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44–183 PDF 2008

H.R. 5840, THE INSURANCE 

INFORMATION ACT OF 2008 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS, 

INSURANCE, AND GOVERNMENT 

SPONSORED ENTERPRISES 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

JUNE 10, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–118 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED

ENTERPRISES

PAUL E. KANJORSKI, Pennsylvania, Chairman 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

DEBORAH PRYCE, Ohio 

JEB HENSARLING, Texas 

CHRISTOPHER SHAYS, Connecticut 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

SHELLEY MOORE CAPITO, West Virginia 

ADAM PUTNAM, Florida 

J. GRESHAM BARRETT, South Carolina 

GINNY BROWN-WAITE, Florida 

TOM FEENEY, Florida 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 10, 2008 .................................................................................................... 1 

Appendix: 

June 10, 2008 .................................................................................................... 43 

WITNESSES 

TUESDAY, JUNE 10, 2008 

Kennedy, Hon. Brian P., Representative, Rhode Island House of Representatives, and President, National Conference of Insurance Legislators ............... 14 

Laws, Tracey W., Senior Vice President and General Counsel, Reinsurance 

Association of America (RAA) ............................................................................. 33 

McRaith, Hon. Michael T., Illinois Division of Insurance, on behalf of the 

National Association of Insurance Commissioners ........................................... 12 

Norton, Hon. Jeremiah O., Deputy Assistant Secretary, U.S. Department 

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

Rahn, Stephen E., Vice President and Associate General Counsel, Lincoln 

Financial Group, on behalf of the American Council of Life Insurers ............. 31 

Sampson, David A., President and Chief Executive Officer, Property Casualty 

Insurers Association of America ......................................................................... 35 

Wolin, Neal S., President and Chief Operating Officer, Property and Casualty 

Operations, The Hartford Financial Services Group, on behalf of the American Insurance Association .................................................................................. 30 

APPENDIX 

Prepared statements: 

Brown-Waite, Hon. Ginny ................................................................................ 44 

Carson, Hon. Andre .......................................................................................... 45 

Hinojosa, Hon. Ruben ....................................................................................... 47 

Kennedy, Hon. Brian P. ................................................................................... 49 

Laws, Tracey W. ............................................................................................... 58 

McRaith, Hon. Michael T. ................................................................................ 68 

Norton, Hon. Jeremiah O. ................................................................................ 74 

Rahn, Stephen E. .............................................................................................. 78 

Sampson, David A. ........................................................................................... 86 

Wolin, Neal S. ................................................................................................... 93 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Kanjorski, Hon. Paul E.: 

Written statement of the American Home Ownership Protection Coalition ................................................................................................................. 100 

Written statement of Eric D. Gerst ................................................................. 102 

Written statement of the National Association of Mutual Insurance Companies ............................................................................................................. 110 

McRaith, Hon. Michael T.: 

‘‘National Association of Insurance Commissioners (NAIC) International 

Insurance Relations Committee: Action Plans’’ .......................................... 118 

(1) 

H.R. 5840, THE INSURANCE 

INFORMATION ACT OF 2008 

Tuesday, June 10, 2008 

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

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

The subcommittee met, pursuant to notice, at 10:08 a.m., in room 

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

[chairman of the subcommittee] presiding. 

Members present: Representatives Kanjorski, Sherman, Moore of 

Kansas, Capuano, Hinojosa, McCarthy, Baca, Miller of North Carolina, Scott, Bean, Klein, Murphy, Donnelly; Pryce, Castle, Manzullo, Royce, Capito, Brown-Waite, Feeney, Davis of Kentucky, and 

Campbell. 

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

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

Good morning. We meet today to discuss H.R. 5840, the Insurance Information Act of 2008. Ranking Member Deborah Pryce, 

Congressman Dennis Moore, Congresswoman Melissa Bean, and 

Congressman Ed Royce joined me in introducing this legislation in 

mid-April. I would like to thank each of the original cosponsors for 

their support. 

H.R. 5840 promotes an idea which I have long held, and which 

I incorporated into the Financial Services Committee’s oversight 

plan for the 110th Congress: that the Federal Government should 

have an in-house expert on insurance policy matters. To that end, 

the bill would create an Office of Insurance Information within the 

Treasury Department. 

At a private briefing between Members of Congress and the Federal financial regulators shortly after the September 11th terrorist 

attacks, it became very clear to me that the Federal Government 

lacks needed expertise on insurance policy. Evidenced by the recent 

debates on catastrophic insurance, I suspect that others came to a 

similar conclusion in the wake of Hurricane Katrina. Moreover, the 

ongoing troubles in the bond insurance marketplace have highlighted the fact that insurance is a financial product with significant implications for the broader national economy. 

As such, the Federal Government should have a deep knowledge 

base on the insurance industry. We need to understand how the inVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
2 

dustry functions. We need to ascertain its relationship to other sectors of the financial marketplace. We need to appreciate its importance in our economy. The establishment of an in-house information resource to address these issues will ultimately help us to construct better policies, better rules, and better laws. 

Recently, I met with a former senior official who worked at the 

Treasury Department during 2001. From this conversation, I 

learned that there were only two staffers working on insurance 

issues at that time. In a time of crisis, this lack of in-house expertise was troubling. Even with the passage of the Terrorism Risk Insurance Act, we now have less than 10 staffers dedicated to insurance issues, and their focus is very limited. 

The same former Treasury official thought that it made sense to 

create an Office of Insurance Information in the Treasury Department. Moreover, this individual believes that such an Office ‘‘would 

have been helpful’’ in the aftermath of September 11th. Such an internal resource would have already had expertise in place, information available, and relationships developed to assist in the consideration of legislation like the Terrorism Risk Insurance Act. This Office might have even helped us to expedite the lengthy debates on 

the original TRIA law. 

Since the addition of insurance to the Financial Services Committee’s jurisdiction in 2001, we have held more than a dozen hearings on specific insurance proposals and broader industry issues. 

Because the insurance industry is a significant part of our economy, the Financial Services Committee will certainly continue to 

review insurance matters in the years ahead. The Office of Insurance Information created in this legislation and its independent 

voice will help the committee make better-informed decisions on future insurance proposals. 

Additionally, the Office of Insurance Information will coordinate 

Federal efforts and establish Federal policy on international insurance matters. We live in a global, interconnected world. Insurance 

issues are increasingly the topic of international discussions. We 

need to recognize this fact. To promote better coordination, the Office would have the authority to determine whether State insurance measures are consistent with such policy. The Office would 

additionally have very limited preemption powers, with safeguards 

in place, with regard to this determination. 

Before closing, I want to remind everyone that I have long discussed my desire to reach consensus on insurance reform measures. H.R. 5840 begins that work in earnest. In order to achieve 

broader agreement on the bill, I have worked since introducing the 

bill to make modifications, and will continue to refine the bill in 

the weeks ahead. 

To help us in this task, today’s witnesses will focus their comments on a discussion draft of a proposed managers amendment 

circulated last week. I understand that many of our witnesses 

today have suggestions to improve the legislation as we move forward. As always, the subcommittee is open to ideas to improve a 

bill. We want to work with all interested parties to maximize the 

growing consensus on this legislation. 

In closing, I want to thank Ranking Member Pryce for joining me 

again in inviting the witnesses on a bipartisan basis. We look forVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
3 

ward to learning their views on our bill. I also look forward to moving H.R. 5840 through the legislative process in the near future. 

I would like to recognize Ranking Member Pryce for her opening 

statement. Ms. Pryce? 

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

you for your continued leadership on this important issue of insurance reform in ushering H.R. 5840 forward today. 

I am hopeful we will see other bills considered in due course, 

both the agent licensing bill and legislation to expand the Risk Retention Act. I believe these should move through this committee 

with little opposition. I am hopeful that we can find ourselves doing 

some work on those as well. 

The Insurance Information Act we are discussing today will create a much-needed Federal voice for insurance. And above all else, 

above the political jockeying and strategizing and above the arguments that we are moving down the road to an optional Federal 

charter, above all that this bill is simply commonsense policy in action, removing a competitive disadvantage we currently face in insurance expertise at a Federal level, and filling a void at the table 

in global trade negotiations. 

Under the current regulatory structure, insurance regulators in 

Europe and elsewhere are forced to deal with 54 different regulators representing different interests. While the NAIC attempts to 

serve as a conduit for the States, its structure as a nongovernmental body makes it impossible to serve as an effective voice on 

insurance regulation while serving the disparate needs of its members. 

A Federal Office of Insurance Information with the responsibility 

of investigating and reporting on insurance issues, coordinating 

Federal policy, and establishing a role in trade negotiations, fills a 

void that has become ever more present in our global economy. 

I know portions of this bill, in particular the scope of the preemption of State regulation, will be the focus of much of the debate 

here today. But I am hopeful that we will be able to move to a consensus bill quickly and get to mark-up. 

I want to thank the chairman again for his leadership, for his bipartisan way of tackling these issues always, and also for building 

consensus in everything he does in this committee. I look forward 

to the testimony of the witnesses. And once again, thank you, 

Chairman Kanjorski. 

Chairman KANJORSKI. Thank you, Ms. Pryce. 

And now for an opening statement, our friend, the gentleman 

from California, Mr. Sherman. 

Mr. SHERMAN. I thank the chairman for holding these hearings. 

I think the Federal Government needs to have expertise on insurance. I see a Federal Office of Insurance as posing both one opportunity and one danger or concern. 

We have seen international trade agreements used to preempt 

consumer protection, to preempt environmental protection, and basically to put power in the hands of those in the corporate sector 

and to take it away from everyone else. If this Office simply takes 

us further down that road, that could of course be a concern. 

I see one opportunity, and that is that there are companies selling insurance around this country who are affiliated with European 

4 

insurance companies who continue to, I would say, cheat the families of the victims of not only the Holocaust, but the Armenian 

genocide and all of the tragic things that happened during World 

War I and World War II. 

We have a circumstance in which these companies refuse to post 

on the Internet the names of those insureds who died in the World 

War I or World War II era, or at least who bought their policies 

long before then. They refuse to put on the Internet the names of 

those insureds who are over 80, over 90, or over 110 years old 

where they have had no contact with the insured or their family 

since 1946. Why? Because they would prefer not to pay anyone on 

the policies. 

My concern? Consumer protection. Show me a company who 

won’t take every effort possible to connect with the family, even the 

distant family, of an Armenian insured who was born in the 1860’s, 

and I will show you a company that I don’t think is a good bet to 

invest with in 2008. 

So I look forward to this Office identifying for the American people those American companies affiliated with companies who sold 

insurance before World War I and before World War II in Europe 

and continue to refuse to post this information on the Internet. I 

think that is a function that is perhaps best handled at the Federal 

level. I look forward to seeing that as one of the functions of this 

new Office. 

