500 companies. But now everybody, 

even the small guy, is operating——

Mr. FRANK. Okay, well that helps me. So if it is that thing, but 

that would deal with most business, but would not affect residential property though and even, to a great extent, to private automobiles. 

I mean, if it is a question about sort of accommodating the 

multistate operations, that is one thing. But there are clearly a lot 

of things in the property and casualty business in particular and 

68

also in life insurance. I mean, people are who they are. And I do 

not understand what globally has changed about a certain individual who bought life insurance. 

Yes, sir? 

Mr. DICKSON. Thank you, congressman. I think there are several 

themes that you have heard today. There is a desire for efficiency. 

Mr. FRANK. No, I am not asking. I understand what you want. 

But I am trying to get at why you want it. 

Mr. DICKSON. Well, I think in part there is a recognition on the 

part of the industry, a significant frustration on the part of the industry, that in a number of states, there has been a failure to recognize——

Mr. FRANK. No, I understand that. Excuse me. You have said 

that. I understand that. I have heard that. 

I am asking: why do you think the States have done the things 

that frustrate you? I am trying to understand. 

Is it bad governance on the part of the States? Are they not able 

to do this? Is this too hard for them? Or have they been having 

changes? 

You need not restate the problem. I understand what you think 

the problem is. But you cannot solve a problem unless you understand why it is there. 

Mr. DICKSON. Well, they are not using market-oriented regulation or competitive factors. 

Mr. FRANK. Why not? 

Mr. DICKSON. Perhaps because there are other less objective considerations that the political system dictates. 

Mr. FRANK. Okay. See that, I think, weakens your case. In other 

words, you do not like the political outcomes in the States. Frankly, 

I do not always either. 

You know, I was not dancing in the streets yesterday with my 

own state. I would have voted against that amendment. 

But that is what federalism is. And you cannot cherry pick it. 

And I appreciate your honesty in this. You do not like the political 

decisions in the States. 

But then let’s be honest about that and say: what do we do about 

that? You cannot give people the right to make only correct decisions. And if states, you say they are not using good political judgment, I think we ought to be very careful before we decide that we 

are the federal appeals court for bad political judgment at the State 

level. 

Mr. Hunter? 

Mr. HUNTER. Yeah, I was just going to say when I was first 

briefed on the first optional federal charter bill by the industry proponents, I asked the question: how come, for the last 25 years, 

when the consumer groups have been yelling that state regulation 

is inefficient and ineffective, you guys did nothing to help us? And 

their answer was: Gramm-Leach-Bliley has changed everything. 

We did not care when it was inefficient before. We controlled it. 

We liked it. 

But now, it is different because now we are competing more directly with the banks. And I think that was a very honest answer. 

And the insurance industry historically has been for federal regulation at times and for state regulation at times. Wherever the laisVerDate 0ct 09 2002 15:08 Aug 05, 2004 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 G:\DOCS\95011.TXT FIN1 PsN: MICAH
69

sez faire was the laziest, they were for that. They lost lawsuits 

back in the Supreme Court trying——

Mr. FRANK. By the way, I think it is entirely legitimate to say, 

‘‘Look, sometimes we want to go federal and sometimes we want 

to go state, depending on the outcome.’’ That is what most people—

most people here prefer that issues be decided at that level of government where they are likeliest to agree with the outcome. 

But then we should all stop pretending that we are either for 

states’ rights or not for states’ rights. And there is no moral imperative in that it be done one way or the other. 

Two other quick questions because I noticed, I very much agreed 

with the Statement of Ms. Ochenkowski about this. And I think 

there is a real hole in this that has to be filled. 

You support the concept of a federal coordinator, but believe that 

for national uniformity to work, this individual should have some 

authority. This will be a sensitive area, yet one that must be addressed. 

I mean that, it seems to me, is sort of the sine quo non. It does 

not make sense to take some power away from the States and create this move and have nobody to run it. 

And until and unless we can come up with that, I think we have 

a very serious problem here because, in fact, if it does not work in 

the State by state thing, giving it more power and less ability to 

make a decision could make things worse, rather than better. 

Let me just throw on one other thing and I would be interested 

in comments on this mechanism; and that is, I have to say, I mentioned Massachusetts. I have not been in the Massachusetts Legislature for a long time and I do not plan to go back, but——

[Laughter.] 

——tell me again that they cannot do the way they do rate regulation. I find that very hard to justify, for my state or any other. 

And we are not here talking obviously about globalization. We 

are not talking about multistate operations when we talk about 

automobile insurance rate setting. We are talking about a political 

judgment that people disagree with. 