I yield back. 

Chairman KANJORSKI. I recognize the gentleman from Illinois, 

Mr. Manzullo. 

Mr. MANZULLO. Mr. Chairman, thank you for holding this hearing to discuss the creation of the Office of Insurance Information. 

I want to extend a special welcome to one of the witnesses, Michael 

McRaith, who is the director of the Division of Insurance in my 

home State of Illinois. 

The committee is familiar with my misgivings regarding Federal 

intervention in the State insurance markets in the form of an OFC 

or through other vehicles such as the one we are discussing today. 

As I previously stated, I have yet to see any evidence that the insurance industry is in such dire straits that only an OFC can save 

it. 

Likewise, if the establishment of the Office of Insurance Information is directed towards making it easier for foreign insurers to 

deal with the United States, I would point to the fact that 85 percent of the reinsurance market is already foreign-owned, hardly indicating that foreign companies are not willing to do business in 

the United States with our current regulatory structure. 

In light of this, I would be interested in hearing two things from 

our witnesses today. First, I am curious whether they think it is 

a wise policy to allow foreign governments to request preemption 

in State laws when those State laws were presumably put in place 

to reflect the unique needs of the individual State and its consumers. I would additionally like to know if any of the witnesses 

can give me a clear picture of what State laws might be subject to 

Federal preemption. 

Second, I am interested to know why the witnesses feel that the 

OII would be a better advocate on their behalf than the capable adVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
5 

vocate already available to them in the USTR and the Department 

of Commerce. 

Thank you, Mr. Chairman, for allowing me the opportunity to 

issue a statement. I look forward to hearing from the witnesses 

today. 

Chairman KANJORSKI. Thank you, Mr. Manzullo. 

We will now hear from the gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much, Mr. Chairman. I am delighted 

to have the witnesses on this important hearing. I certainly want 

to thank you, Mr. Chairman, and Ranking Member Pryce, for holding the hearing. And I am pleased that the chairman has chosen 

to hold numerous hearings on this subject, for it is indeed an important and timely discussion, as insurance reform has been a very 

hot button issue for quite some time now. 

Insurance regulatory reform is an issue that many involved 

agree requires action, and action soon. However, it is evident that 

the approach to the concerns involved are still somewhat mixed. 

As the insurance industry continues to be primarily regulated at 

the State level, with many involved wanting increased Federal 

oversight, I am interested to hear the views and concerns of our 

distinguished witnesses as we work towards some sort of consensus. 

I think the operative word here is a ‘‘consensus’’ on how to proceed forward, for I believe we all agree regulatory reform is indeed 

necessary. But with any type of reform, it will take more time, it 

will take more discussion, and it will take compromise on how we 

may move forward. The American consumer deserves no less. 

I am further interested to hear from the witnesses regarding 

their perspective and opinions on H.R. 5840, the Insurance Information Act of 2008. We want to take into account the actual operations of these businesses and how to ensure that whatever action 

we do take does not deter competition, lessen efficiency, or increase 

costs of operating. 

From the development of global markets, to the various and detailed policy rationales towards pursuing regulatory reform, we 

must take all into account. And we have to listen to both sides of 

the issue before taking any further action. 

However, I do believe that the bill that I have introduced, along 

with my good friend and colleague, Congressman Geoff Davis, H.R. 

5611, the National Association of Registered Agents and Brokers 

Reform Act of 2008, is a good start. 

And both Geoff and I are deeply appreciative for the guidance 

and assistance from our Chairman Kanjorski on our bill, as well as 

Ranking Member Pryce, as they help us; for we feel that this is a 

good start towards reform which would ensure adequate agent/ 

broker licensing as well as ensure increased competition for everyone, as the bill now has garnered 42 cosponsors, both Democrat 

and Republican, and many of them are on this committee. 

So I believe that this has strong support and interest, and that 

our bill should be a part of any insurance regulatory reform markup package. That is important. The legislation of myself and Congressman Davis will help reform and modernize a very important 

part of the State insurance regulation, and that is, agent and 

broker licensing. The legislation would further benefit consumers 

6 

through the increased competition among agents and brokers, leading to greater consumer choice. And that is what we are after. 

This legislation is basically just simple and straightforward. Insurance agents and brokers who are licensed in good standing in 

their home States can apply for membership to the National Association of Registered Agents and Brokers or, as we affectionately 

call it, NARAB, which will allow them to operate in multiple 

States. 

A private and nonprofit NARAB entity consisting of State insurance regulators and marketplace representatives will serve as a 

portal for agents and brokers to obtain nonresident licenses in additional States. This is very much needed. 

And of course, that is provided that they pay the required State 

nonresident licensing fee and that they meet the NARAB standard 

for membership. Membership in NARAB would be voluntary and 

would not affect the rights of a nonmember producer under any 

State license. This is a very, very well thought out and very much 

needed piece of legislation. 

The bill would also establish membership criteria, which could 

include standards for personal qualifications, education, training, 

and experience. And further, member applicants would be required 

to undergo a national criminal background check. And, to be very 

clear, NARAB would not—I repeat, would not—be a part of nor report to any Federal agency and would not have any Federal regulatory power. 

Federal legislation is needed to ensure a reciprocal licensing 

process for insurance agents and brokers, and Congress has already endorsed this concept when we passed the Gramm-Leach-Bliley Act in 1999. It would have created NARAB if a number of 

States did not reach a certain level of licensing reciprocity. 

And although enough reciprocity was provided to avoid the creation of NARAB, it has been brought to my attention and others 

on this committee by agents, and agents in my own home State of 

Georgia and from those in other parts of the country, that there is 

a frustration over incomplete insurance licensing reciprocity. It is 

apparently clear that the bar was not set high enough in GrammLeach-Bliley, thus the reasoning behind this important litigation. 

I am simply working to ensure an updated version of NARAB. 

I believe the increased competition among agents and brokers this 

bill would create would be beneficial to all, and on all accounts be 

more fair; in addition, and of most importance, greater consumer 

choice. 

As more and more agents operate across State lines, this problem 

of reciprocity has become worse, and it has become apparent to me 

and others on this committee that true nonresident licensing reform for insurance agents could only really be achieved through 

legislation on a thorough level. 

Again, this litigation would simply narrowly target only the area 

where there is a problem. And again, it has garnered support from 

both sides of the aisle. I look forward to working with my colleagues in garnering further support on this bill. And as my colleagues begin to fully understand this problem, I believe everyone 

will be aware of the need for adequate agent licensing reform. 

7 

Thank you very much, Mr. Chairman, and I look forward to the 

testimony of the witnesses. 

Chairman KANJORSKI. Thank you, Mr. Scott. 

We will now hear from the gentleman from California, Mr. 

Royce. 

Mr. ROYCE. Mr. Chairman, thank you very much. I thank you for 

your continued leadership on this issue. The last three hearings 

that we have had on insurance regulation, I think, have been particularly insightful, and I look forward to this hearing today. 

I would also like to welcome Deputy Assistant Secretary Norton. 

This hearing is a testament to valuable insight provided by the 

Treasury Department in the ‘‘Blueprint for a Modernized Regulatory Structure.’’ And I believe the concept, your concept, Mr. 

Chairman, of an Office of Insurance Information, is one worth pursuing. 

And I think as well that the past three hearings that we have 

sat through, where we have heard the information come forward 

about the depth of the problems currently experienced in the insurance sector, these are problems that have to be confronted. 

One of the major problems, of course, is the current lack of expertise on insurance matters within the Federal Government. An 

OII would go a very long way toward filling this void by providing, 

within the Department of the Treasury, an expert able to provide 

Congress with the necessary insight when we are dealing with information like a financial shock or a national crisis, or when we are 

in the process of formulating tax policy. It would be good to have 

somebody have a seat at the table who understands insurance on 

a full-time basis from within the Treasury Department. 

Giving that Office, as you are doing here, the authority to reach 

agreements with our trading partners is equally important because 

considering the global nature of the insurance sector, this authority 

is long overdue. 

We have all heard the stories from some of our most reliable 

trading partners expressing the frustration—and we have seen it, 

frankly, in the numbers in the balance of trade and everything 

else—but expressing the frustration that our industry has with the 

fact that Europe now is moving to one national market for all Europe for insurance, and here in the United States we have 50-plus 

separate markets, effectively, for insurance, and all of the problems 

that that creates. 

So I believe the greatest attribute of an Office of Insurance Information is that it moves us one step closer to what I believe would 

solve these problems, which is an optional Federal charter for insurance. Insurance consumers and providers have suffered under 

the current mandatory State-based regulatory structure for far, far 

too long with far too many costs for the consumers, $13.7 billion 

in additional costs. 

With the exception of Mr. McRaith’s State of Illinois, every State 

now subjects property and casualty insurance products to various 

degrees of price controls. And the consequences of that, from all the 

studies we have seen from economists, is that this form of rate regulation is what produces the $13.7 billion in additional premium 

costs to the consumers. It prevents companies from setting actuarially sound rates in the meantime. 

8 

And, frankly, under the current structure, if the industry is going 

to try to introduce a new insurance product on a national scale, 

that is going to take at least many months—it is probably going 

to take years—because of the delay experienced by going to every 

single State. 

And every time you have a new legislator elected in some State 

body, they will run through a bill. For instance, in a new Connecticut bill on surplus lines, insurers must have the cover of their 

policies printed in at least 12 point bold type instead of the previous 10 point bold type that the neighboring States use. 

Arbitrary mandates like this are so common at the State level and they cost consumers, as I say, $13.7 billion. The inherent nature of the State-based system means that you have 99 legislative 

bodies and 54 regulators who all have a say in how the insurance 

sector is regulated, and most of them manage to stay out of step. 

So an alternative to this system is long overdue. And as the 

Treasury Blueprint notes, any modern and comprehensive insurance regulatory structure should do several things. It should enhance competition among insurers in national and international 

markets. It should increase efficiency, promote more rapid technological change, encourage product innovation, reduce the regulatory 

costs, and above all, provide the highest quality of consumer protection. And that is another concept of bringing a world-class regulator on the front of consumer protection into this. 

So I share this sentiment. I believe an optional Federal charter 

created through an Office of Insurance Information is the best way 

to achieve this model. And I look forward to moving this process 

along. 

But I wanted to thank you again, Mr. Chairman, for the hearings 

that you have held on this challenging subject, and I look forward 

to hearing the two panels of witnesses here. I yield back the balance of my time. 

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

Now we will hear from the gentleman from Florida, Mr. Feeney. 

Mr. FEENEY. Thank you, Mr. Chairman. I am encouraged that 

the committee is looking at insurance regulatory reform proposals 

today. In my home State of Florida, as is well known, we are currently facing many insurance-related issues, not the least of which 

is the availability of affordable reinsurance. 

Last week, I introduced the Reinsurance International Solvency 

Standards Evaluation Board Act of 2008. This legislation would 

help to reduce the cost of reinsurance and hopefully ultimately 

lower the cost of insurance to homeowners through encouraging 

competition in the market. 

The RISSEB Act would significantly increase availability of reinsurance by eliminating the discriminatory reinsurance regulations 

such as collateralizing requirements for certified entities. The nonprofit board would certify, upon request, whether insurance regulatory jurisdictions have adequate reinsurance capital and risk 

management standards and supervision. 

The Act would create a system where reinsurers, supervised by 

certified jurisdictions, would not be discriminated against versus 

domestic reinsurers with respect to requirements for credit for reinsurance. These certifications could be recognized for equivalence 

9 

determinations by foreign countries to protect compliance by U.S. 

insurers under the proposed EW Solvency II directive. 

By increasing the competitiveness of the reinsurance market and 

creating uniformity, we would give their customers more choice. 

The provisions of the bill are completely voluntary but allow domestic and foreign reinsurers to do business nationwide if the proper standards and safeguards are in place. 

Mr. Royce is an eloquent advocate for an optional Federal charter. I don’t know that all of those issues have been fully worked 

out, but I will say that there is no insurance industry or market 

more suitable for multi-jurisdictional performance than the reinsurance market. And that would be a great place to start as we try 

to deal with what is increasingly not just a national but a global 

issue when we talk about reinsurance especially. 

While the RISSEB Act is not in the legislation we are addressing 

today, I am pleased that the chairman is opening the debate for reinsurance reform, and I yield back the balance of my time. 

Chairman KANJORSKI. Thank you, Mr. Feeney. 

The gentlelady from Florida, Ms. Brown-Waite. 

Ms. BROWN-WAITE. I thank the gentleman. I also am glad that 

you are holding this hearing today, and I look forward to hearing 

from the witnesses. 

As you know, insurance, specifically property and casualty insurance, is one of the biggest issues facing Florida today. Our State 

has grappled with affordability and availability issues throughout 

the past decade-and-a-half, and we still don’t see any end in sight. 

Therefore, any legislation that would affect a State’s role in insurance regulation has to be important to Floridians and those of us 

fortunate enough to be elected to represent them. 

I recognize that insurance markets in the United States are fragmented. And while I was not here during the 9/11 attacks, I can 

imagine how difficult gathering information from 50 States would 

have been. I agree that a centralized Office providing insurance expertise may be something that Congress needs. 

However, we need to be leery of an Office that supersedes State 

laws, particularly when it comes to insurance. I appreciate the efforts that Mr. Kanjorski has made to tailor this bill specifically to 

address issues relating to foreign insurers. But we need to tread 

very lightly here. 

I am interested in what the witnesses have to say about this important legislation, and I certainly look forward to hearing from 

them. Again, thank you, Mr. Chairman, and I yield back the balance of my time. 

Chairman KANJORSKI. Thank you very much, Ms. Brown-Waite. 

And finally, we will hear from Mr. Davis of Kentucky. 

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

Ranking Member Pryce, for holding this hearing today on the proposed legislation to establish an Office of Insurance Information. 

As we consider another proposal for insurance reform, I want to 

make mention of the bill that my good friend, Congressman David 

Scott, and I introduced earlier this year and was commented on 

earlier by David, H.R. 5611, the National Association of Registered 

Agents and Brokers Reform Act. 

10 

We now have 42 bipartisan cosponsors, with more joining every 

week, including 25 members of the Financial Services Committee. 

This is a good indication of the support for the bill among committee members and interest in moving this measure forward. 

As you all know, the NARAB concept was originally part of 

Gramm-Leach-Bliley, but unfortunately never went into effect. 

Nearly 10 years later, we are still in need of progress on the issue 

of licensing reciprocity for agents and brokers. NARAB II would 

maintain the State-based regulatory system and all the revenue associated with it, while simplifying the licensing process and making 

life easier for small business owners who attempt to do business 

and insure across State lines. I have personally experienced this 

myself as a small business owner seeking insurance in the 1990’s 

and in the time prior to coming to Congress. 

As is the case with Chairman Kanjorski’s Office of Insurance Information proposal, I believe NARAB II is a meaningful contribution that has breathed new life into a debate we have continued for 

a number of years now. There are a number of insurance reform 

proposals out there, both big and small. Regardless of any of our 

positions on the various insurance reform bills, I think we can all 

agree that there is always room for improvement in the area of regulation. 

I would respectfully ask the chairman to include NARAB II in 

any mark-up of insurance legislation this year, and I look forward 

to hearing the witnesses’ testimony. 

I yield back. Thank you. 

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

Are there any other members of the committee who wish to make 

an opening statement? 

[No response] 

Chairman KANJORSKI. There being none, we will move on to our 

panel. 

First and foremost, I welcome the members of the panel today. 

And without objection, your written statements will be made a part 

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

of your testimony. 

The first witness we have is Mr. Jeremiah O. Norton, Deputy Assistant Secretary of the United States Department of the Treasury. 

Mr. Norton? 

STATEMENT OF THE HONORABLE JEREMIAH O. NORTON, DEPUTY ASSISTANT SECRETARY, U.S. DEPARTMENT OF THE 

TREASURY 

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

Pryce, and members of the subcommittee for inviting me to appear 

before you today to discuss H.R. 5840. 

Insurance performs an essential function in our domestic and 

global economies by providing a mechanism for businesses and individuals to safeguard their assets from a wide variety of risks. Insurance is similar to other financial services in that its cost, safety, 

and ability to innovative and compete is heavily affected by the 

substance and structure of its regulation. 

On March 31st, the Treasury Department released a report on financial services regulation entitled, ‘‘Blueprint for a Modernized 

11 

Financial Services Regulatory Structure.’’ In addition to making 

recommendations for a long-term optimal regulatory structure, the 

Blueprint also presents a series of short-term and intermediateterm recommendations that could, in Treasury’s view, improve and 

reform the U.S. financial services regulatory structure, including 

the current State-based regulation of insurance. 

In the intermediate term, Treasury recommends the establishment of an optional Federal charter. An OFC structure would provide insurance market participants with the choice of being regulated at the national level or of continuing to be regulated by a 

State. 

While an OFC offers the best opportunity to develop a modern 

and comprehensive system of insurance regulation, Treasury acknowledges that the OFC debate in the Congress is ongoing. At the 

same time, however, Treasury believes that some aspects of the insurance regulatory regime require immediate attention. 

In particular, Treasury recommends that the Congress establish 

an Office of Insurance Oversight within Treasury. This newly established Office would be able to focus immediately on key areas 

of Federal interest in the insurance sector, including international 

insurance issues. 

The insurance marketplace operates globally, with many significant foreign participants. There is increasing tension among current regulatory systems due to an absence of a clear and settled 

means for governments to recognize the equivalency of prudential 

regulation of insurance and reinsurance industries seeking to provide services in other countries. This impairs the ability of U.S.- 

based firms to compete abroad, and the allowance of greater participation of foreign firms in U.S. markets. 

In particular, foreign government officials have continued to 

raise issues associated with the United States having at least 50 

different insurance regulators, which makes coordination on international issues difficult. The NAIC has attempted to fill this void 

by working closely with international regulators in various areas. 

NAIC itself is not a regulator, but facilitates communications 

among the States on many issues, including international insurance regulation. 

Nevertheless, it is becoming increasingly difficult for the United 

States to speak consistently and effectively with one voice. It has 

become clear to Treasury that there is an immediate need to establish an insurance sector advisor at the Federal level, as well as to 

create a framework to address emerging international issues. Two 

examples of such a need include reinsurance collateral and the European Union’s Solvency II directive. 

As called for by the Blueprint, the Office of Insurance Oversight 

would focus immediately on key areas of Federal interest in the insurance sector. It would advise the Secretary of the Treasury on 

major domestic and international policy issues, provide true national regulatory expertise and guidance on the insurance industry 

and how it relates to the overall economy, and provide such expertise and guidance on legislative issues pending before the Congress. 

The Office should be empowered to address international regulatory issues with foreign regulators. In this role, the Office should 

be the lead in working with the NAIC and State insurance reguVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
12 

lators, who would still be primarily responsible for implementing 

insurance regulatory policies. Its focus would be on regulatory matters that are not presently addressed at the Federal level. 

It would not supplant the Commerce Department, the USTR, or 

other Executive Branch agencies, but would work closely with 

them. For example, the Office could lead in discussions with international regulators on international regulatory issues to develop 

agreements that provide for the recognition of substantially equivalent prudential measures and regulatory systems with respect to 

insurance and reinsurance services. 

Treasury welcomes the introduction of H.R. 5840 by Subcommittee Chairman Kanjorski and Ranking Member Pryce. This 

bill would create an Office within Treasury very similar to that recommended in the Blueprint. Overall, Treasury supports the bill’s 

creation of the Office. We appreciate the efforts of the chairman 

and the members of this committee. Treasury has some concerns. 

However, we are confident that we can continue to work together 

to address these issues as this legislation moves through the process. Thank you. 

[The prepared statement of Deputy Assistant Secretary Norton 

can be found on page 74 of the appendix.] 

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

And now we will hear from the Honorable Michael T. McRaith, 

director of the Illinois Division of Insurance, on behalf of the National Association of Insurance Commissioners. 

Mr. McRaith. 

STATEMENT OF THE HONORABLE MICHAEL T. McRAITH, ILLINOIS DIVISION OF INSURANCE, ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS 

Mr. MCRAITH. Chairman Kanjorski, Ranking Member Pryce, and 

members of the committee, thank you for inviting me to testify 

today. I am Michael McRaith, director of insurance for the State 

of Illinois, and I speak on behalf of the National Association of Insurance Commissioners. 

I congratulate you on your continuing evaluation of insurance 

regulatory modernization. While we may disagree on solutions, I 

expect we do agree that insurance regulation not only serves our 

domestic industry but must also prioritize U.S. consumers. And 

while some may take the opportunity presented by H.R. 5840 to 

clamor for the so-called optional Federal charter, I will ignore the 

rhetoric and focus on the merits of the current draft. 

To be sure, as with any dynamic industry, insurance regulation 

must modernize. States have been working with the sponsors and 

with leaders of producer groups to improve licensing uniformity 

and reciprocity through H.R. 5611, and this mutually constructive 

good faith effort has made great strides. 

Through a public hearing and comment process, the States are 

near conclusion of a proposal for comprehensive reinsurance reform. The uniform certificate of authority application has been 

adopted by all States. The interstate compact now has 31 members, 

with more coming as early as today. 

In these and other areas, individually and through the NAIC, 

thousands of State regulators work every day for consumers and 

13 

for industry members. We supervise 36 percent of the world’s insurance market, and 26 of our members rank among the top 50 

markets in the world. We have the world’s largest and most competitive insurance market, and we, not any other country, provide 

the gold standard for regulation in developing countries. 