And I may or may not disagree with it. But I do not understand, 

in our system, how we just cancel it out. 

So I think that one, just saying to the States, ‘‘You are wrong, 

stupid. And we know better. And you cannot do that anymore,’’ is 

a very hard sell in our system. 

But now let me get back, people, in closing, I would be interested: where are we on the question of a mechanism? And do you 

agree that we have to have a less ambiguous mechanism if we are 

going to expect this thing to function? 

Anybody? 

Mr. COUNSELMAN. I will respond to that. I think we need to say 

what needs to happen. 

Mr. FRANK. Who is we? 

Mr. COUNSELMAN. I think Congress——

Mr. FRANK. Okay. 

Mr. COUNSELMAN.——I think needs to say what needs to be done 

because the commissioner of Massachusetts or the commissioner of 

New Jersey, he does not have to be concerned about what is going 

70

on elsewhere in the country. He is concerned about what is going 

on in——

Mr. FRANK. But how do we enforce that? I understand that. But 

my problem is I do not—I mean, the goal setting, I tend to agree 

with mending the goals, not overriding the regulation. But the enforcement mechanism, I am afraid without an enforcement mechanism, we may just be adding to the confusion. 

Mr. COUNSELMAN. Well, perhaps our mechanism needs to have 

something that we would do, some action that the federal administrator would be able to take if, in fact, the standards were not met 

by a given date. 

Mr. FRANK. Yes, I would advise you to work on that because I 

think that, again, is what you need. 

Anybody else? Yes, sir? 

Mr. SINGER. Well, congressman, a simple solution would just be 

a preemption of rate setting. I mean, there is a reason that——

Mr. FRANK. Only that and nothing else? None of the other——

Mr. SINGER. No, but that would be a solution to the Massachusetts and New Jersey problem. And I think the politicians and the 

administrators in Massachusetts and New Jersey do a very, very 

good job on most things they do. 

Mr. FRANK. But you just disagree with their value decision? And 

you want us to cancel it. 

Mr. SINGER. What I think is they have forced themselves into a 

position where there is so much political risk in letting the steam 

out of the rate system that they cannot do that. 

Mr. FRANK. By political risk, you mean public reaction? 

Mr. SINGER. Public reaction——

Mr. FRANK. So it is not the politicians we should overrule, it is 

the public. 

Mr. SINGER. I think in fact the public would not be hurt. I think 

ultimately——

Mr. FRANK. Do you think the politicians do not understand what 

the voters would do? I mean, you said the politicians will not do 

it because they are afraid of voter reaction. 

I have to tell you, one thing about Massachusetts politicians, 

please do not suggest that they misunderstand voter reaction. They 

tend to be very good at that. 

Mr. SINGER. Yes. 

Mr. FRANK. I do not think you understand. But is that not your 

problem? I do not want to play games with you. What you are basically saying is there is a decision made by the electoral forces in 

Massachusetts with which you disagree. And Congress ought to 

cancel it. 

And that is a hard sell for me. 

Mr. SINGER. I think the political mechanism in Massachusetts, 

unfortunately, has itself into a very difficult problem. 

Mr. FRANK. But you realize that political mechanism is called democracy? 

Mr. SINGER. Yes, I understand that. I understand that. But I also 

understand that some economic decisions sometimes are made at 

different levels of government. And I think simply it is not working 

now. 

71

We are strangling an economic market to the disadvantage of 

consumers in Massachusetts. 

Mr. FRANK. And the consumers are too dumb to understand to 

understand that? 

Mr. SINGER. The consumers have no choice. There is only 

one——

Mr. FRANK. No, they have a choice politically. They have a 

choice. 

What you said is the consumer reaction to doing away with regulation intimidates the politicians into keeping it, so the consumers 

are forcing the politicians to do something which is bad for the consumers. Consumers are the voters, after all. 

Mr. SINGER. And the consumers and the voters probably will 

change it at some point. 

Mr. FRANK. I am afraid you are going to have to wait for them. 

I am not going to short circuit the democratic process with regard 

to my state or any other in that regard. 

Mr. SINGER. I understand. 

Mr. FRANK. Thank you, Mr. Chairman. 

Chairman BAKER. The gentleman yields back his time. 

I do have follow-ups, which I will provide in writing to each of 

you at a subsequent time, as I am sure other members may as 

well. I just want to thank each of you for your participation. This 

has been a helpful step in our work. And we look forward to our 

continued conversation. 

Our meeting is adjourned. 

[Whereupon, at 2:05 p.m., the subcommittee was adjourned.] 

(73)

A P P E N D I X

March 31, 2004

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