H.R. 5840 would create the Office of Insurance Information to 

provide a focal point for international insurance agreements and 

Federal data analysis. State regulators look forward to partnering 

with the OII for these narrow purposes. 

The NAIC maintains the world’s largest insurance financial database, the Consumer Information Resource, licensing information for 

more than 4 million producers, and other subject matter data. Our 

vast archive kept current on customized software and hardware 

platforms can be manipulated to generate thousands of reports. 

States receive confidential information each day, and will work 

with the OII to preserve the same confidentiality constraints under 

which we operate. 

The OII would also coordinate Federal policy on international 

matters. Contrary to mischaracterizations in others’ testimony, the 

NAIC has been active internationally, collaborates regularly with 

our foreign counterparts, serves as technical advisor to the USTR, 

and works with the OECD, the Joint Forum, and others. 

But accepting the limits of Article I, Section 10 of the Constitution, we thank this committee and your talented staff for our important dialogue on the scope of the OII’s preemptive authority. 

Some additional work must be done. Among others, the term 

‘‘agreements’’ should be defined, and clarity should be added so 

that subsection 313(j) excludes the business of insurance. 

For these and other improvements, we pledge our continued good 

faith interaction. We must be ever vigilant, though, that the OII 

not gain authority to preempt the consumer protections and solvency standards adopted by the States and that serve the public 

so well. 

While conversation most often centers on industry initiatives, in 

2007, State regulators replied to over 3 million consumer inquiries 

and complaints. Like you, we know that a single mother in a car 

wreck, racing between jobs, needs local and prompt assistance. We 

know that an elderly gentleman on a fixed income sold an indexed 

annuity cannot wend his way through a Federal bureaucratic morass. After every incident, our consumers, your constituents, need 

to know that the company that collected their premiums, often for 

years, has the wherewithal to pay the claim. 

And for these reasons, while we actively support efforts to aid 

U.S. insurers globally, we oppose any legislation with a broadly 

preemptive approach. 

To conclude, we express extreme caution against preemption, 

support the objectives of H.R. 5840, and renew our commitment to 

engage constructively with this committee. Thank you for your attention, and I look forward to your questions. 

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

68 of the appendix.] 

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

We will next hear from the gentleman from Rhode Island, a 

member of the Rhode Island House of Representatives, and the 

14 

president of the National Conference of Insurance Legislatures, Mr. 

Brian Kennedy. Mr. Kennedy? 

STATEMENT OF THE HONORABLE BRIAN P. KENNEDY, REPRESENTATIVE, RHODE ISLAND HOUSE OF REPRESENTATIVES, AND PRESIDENT, NATIONAL CONFERENCE OF INSURANCE LEGISLATORS 

Mr. KENNEDY. Thank you very much. Good morning, Chairman 

Kanjorski, Ranking Member Pryce, and members of the subcommittee. Thank you for inviting me to testify on insurance regulatory reform and H.R. 5840. 

I am Rhode Island State Representative Brian Patrick Kennedy, 

and I am the chairman of the House Committee on Corporations 

in Rhode Island, with jurisdiction over insurance and financial 

service issues. I also serve as the president of the National Conference of Insurance Legislatures, better known as NCOIL. 

When commenting on H.R. 5840, NCOIL finds it hard to close its 

eyes and ignore the lack of any State legislative presence because 

it is the State legislators that have shaped, by statute, the robust 

insurance market that exists today. It is ironic that States should 

bear the burden of proof to half preemption of the very laws that 

successfully steered the insurance sector through the pitfalls that 

have faced similar industries. 

State solvency laws have helped make the insurance market stable while the banking market, under Federal regulation, was 

rocked by the savings and loan scandals of the 1990’s, and by the 

subprime lending crisis of today. And even Federal initiatives, including ERISA, FEMA, and the NFIP have often fallen short of 

their goals. 

Regarding the NAIC role in this proposal, NCOIL believes that 

giving the NAIC a primary role in the Office of Insurance Information allows the tail to wag the dog. State regulators, four-fifths of 

which are gubernatorial appointees, are authorized by legislators to 

interpret and enforce the statutes that we develop. H.R. 5840 

would dramatically enhance the authority of the NAIC at the expense of the State officials to whom they, as insurance regulators, 

are accountable. 

It is unprecedented that the Federal Government would give 

such power to a private trade association—I repeat, a private trade 

association—or to what NAIC immediate past resident Walter Bell 

of Alabama in an April 9, 2007, letter called: ‘‘a 501(c)(3) nonprofit 

corporation with voluntary membership and not a State government entity.’’ This NAIC president went on to say that: ‘‘When individual insurance commissioners gather as members of the NAIC, 

they are not considered a governmental entity or a public body as 

defined by the various open meeting laws, but rather are a private 

group. As an organization, the NAIC does not have any regulatory 

authority.’’ 

We have noticed that Congress, like us, does not take lightly the 

ceding of authority to an Executive Branch. This was evidenced by 

your reaction to the Bush Administration’s August 2000 SCHIP enrollment directive. Now Congress is asking State legislators to cede 

authority to a private trade group. 

15 

NCOIL questions the scope of public policy meant to be considered by the Office of Insurance Information. H.R. 5840 would authorize the Office to collect, analyze, and advise on major domestic 

and international insurance policy issues. The word ‘‘advise’’ means 

to recommend, and indicates that the OII duties could be interpreted to be broader than simply offering insurance-related data. 

We are also concerned with what the term ‘‘international insurance matters’’ could come to mean since such matters, which are 

painted with a broad brush in the discussion draft, could be interpreted to also include accounting, life insurance, or property issues 

that generally are regarded as domestic policy. This could have 

dramatic, unfortunate outcomes for consumers and our constituents. The bill should clearly limit the OII’s domestic role to that of 

an informational clearinghouse. 

In previous statements, certain Members of Congress have questioned the practicality of an optional Federal charter for all lines 

of insurance. But an OII would establish a framework that a future 

Congress could build upon to create a Federal insurance regulator, 

such as an OFC or an Office of National Insurance. Creating an 

OII and not expecting an OFC is like building a baseball diamond 

and asking people not to play. As in the movie ‘‘Field of Dreams,’’ 

if you build it, they will come. And that is not our dream. 

OFC or ONI proposals would potentially jeopardize State consumer protections, existing regulation, and ongoing modernization 

efforts and State revenues. NCOIL feels that H.R. 5840 also leaves 

open many questions, including would States be left holding the 

bag and responsibility regarding consumer protection as well as enforcement of Federal policy, and would States realistically have the 

power under the proposed notice and comment process to fight off 

inappropriate State preemptions? 

We believe that experienced State officials who are closer to consumers can more effectively regulate and can better serve our mutual constituent base. And like you, we recognize that insurance 

regulation must be modernized in certain targeted areas, and we 

believe States should be allowed to continue to do so. 

The success of the Interstate Insurance Compact proves that 

States can speedily enact reform, and as Director McRaith pointed 

out, the compact is now an independent mechanism of the States 

and it is responsible to its now 31 member jurisdictions, offering 

one central filing point for life, annuity, disability, and long-term 

care insurance products. 

State legislators sit on a special committee that helps guide and 

advise the compact efforts. As with the compact and to reach consensus, we believe legislators should also have a role in any insurance regulatory advisory group. 

In concluding, there is no crisis in the insurance industry, and 

not one of my constituents has ever called me requesting support 

for Congress’s effort to set up a new Office of Insurance Information or an optional Federal charter because of problems at the 

State level. 

While I feel somewhat like that lonely Maytag repairman this 

morning, I want to say that I appreciate the work of the subcommittee and the opportunity to comment on H.R. 5840. Thank 

you. 

16 

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

49 of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Kennedy. Thank you for 

your testimony. I have certain questions, and I am sure my colleagues do as well. 

First of all, I suspect you could not support the legislation any 

more than you already have. Is that correct, Mr. Kennedy? 

Mr. KENNEDY. I will say, Mr. Chairman, that I don’t think we 

are officially against the proposal. But I think our concern at this 

point in time is that it is very top-heavy in the creation of the advisory role, specifically with the number of members being expanded 

out to 13 members without any legislative presence whatsoever. 

And legislators do have a background and a role currently within 

insurance jurisdiction and regulation. 

Chairman KANJORSKI. Well, you would think differently if we included legislators on that advisory committee. Is that correct? 

Mr. KENNEDY. I think that would probably help us a little bit 

more to understand the role and be able to play that role, much 

as we do with the insurance compact. 

Chairman KANJORSKI. Well, we are nudging there slowly. We 

may get ourselves to some role that we can both agree upon. 

I guess we have a good division on the panel. Mr. Norton, other 

than being generally supportive, you said that Treasury has some 

reservations. But in your testimony, you did not indicate what they 

are. Would you like to indicate that now? 

Mr. NORTON. Sure, Congressman. First, I would just emphasize 

that Treasury welcomes the introduction of your legislation and 

supports the creation of an Office. And we have appreciated the collaboration with your staff to date. 

In terms of concerns, we think there may need to be more clarity 

on the term ‘‘agreement’’ and on the authority to enter into agreements. And we would hope that we could continue collaborating 

with your staff to work out some of those details should you have 

similar concerns. 

A second concern that we have is with the independent congressional testimony that is in your bill and that is provided to the Office, we feel as though it is not necessary, as this Office is supposed 

to advise the Secretary of the Treasury on how to exercise his or 

her power. And other offices in the Executive Branch that have 

such independence are usually led by individuals who are nominated by the President, confirmed by the Senate, and operate as financial services regulators, for example. 

So those are the highlights. But we think that they are very 

bridgeable. And we again appreciate the collaboration and hope 

that we can continue that. 

Chairman KANJORSKI. We have to work on that. We have gone 

several ways on that as the legislation has been proceeding, as you 

know. But it is my general and personal view that we have to be 

very careful to keep this Office out of the political realm and out 

of political control. That is why a measure of independence, I think, 

is essential. Without that, the Office would fall into significant control of the party who exercises control in the Executive Branch. 

That could be unfortunate—not that it would be, but it could be. 

17 

Mr. NORTON. Again, I certainly understand those concerns. I 

think at this point we have a bit of a different perspective. But 

hopefully we can continue talking about this. 

Chairman KANJORSKI. Well, I hope we can work on that in the 

next several weeks, not months, so that we can move this along. 

Mr. NORTON. Absolutely. We are focused on this, Mr. Chairman. 

Chairman KANJORSKI. Very good. The gentleman sitting next to 

you from Illinois operates the most important insurance division in 

the United States. Every time I meet with the insurance industry, 

they tell me that Illinois is just the cat’s meow when it comes to 

insurance. 

Do you think we need this legislation at all, Mr. McRaith? 

Mr. MCRAITH. Mr. Chairman, first of all, I am very proud of the 

insurance marketplace that we have in Illinois and the regulatory 

structure. It is somewhat disconcerting to be the object of so many 

industry fantasies, but I think that we will continue our efforts in 

Illinois in a professional manner. 

The legislation as proposed is legislation that is on its way to 

being narrowly crafted enough that the regulatory community 

could stand behind it. As you understand, of course, our primary 

concern is that through a trade or international commercial agreement, that the protections that have worked so well for the States 

and the industries, for your constituents, that those not be threatened, that they be considered and integrated. 

And to the extent that there is the possibility of a discriminatory 

impact on a non-U.S. insurer, which is one of the essential grounds 

for preemption, that the State regulatory perspective on the reasons for that discriminatory or less favorable treatment of that 

company are recognized. 

But to be clear, we do remain committed to working with you, 

your staff, and the other sponsors of this bill to improve it, to narrow the possibility of that inadvertent preemption that I think we 

all agree we don’t want to happen. 

Chairman KANJORSKI. Well, we appreciate that. We hope you 

will keep that attitude. And we are hoping to work with you. 

I know that my time has expired, and I will just take one second 

to say, Mr. Kennedy, I want to assure you that the subcommittee 

is not in search of a problem. We really have been meeting with 

the insurance industry over a long period of time now, and seldom 

do we meet with members of the industry that they do not call 

some major, significant attention of ours to changes that could be 

made to facilitate better service, less expense, greater competition, 

etc. 

So I want to assure you on behalf of myself and the committee 

that we are not looking for a problem to solve. I think we have a 

few in Washington that need solving, so we really do not have to 

seek them out. This is a problem that sort of presented itself to us. 

But thank you, and we will take into consideration your thoughts. 

Now, the gentlelady from Illinois, Ms. Pryce—Ohio. I am sorry. 

Ms. PRYCE. O-H-I-O, we say proudly in Ohio. Thank you, Mr. 

Chairman. 

First of all, I want to give my personal thanks to Treasury for 

the good start to so many of our problems in the Blueprint that you 

put forward. And this, I know, is just one part of it. As this comVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
18 

mittee does our due diligence in examining many other parts, I just 

want to say that I think that we are off to a good start, perhaps 

overdue, but there is no time like the present to get moving. 

Let me talk a little or let me ask a little bit about, you know, 

as we examine our balance of trade issues and consider trade in 

services, is there any measurement of loss on the part of U.S. interests, whether it is anecdotal or industry estimates or otherwise, 

that we can really point to to get a feel for what kind of disadvantage we may be in without a Federal component to insurance, at 

least as an element of trade. 

Do we have any estimates? Do any of you know of any of those 

kind of numbers that might be floating out there? I am sorry it is 

very hard to pinpoint with any exactness what they are, but is 

there anything like that available? Treasury doesn’t have anything 

that— 

Mr. NORTON. Congresswoman, that is one of the reasons why we 

think it is important to create an Office, so that we have a place 

to collect and analyze such information. 

Ms. PRYCE. And perhaps these questions might be better saved 

for our industry witnesses in the next panel. But I think it is important that we know what we are dealing with and why we are 

trying to go in this direction. 

Well, then, let me ask Mr. McRaith, or any of you: There seems 

to be consensus as to what NAIC might be very against and not 

want to support. Can you offer to this committee thoughts about 

what you would be willing to support in this legislation? And if you 

have any thoughts in particular about reinvestment collateral 

issues or reinvestment insurance and Solvency II standards. 

Mr. MCRAITH. Absolutely. Congresswoman Pryce, thank you for 

the question. I think you have asked an excellent question. I would 

like to, first of all, answer the first part. 

The NAIC supports the idea that the Federal Government, in 

Treasury or somewhere else, should have insurance information 

and resources which it can call upon when needed in times of national crisis, whether it is 9/11 or the natural catastrophes in the 

Gulf. We also recognize, as I said in my testimony, that Article I, 

Section 10 of the Constitution limits the authority of the States to 

enter into treaties or commercial arrangements with foreign governments. 

Having said that, we also stand today, Congresswoman, able and 

ready and actively participating in discussions with the sponsors of 

H.R. 5611 and the industry groups in support of that bill that will 

help us move forward significantly with uniformity and reciprocity 

in producer licensing. 

Reinsurance collateral is another important issue. Congressman 

Feeney introduced a bill a couple of days ago. The NAIC is nearing 

the conclusion of a comprehensive reinsurance reform proposal, not 

just focused on reinsurance collateral but comprehensive reform. 

And finally, you asked about Solvency II. Let’s be clear what we 

are talking about. This is alluded to in the written testimony of 

several of the industry participants and in Treasury’s written testimony as well. Solvency II has not been adopted in any final form 

by the E.U. In fact, the Financial Times reported today that several 

of the smaller E.U. countries are very concerned and feel very 

19 

threatened by the possibility of Solvency II and that form of regulation. 

If it were to pass this year, assuming they adopt a final highlevel framework in 2008, implementation is not until 2012 at the 

earliest. So as we talk about Solvency II as if it is some impending, 

near-term prospect, let’s be clear about what we are talking about. 

It is not happening tomorrow. It hasn’t even been adopted in final 

form by the E.U. at this point. 

I think it is also clear—your prior question about the trade imbalance—the industry can talk about that, and I expect that they 

will. But as we talk about alternative regulatory schemes, let’s accept that we have a more mature regulatory system in the United 

States than the E.U. does. Let’s accept that our insurance market 

is now more robust than any other country in the world. 

And understand, the E.U. has 27 different jurisdictions still, 27 

different forms if you want to participate in those jurisdictions, 23 

different languages. So as we talk about these issues—and again, 

I appreciate the substance of your question—we need to acknowledge that there are some facts that are really important to those 

discussions as well. Thank you. 

Ms. PRYCE. Well, thank you for your very good answer. And let 

me just say, because my time has expired, that maturity is important but that doesn’t necessarily translate to what we need in this 

global market. 

Our robust industry needs somewhere to go. We are a robust industry. With the job losses in the United States, and the way our 

economy is, we really need to foster trade in the E.U., and we just 

want to do it right. 

And so thank you very much, all the witnesses. Thank you, Mr. 

Chairman. 

Chairman KANJORSKI. Thank you, Ms. Pryce. 

Now the gentleman from California, Mr. Sherman. 

Mr. SHERMAN. Thank you, Mr. Chairman. 

Mr. Norton, one of the main purposes of this bill is to let Treasury deal with circumstances where State regulation runs afoul of 

our international treaties. Can you identify any practice of any 

State now that violates or comes close to violating our international 

treaties? 

Mr. NORTON. Congressman, thank you for that question. I think 

it is an important issue to address. When Treasury released its 

Blueprint, we put forth recommendations. If I could just— 

Mr. SHERMAN. If I can interrupt, can you just give me a specific 

example of a specific practice? 

Mr. NORTON. Well, the point of our recommending the creation 

of this Office was not to address a specific example or a specific 

issue. What we saw was that in the banking world and the securities world, those financial services sectors had regulatory authorities that could go overseas and enter into regulatory equivalence 

agreements, and the insurance sector does not have that. 

Mr. SHERMAN. Mr. Norton, I have such limited time. 

Mr. NORTON. I understand. 

Mr. SHERMAN. Do you have a specific example? 

Mr. NORTON. Congressman, there are two that we highlight in 

our testimony that we believe are important, and those are reinsurVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
20 

ance collateral and Solvency II. But again, our recommendation 

was not to address a specific past practice, but to give the insurance sector similar powers that banking and securities regulators 

have. 

Mr. SHERMAN. Ms. Pryce identifies insurance as important to our 

trade balance. Of course, service is important to our trade balance. 

But of course, we generate funds from abroad by providing legal 

services, accounting services. Radiological services can be traded 

internationally. 

You are not suggesting that we establish a separate Treasury office for every service industry that could affect our trade balance, 

are you? 

Mr. NORTON. No, sir. Our recommendations were focused on financial services and the regulatory structure regarding financial 

services. And we highlighted three areas: banking; insurance; and 

securities and futures. 

Mr. SHERMAN. So your focus is not just on any industry that 

could affect our trade balance. Your focus is on financial services. 

In my State, they voted overwhelmingly to have rate regulation of 

insurance, particularly automobile insurance. Is there anything in 

our international agreements that could allow anyone to claim that 

such rate regulation violated—and anti-redlining provisions—violated our treaties? 

Mr. NORTON. Well, regarding this bill that the chairman has introduced— 

Mr. SHERMAN. I will ask you to answer my question. Is there 

anything in our international trade agreements that could serve as 

a basis for arguing that rate regulation and anti-redlining provisions violate those international agreements? 

Mr. NORTON. I think it is important to define the type of agreements. If they are trade agreements, they still fall under the purview of the USTR as the chief negotiator and lead for the Administration and the Government. What we are trying to discuss in our 

testimony would be regulatory equivalence agreements in financial 

services specific to insurance. 

Mr. SHERMAN. So you refuse to answer my question on the theory that is not germane to the bill. Okay. Let me move on to— 

Mr. NORTON. Congressman, I am happy to talk to our colleagues 

at USTR and circle back with you, if you would like. 

Mr. SHERMAN. Okay. I would ask you to get the information from 

other folks in the Administration and answer that question for the 

record. Because you are here proposing an Office that would more 

effectively enforce the trade provisions, I would sure like to know 

what those trade provisions are. And I know you would, too, and 

that is why you will check with USTR. 

Mr. NORTON. That is not the intent. We are talking about regulatory equivalency agreements, not trade agreements. Trade agreements would still be under the purview of USTR, at least as we 

envision the bill, and I think under the chairman’s text. 

Mr. SHERMAN. So it would only be what kind of agreements, 

again? 

Mr. NORTON. Regulatory equivalency agreements for financial 

measures, the type that financial services regulators enter into, in 

securities and in banking. 

21 

Mr. SHERMAN. Okay. Thank you. I believe my time has expired. 

Chairman KANJORSKI. Thank you, Mr. Sherman. 

We will now hear from the gentleman from Illinois, Mr. Manzullo. 

Mr. MANZULLO. Thank you, Mr. Chairman. I listened to the testimony of the three witnesses, and I have read the testimony of the 

other witnesses on the second panel. I don’t know if I will be 

around for that. 

But I am a little bit astonished at the gentleman from Illinois. 

We have a lot of problems in Illinois, but one of the areas where 

we lead the Nation is in insurance. I have a farm. No less than 

seven property and casualty insurance companies gave me a quote. 

The one I went with, a very established company, came back several years later and did risk management on the farm. It cost me 

$811 to make the repairs. But I appreciate it. 

And the only person here who is really making sense is Representative Kennedy, with all deference. Mr. Norton, you come in 

proposing legislation in a complete vacuum. I think that is dangerous, to come in and create an Office, establish a bureaucracy. 

And if you guys think for one minute that this Congress is going 

to establish an Office for information and not go beyond that, I 

mean, that is not the way this place works. 

First you go in with the soft punch, and that is to establish an 

Office for information. And why the powerful insurance industry 

needs Congress or Treasury to establish a database for insurance 

information just—it just blows my mind away. It really does. 

This is an attempt to federalize the insurance industry. That is 

all it is. Representative Kennedy, you understand it better than 

anybody because not only do you have a background in insurance, 

but you lead the Nation in the State legislators. Do you agree with 

my statement? And how dangerous is it for the Federal Government to get involved in setting up this Office? What could it lead 

to? 

Mr. KENNEDY. Thank you very much, Congressman. I will say 

this, that NCOIL has been very concerned about this. As you know, 

legislators have always played an important role in moving forward 

with regulation. It is up to, ultimately, our insurance commissioners and superintendents to carry out that role by implementing 

the rules and regulations for that particular process. 

So we are very concerned at this point in time because of the 

particular role that the NAIC plays in this proposed OII. There is 

no role for State legislators, and we feel that that has to take place. 

As you know, the NAIC at this present time, it is a private trade 

association. 

Mr. MANZULLO. Well, no, no. I mean, aside from that—and I 

would ask my colleague from Illinois: How do you think that this 

Congress can only go so far, and then you are going to stop the 

brakes? I mean, this is—the initial shots are being fired, to come 

in with the optional Federal charter. 

And because I represent Illinois, because we have some of the 

lowest rates, because we have no regulation, I mean, the rates are 

not regulated in Illinois. And at times, I have actually seen my car 

insurance and house and farm insurance go down. 

22 

So why should I, as a Member of Congress from Illinois, want to 

impose a Federal bureaucracy that, just like that, could preempt? 

I mean, if the issue here is international agreement, all we have 

to do is beef up the USTR’s Office, give them some more money, 

some more people, and say, ‘‘Look, we want you to get involved in 

this.’’ 

Mr. McGrath—or McRaith. I am sorry. 

Mr. MCRAITH. That is okay. First of all, Congressman, I do agree 

with you that we have an excellent insurance marketplace in Illinois. We do regulate in Illinois; we just don’t regulate the rates on 

the front end, on the P&C side, and on major lines of insurance. 

So I completely agree with you— 

Mr. MANZULLO. You regulate for solvency and honesty. 

Mr. MCRAITH. Right. 

Mr. MANZULLO. And we don’t have a problem in Illinois insurance, do we? 

Mr. MCRAITH. Excuse me? 

Mr. MANZULLO. We don’t have a problem in Illinois insurance, do 

we? 

Mr. MCRAITH. When it comes to the property and casualty lines, 

absolutely not, Congressman. I completely agree with you. We have 

an excellent, robust— 

Mr. MANZULLO. That is because of the great job that you are 

doing. Right? 

Mr. MCRAITH. Thank you very much, Congressman. But to answer your question, we can’t look at what might happen politically, 

strategically. We have been asked to look at the substance of a bill, 

and in good faith, that is what we have offered to comment on. 

The scope of the preemption, as we review the bill, is narrow 

enough—first of all, any agreement has to be run—the Director of 

this OII would have to run the proposal or the possibility of any 

agreement through the advisory group, which includes insurance 

regulators. 

And then, if it becomes part of an agreement, then there is the 

possibility—and I should add, in deference to Representative Kennedy, there are 13 spots, and I believe it is 5 to 7 that are accounted for with an acknowledgment that the others can come from 

other groups as appointed by the Secretary. So that could include, 

of course, State legislators. And I work very well with our legislature in Springfield and will continue to do so, hopefully. 

But the point is that the scope of the preemption, as currently 

constructed, we are very wary of. But we believe that it is narrow 

enough and can be increasingly narrowed to be certain that it will 

not threaten the consumer protections and the marketplace regulation that we know is essential for your constituents, for the people 

of Illinois, and people around the United States. 

Mr. MANZULLO. Mr. Chairman, I think that Representative Kennedy is itching for a rejoinder. Would that be appropriate even 

though my time has run out? 

Chairman KANJORSKI. He may. 

Mr. KENNEDY. Thank you very much. 

As Director McRaith did point out, many of the spots have already been accounted for. But again, there is no guaranteed spot 

within this OII for legislators at this point in time. There is a big 

23 

‘‘if’’ out there, and too many times, there are too many ‘‘if’s’’ and 

not any concrete proposals that come into play. 

So we would like to see something where it is a little bit more 

concrete. Thank you. 

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

We will now hear from the gentleman from Massachusetts, Mr. 

Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Mr. Kennedy, I am just curious. Would you feel better if the legislation specified that a member of your organization be part of this 

advisory board? 

Mr. KENNEDY. I would definitely feel a lot better about things. 

I think that would provide us with the necessary input we need for 

our legislators that we represent across the country. 

Mr. CAPUANO. That is fair enough. Honestly, when it comes to 

preemption, especially in a new area of any kind, no matter how 

narrow it is, I share the concerns. As a legislator and as a former 

mayor, I am never convinced that Washington knows better than 

anybody else. So I have similar concerns. But at the same time, 

there are times and places where preemption is appropriate, and 

this may or may not be one of them. I am not sure yet. 

I am curious. Mr. Norton, in particular, the role of this Director 

is to advise the Secretary on major domestic and international insurance policies. I think it is pretty clear that if they advise them 

on an international issue, and they think that the international 

issue is problematic, that there is a power of preemption. 

What if they advise them on a major domestic issue and the advice says, hey, this is a problem. It is a redlining problem. It is a 

flood insurance problem. It is a major problem that may be only 

affecting one area, but certainly has national implications. For the 

sake of discussion, I am trying to make it a little easier than just 

on an issue that might relate to just one State. 

But, you know, flood insurance, redlining, any number of issues 

that clearly have national implications. What if that advice comes 

in and says, this is really bad. This State, ‘‘X’’ State, has done 

something terrible. They are heading down the wrong road. They 

are going to ruin the entire insurance world. What do they do 

about it? 

Mr. NORTON. Well, I think, as envisioned in the chairman’s bill, 

and in our own proposal, in the Blueprint, the Treasury Secretary 

would have concerns. If one State were going to cause a problem 

for an insurance market nationally, this Office would not have the 

power and the Secretary would not have any power. McCarran-Ferguson would remain. The States would still— 

Mr. CAPUANO. Do you envision the Secretary at least having the 

authority to say something? 

Mr. NORTON. Absolutely. The Secretary would want to raise that 

issue in any forum possible, possibly in the Congress, if that is the 

appropriate way to address the issue, or through bilateral discussions with the State legislatures. 

Mr. CAPUANO. But I am saying say something in a public manner 

to say, the State of Massachusetts has made a mistake on ‘‘X’’ insurance policy matter, and that is really a bad policy and we really 

should do something about it. 

24 

Mr. NORTON. Congressman, it is hard for me to comment on a 

hypothetical. I would say that there are— 

Mr. CAPUANO. That is where I live. I live in hypotheticals. 

Mr. NORTON. I understand. I think that there are times in financial markets where the Treasury Secretary probably wouldn’t want 

to comment publicly, but maybe go directly to the insurance commissioner in the State of Massachusetts, to your hypothetical, or 

maybe go to the governor, or maybe go to this— 

Mr. CAPUANO. Fine. He goes to them. A very nice conversation. 

They say, ‘‘Get lost.’’ 

Mr. NORTON. Well, that is an inherent— 

Mr. CAPUANO. I guess I am asking: Do you ever envision a situation where the Secretary would have a public comment on a domestic issue? 

Mr. NORTON. Well, yes. As envisioned in the bill, the Secretary 

of the Treasury would report, I think, once every 2 years on major 

policy matters. So there is a statutory requirement under the legislation. 

Mr. CAPUANO. Honestly, the reason I ask is because I have a little trouble with the fact that it is only once a year. I would like 

to see a situation where the Secretary would be encouraged on an 

ongoing basis to make a statement, if deemed appropriate. 

I guess to a certain extent, I think Mr. Manzullo is correct. I 

mean, I don’t think he is wrong that this might be the beginning 

of looking at broader issues. I am not afraid of looking at those 

broader issues, though. I think it is a mistake to pretend that 

somehow, because today you may not want to go someplace, that 

you shouldn’t ask questions, that you shouldn’t have adequate information. 

And I will point very clearly to a front page article yesterday, the 

Federal Reserve of New York. They just said yesterday—not on an 

insurance matter—that maybe it is time for us to be looking at the 

unregulated aspects of the private equity market. Why? Because 

we are now in an economic downturn that most observers will 

blame on the excesses of the private equity market and the fact 

that we didn’t look at them. 

And as we sit here today, we don’t have anyplace—the Secretary 

of the Treasury, the Federal Reserve, cannot answer us on some 

very detailed questions we have relative to what private equity has 

been doing. 

I don’t see why this would be a concern. I understand the concerns of Mr. Kennedy on the specific issue of being at the table. I 

have no problem with that concept. But other than having the 

table adequately represented and having people have the ability to 

make public commentary, why would anybody be concerned about 

the gathering of information? Why would anybody be concerned 

about the ability at some point in the future of maybe taking 

knowledgeable information and making different policy decisions? 

Who knows? Maybe they won’t. Can anybody here tell me what 

the concern is of why you would be opposed to anybody gathering 

knowledgeable, technical, detailed statistical information that may 

or may not be used in the future? 

Mr. MCRAITH. Congressman, we recognize and appreciate the 

need for that kind of information, and the need for that informaVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
25 

tion to be available to the Congress when needed. We supported 

congressional efforts to collect data about insurance company exposures after 9/11. 

As I mentioned in my testimony, we have a massive—the largest 

insurance financial database in the world. We have information on 

over 4 million producers. We can work with the Congress to help 

Congress develop the information it needs to answer questions, as 

you have said, that might come up unexpectedly during a given 

economic cycle. Absolutely. 

I would say in response to your initial question to Mr. Norton 

that we cannot—the question of what is appropriate for a local— 

for one State or another is a difficult question to answer unless you 

are in the State. And for that reason, insurance regulation is and 

should remain a local and therefore a State-based matter. What is 

appropriate for Ohio and Congresswoman Pryce is different from 

what is appropriate for Illinois and Congressman Manzullo. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you very much. 

We now have the gentleman from California, Mr. Royce. 

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

I was going to ask a question on an issue here to Mr. Norton. 

When President Clinton was trying to liberalize trade to open up 

markets overseas, in Africa and in India and South Asia, I had the 

opportunity to travel with him to try to advance AGOA and other 

issues overseas. 

And during that time, I noticed that as we tried to open those 

markets: Commerce was there; Treasury was there; the USTR was 

there. Everyone had a seat at the table as we tried to open markets 

overseas except for insurance because we don’t have a national 

market for it here and they are not represented. 

And as you look at the attempts that we have had as sales have 

increased, there is one place where we have really had a setback, 

and that is in the insurance sector. We are having all kinds of difficulties right now with Europe, and you know a little bit about the 

acrimony there over the fact that they are trying to deal with 54 

markets here in the United States as they try to create one national market there, and what that is creating in terms of attitudes. 

But just the ability to have someone have a seat at the table, just 

the ability to have Treasury have the authority here to argue for 

opening markets, I was going to ask you, Mr. Norton, in your opening testimony you signaled that the Office of Insurance Information 

would establish that Federal presence and, ideally, have the authority to implement agreements here in the United States. 

And I would just ask how you would envision that those agreements would be implemented. Would it take care of this glaring inequity that I see where we have a huge trade deficit? We have all 

received letters, I think, from the E.U. about this. We have a huge 

trade deficit in this area of insurance, and we have surpluses in 

these other areas where at the Federal level there is a seat at the 

table. 

Would this help address this concern I have? 

Mr. NORTON. Congressman, I think it is an important question. 

We do believe that it would help. As you know through your leaderVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
26 

ship on AGOA, USTR is of course the lead negotiator on trade 

agreements. But when you look at financial services in the context 

of regulatory equivalency discussions and agreements, you are exactly right. The banking regulators and the securities regulators 

have more flexibility to address cross-border issues. 

With regard to the authority of the Office, we do believe the authority is appropriate and carefully tailored by the chairman. But 

I would like to emphasize that this preemption is a last resort, that 

the bill calls for a thorough and elaborate process where we would 

work with—or the new Office would work with the NAIC, among 

others, the Commerce Department, the USTR, other executive 

branch agencies, before formulating a policy, before going overseas 

entering into discussions. 

Should an agreement be reached, it would then go back and have 

an elaborate process on notice and comment. And there is time for 

States to implement such agreements that, in all likelihood, they 

were a big voice in. And we think that the balance is a good one 

and it does address the issues that you raised in your question. 

Mr. ROYCE. Some of the foreign government officials have continued to raise issues associated with our having over 50 different insurance regulators. Some have threatened taking punitive action 

because of the lack of a single point of entry into the U.S. marketplace. 

It has been well-publicized that the European Union Solvency II 

directive could severely impact the competitive business of U.S. 

firms operating in Europe, should Europe take retaliatory action. 

Of course, one of the arguments the Europeans make is that our 

system, our structure, is so injurious to our own position to compete that we are going to fall further behind and the U.S. industry’s enormous trade deficit is going to continue to grow. 

But that aside, do you believe an Office of Insurance Information 

would be enough to prevent U.S. companies from being punished 

should the E.U. try to take the type of decisive action that is being 

argued by their officials that deal with these trade issues? 

Mr. NORTON. Well, it is certainly difficult to predict the outcome 

of any discussions. We do believe that this Office and the authority 

that, again, is carefully crafted under the chairman’s bill would 

help in those discussions. We can look to other examples in financial services—in the securities area with Basel II, with financial 

holding companies and banks, the CSE regime of investment 

banks, are all beneficiaries of cross-border dialogues and regulatory 

discussions with the appropriate regulators in those fields. 

So again, I don’t want to prejudge how this Office may or may 

not help or direct the outcome in Solvency II. But it would certainly help, in our view. 

Mr. ROYCE. Thank you. 

Chairman KANJORSKI. The gentleman from Texas, Mr. Hinojosa. 

Mr. HINOJOSA. Chairman Kanjorski, I want to thank you for 

holding this very important and timely hearing today. It is my understanding, and perhaps you can correct me, that the draft of H.R. 

5840 completed June 4th would create an Office of Insurance Information in the Department of the Treasury. So I am going to be 

asking questions of Mr. Norton. 

27 

Some of the groups that oppose the legislation have characterized 

the new Office and its duties and powers as a way to preempt virtually all State insurance laws, excluding health insurance. And I 

happen to be a supporter of States’ rights. 

I have not taken a position on this draft bill, but I would like 

to have some additional information. My understanding further is 

that because the Office of Insurance Information will serve as a 

Treasury representative to the Trade Promotion Coordinating Committee, it will have the power to determine or at least influence the 

language included in agreements that will be entered into between 

the United States and foreign governments, authorities, or some 

regulatory entity on insurance matters, basically giving them the 

power to preempt any and all State laws. And that concerns me. 

Mr. Norton, would you be able to provide me in writing with any 

insurance negotiations the United States currently has under consideration with any foreign governments, regulatory entities, with 

health insurance excluded? Particularly the ones that are under 

consideration right now with Panama, Colombia, and Korea. 

Mr. NORTON. We would be happy to get back to you, Congressman. 

Mr. HINOJOSA. Yes. I would like to see those and see how this 

insurance regulation and law, proposed law, would help us improve 

those negotiations and the work that is going on. I know that 

NAFTA was completed about 14 years ago, and there is talk about 

trying to bring it back up and renegotiate it. 

And there certainly are proponents, as many as there are opponents, because we know that there are winners and there are losers. And so the States that are losing, of course, are not happy with 

it. States like mine, Texas, is a winner, and so they are certainly 

on the opposite side. 

So if you can provide that information to me and my Office, I 

would appreciate it very much. And I close by commending Chairman Kanjorski for holding this hearing today, and look forward to 

working with you and your staff as the bill moves forward in the 

committee and onto the Floor. Thank you. 

Chairman KANJORSKI. I thank the gentleman. I do want to assure you that we are trying to narrow the preemption as much as 

we can, and we have been working with the various entities to accomplish that. 

Mr. HINOJOSA. Well, if you do, I think that I would be a little 

bit more agreeable. But at this point, I have great concerns when 

we, the Federal Government, try to take over those State rights. 

Chairman KANJORSKI. I appreciate that. 

The gentlelady from New York, Mrs. McCarthy. 

Mrs. MCCARTHY. Thank you, Mr. Chairman. 

Mr. Kennedy, I would just like to ask, because I am having a 

hard time confusing—how much on the State level as State legislators do with the compact have to do with international insurance? 

How does that come into the play of the State? 

Mr. KENNEDY. Actually, the compact does not deal with international insurance issues. It is, you know, more about life, disability, and long-term care type insurance. But legislators sit on 

that particular compact. As you know, 31 States have currently 

joined. It is under discussion right now in the State of New York. 

28 

Our president-elect, Senator Seward from New York State, is trying to shepherd it through the New York State Senate at this point 

in time. 

We provide what we feel is an important advisory role to that insurance compact, and we think that the compact has been one of 

those type of creations that, for all intents and purposes, has 

helped to address some of the issues about control filing of onestop, I guess you can call it, filing for new filings for insurance and 

those other types of products that would go before it. 

Mrs. MCCARTHY. So Mr. Norton, with the legislation that we are 

still working on, and being that we are deleting with basically into 

insurance, how does that affect the States? 

Mr. NORTON. Well, I think the legislation is necessary and the 

Office is necessary because we want cross-border activity in insurance. And what we have found is that it is difficult for cross-border 

agreements to be reached because our counterparts overseas don’t 

have anybody to talk to or reach agreement with. 

And I would just add, the NAIC does a very good job of formulating policy and engaging in international discussions. But they 

are limited by their ability to follow up and carry those agreements 

back because you have to go through 50 different insurance commissioners and, in some matters, 50 different legislatures. So it is 

difficult to reach uniformity. 

Again, the chairman’s mark— 

Mrs. MCCARTHY. See, that is the point I am trying to understand. We are going to international insurance. The States right 

now don’t deal with any international insurance. So I am trying to 

see—because I believe in States’ rights also, so I am really trying 

to see if the States don’t deal with international insurance, and the 

Federal Government is trying to have a seat at the table for international insurance, how are we preempting the State on those particular issues? 

Mr. NORTON. Well, I think that we would only preempt the State 

where—State or States—there is really discrimination against foreign-regulated entities. So if an insurance company is located overseas and is trying to do business in the United States, and a State 

would, say, have different laws that are applicable to that insurance company versus an insurer located domestically, that is where 

you get some of the tension. And this Office would help formulate 

policy for the United States, and would be a place where dialogue 

could be advanced and achieved. 

Mrs. MCCARTHY. Would you agree that with a lot of Federal laws 

that we pass here in the United States, if the State has a stronger 

law, we usually go with the State law? 

Mr. NORTON. I am sorry. Could you—I couldn’t hear that. 

Mrs. MCCARTHY. With a lot of laws that we pass on the Federal 

level, a lot of States—and I will talk about New York—a lot of our 

laws actually supersede what the Federal regulation would be. And 

many times, the Federal law, which is on maybe a lower level, we 

accept the State law. 

I am just trying to see where I am going on where we are afraid 

that our States—we are going to overrule them when they don’t 

have international—that is the part I am trying to clarify in my 

mind. 

29 

Mr. NORTON. Well, when there are issues, and reinsurance collateral could be one where providers of reinsurance are not allowed 

the same access into our markets or a type of more reasonable access to our markets, that has effects on the larger national insurance marketplace. 

And so that is why we have highlighted reinsurance collateral as 

one issue that this Office could address through regulatory agreements of equivalency, and strike an agreement working with the 

NAIC, which has spent a lot of time on this issue and is trying 

hard to advance a resolution. 

But it is not able to do that. I mean, the NAIC and the States 

have recognized the need to address this issue. So I don’t think our 

goals are at all in conflict. The States themselves have recognized 

that they need to get together, discuss matters of international insurance, and try and formulate a policy, go overseas, discuss them, 

see if they can reach agreement. 

So I think that that is not a debate among the States or the Federal Government. The question is: Can we actually get a resolution? And to date, we have not been able to because the State system is so bifurcated. 

So I don’t think that there is a dispute that there are issues at 

hand. I think the challenge is finding a way to resolve them. That 

is why we proposed this Office to achieve results. And we think 

that the bill, as introduced, achieves those goals. 

Mrs. MCCARTHY. Well, the whole idea of having hearings is so 

that we can hear the concerns and hopefully work on the concerns 

that everyone has. My time is up. Sorry. Thank you. 

Chairman KANJORSKI. The gentlelady from Illinois, Ms. Bean. 

Ms. BEAN. Thank you, Mr. Chairman. 

Most of my questions have already been asked and answered for 

this panel. But I did want to personally thank our home State insurance commissioner, Mike McRaith, for participating. And as the 

chairman alluded to, I know we are proud of what we feel is the 

best insurance division in the country and your job running it. 

I think the fact that Illinois does have a deregulated environment has led to greater access and more consumer choice than 

many States around the Nation. And while I know Mike and I may 

disagree on the role the Federal Government should play relative 

to insurance regulation and/or the need for a potential national insurance commissioner, certainly his knowledge of the industry and 

his valiant protection of consumer concerns would make him an 

ideal candidate for such a role. 

I would also like to thank Secretary Norton of the Treasury for 

providing further testimony on your Blueprint for Reform, and at 

least getting the dialogue started about evaluating our current 

structure and where we might need to update it. 

So I thank you both, and I am going to save my further questions 

for the next panel. 

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

Mr. Murray, the gentleman from Connecticut—Murphy, I am 

sorry, the gentleman from Connecticut. 

Mr. MURPHY. Thank you very much, Mr. Chairman. I have no 

questions. 

30 

Chairman KANJORSKI. It looks like we have completed this panel. 

So for purposes of that, I want to thank you gentlemen for participating in today’s hearing, and the panel is dismissed. 

I would now like to welcome our second panel. 

Mr. MCRAITH. Mr. Chairman, we do have an exhibit we would 

like to tender to the committee, which we will circulate, that outlines all the different committees and regulatory structures internationally that the NAIC is involved with, both directly and in a 

supportive role. 

Chairman KANJORSKI. Excellent. We will enter it in the record. 

If there are no objections, the exhibit will be appropriately marked 

and entered into the record. 

Thank you, Mr. McRaith. 

Mr. MCRAITH. Thank you very much. 

Chairman KANJORSKI. I am pleased to welcome our second panel. 

First, we have Mr. Neal S. Wolin, president and chief operating officer of property and casualty operations at The Hartford Financial 

Services Group, testifying on behalf of the American Insurance Association. 

Mr. Wolin? 

STATEMENT OF NEAL S. WOLIN, PRESIDENT AND CHIEF OPERATING OFFICER, PROPERTY AND CASUALTY OPERATIONS, 

THE HARTFORD FINANCIAL SERVICES GROUP, ON BEHALF 

OF THE AMERICAN INSURANCE ASSOCIATION 

Mr. WOLIN. Mr. Chairman, members of the committee, I am testifying today on behalf of the American Insurance Association and 

its member companies. Mr. Chairman, I will be brief. 

First let me thank the committee for providing me the opportunity to discuss the Office of Insurance Information with you 

today. I also want to thank you for your hard work to modernize 

and improve insurance regulation in the United States. 

A short trip back in time makes it clear why our country needs 

the Office of Insurance Information. Terrorist attacks on our homeland demanded a Federal response. By creating the Terrorism Risk 

Insurance Act, this committee saw to it that American economic activity would not be threatened by future terrorist attacks. 

The Gulf Coast and Eastern Seaboard have dealt with some of 

the worst natural catastrophes in our country’s history. Those 

storms inflicted terrible harm on thousands of our citizens and 

damage to property resulting in tens of billions of dollars of insurance losses. These are just a few of the challenges that have affected our industry and the country in recent years. 

We have also witnessed the rapid development of global commerce. The U.S. Government needs to have a designated voice on 

insurance matters in dealing with foreign governments and foreign 

regulatory bodies. 

Mr. Chairman, since the start of the 107th Congress, this committee has dealt with reforming reinsurance and surplus lines markets regulation, with significant changes to and reauthorization of 

TRIA, with reforming and reauthorizing the National Flood Insurance Program, with a proposal to allow FEMA to sell wind coverage, with another proposal to provide Federal liquidity to State 

natural catastrophe reinsurance funds, with a Federal natural caVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
31 

tastrophe fund, and with regulation of auto insurance, underwriting, and rating. 

The committee is currently reviewing proposals to deal with producer licensing and to expand the Liability Risk Retention Act. In 

short, you have been very, very busy on insurance issues. 

In all that activity on all the issues I mentioned and others, 

something important is missing: an accredited insurance witness at 

this table to offer the most appropriate and impartial advice and 

counsel on insurance on behalf of the U.S. Government. That same 

voice is needed around the globe. 

The legislation we discuss today will remedy that problem. On 

behalf of the AIA and its member companies, I congratulate you 

and Ranking Member Pryce, and thank you for this bill to create 

an Office of Insurance Information. 

I bring a perspective on this issue not only from the insurance 

industry, but also from the Executive Branch. Before coming to The 

Hartford, I had the honor of serving Secretary Rubin and Secretary 

Summers as Deputy General Counsel and General Counsel of the 

U.S. Department of the Treasury. I can assure you we would have 

benefitted greatly from an OII. I congratulate Secretary Paulson 

for supporting your efforts to create this Office. 

Thank you for your leadership. The AIA and its member companies, including The Hartford, stand ready to help the committee in 

any way as you move forward. 

Thank you very much, Mr. Chairman. 

[The prepared statement of Mr. Wolin can be found on page 93 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Wolin. 

Next, we have Mr. Stephen Rahn, vice president and associate 

general counsel of the Lincoln Financial Group, testifying on behalf 

of the American Council of Life Insurers. 

Mr. Rahn? 

STATEMENT OF STEPHEN E. RAHN, VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL, LINCOLN FINANCIAL GROUP, 

ON BEHALF OF THE AMERICAN COUNCIL OF LIFE INSURERS 

Mr. RAHN. Thank you, Mr. Chairman, Ranking Member Pryce, 

and members of the subcommittee. On behalf of the American 

Council of Life Insurers, I would like to thank you for the opportunity to present our views on H.R. 5840. 

The ACLI applauds your efforts as well as those of the bill’s cosponsors to explore ways in which insurance regulation can be 

modernized and made to operate more effectively, both domestically 

and globally. My testimony today will address both the bill as introduced and your recently released discussion draft. 

As the ACLI has testified on other occasions before this subcommittee, more and more issues that are vitally important to our 

business are being debated and decided here in Congress, and all 

too often, Congress doesn’t have an effective means of getting access to critical information on the industry as a whole, or of getting 

policy advice on domestic and international issues that reflects a 

national rather than a more parochial or State-specific perspective. 

And more recently, these domestic issues have been overshadowed by international concerns that highlight the difficulty of 

32 

dealing effectively with global policy and regulatory matters 

through a State-based regulatory system. 

Mr. Chairman, for these reasons we welcome and strongly support the creation of an Office of Insurance Information within the 

Department of the Treasury, and your proposal to have explicit authority vested in the Federal Government to establish U.S. policy 

on insurance matters. We also support giving that Office the ability 

to enter into agreements with foreign governments to implement 

Federal policy. 

We believe an OII would be enormously beneficial to Congress as 

it considers issues that are important to our business. It would facilitate the handling of international insurance matters, and it 

would provide a means for effectively involving the insurance industry as national policy decisions are made affecting U.S. financial institutions. 

As the ACLI reviewed the introduced version of H.R. 5840, we 

looked very closely at the issue of preempting State laws that are 

determined to be inconsistent with agreements entered into by the 

OII on international insurance policy matters. We formulated five 

principles that we believe provide prudent guidance on this point. 

First, we agree with the approach of H.R. 5840 to limit the preemption to international issues where Federal policy is reflected in 

an agreement between the OII and a foreign jurisdiction or authority. 

Second, we agree with the bill’s stated intent not to create any 

supervisory or regulatory authority in the OII or Treasury over any 

U.S. insurer. 

Third, the preemption should not be used in a way that leads to 

a real or potential solvency gap. Since the OII will not have any 

supervisory role, State laws that involve material solvency functions should never be preempted. I should also note that we were 

pleased to see in the discussion draft the addition of administrative 

due process language to help assure that the preemption is used 

only in appropriate circumstances. 

Fourth, we agree with the direction the discussion draft seems 

to be taking by requiring the OII to consult with the advisory 

group before entering into any international agreements with foreign jurisdictions or authorities, or before making any determination that a State measure is inconsistent with such an agreement 

and therefore preempted. 

Our fifth and last principle, and one where we do have some concern, is that we would not want to see the preemption result in material, unfair discrimination against any U.S. insurer. Our concern 

here is that the preemption can take place only to assure that a 

non-U.S. insurer does not receive less favorable treatment than a 

U.S. insurer. We don’t want to see a circumstance arise inadvertently where the preemption results in the collateral consequence of 

treating a U.S. insurer less favorably than a foreign insurer, with 

no ability to employ preemption to remedy the situation. 

Mr. Chairman, while our review and analysis of your discussion 

draft continues, we do have several specific comments on the new 

elements of the bills. The details are in my written statement, but 

briefly, they are as follows. 

33 

With respect to the collection of data by the OII, we are concerned over the expansion of this authority to include the collection 

of non-publicly-available information. We are also quite concerned 

with the elevated level of prominence the discussion draft gives to 

the NAIC, and its relationship with the OII. Finally, we object to 

the addition of the Federal Trade Commission as a member of the 

advisory group. 

Mr. Chairman, we understand and fully appreciate your intent 

that the OII not be construed as a substitute for, or as a step in 

the direction of, an optional Federal charter. As our comments 

above indicate, we see significant value in the establishment of the 

role of the OII in and of itself, and support the creation of such an 

Office for that reason. 

However, we want to make it clear that our support for H.R. 

5840 in no way diminishes our belief that an insurance optional 

Federal charter, such as the Bean-Royce bill, is vitally necessary 

for the life insurance business, and our commitment to work with 

Congress to make that objective a reality. 

In conclusion, Mr. Chairman, we thank you for your leadership 

role in addressing the issues and for advancing H.R. 5840 in this 

subcommittee, and we look forward to continuing to work with you 

and members of the subcommittee as this important legislation 

moves forward. 

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

of the appendix.] 

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

Now I am pleased to welcome to our committee Ms. Tracey Laws, 

senior vice president and general counsel of the Reinsurance Association of America. 

Ms. Laws? 

STATEMENT OF TRACEY W. LAWS, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, REINSURANCE ASSOCIATION OF 

AMERICA (RAA) 

Ms. LAWS. Good afternoon. My name is Tracey Laws, and I am 

senior vice president and general counsel of the Reinsurance Association of America. We are a national trade association representing property and casualty insurance companies that specialize in assuming reinsurance. I am pleased to appear before you 

today to provide the RAA’s comments on H.R. 5840. 

The RAA supports the spirit and purpose of this legislation, and 

we applaud Chairman Kanjorski and the other cosponsors for their 

leadership on regulatory reform issues. My comments today will 

focus on the legislation’s potential benefits to the reinsurance industry and our suggested modifications, which we believe are necessary for the bill to achieve its stated goal. 

First, the RAA strongly supports authorizing the Director of the 

OII to advise the Treasury Secretary on major domestic and international insurance policy issues, including reinsurance requirements. The Federal Government has a strong interest in understanding the reinsurance market as it responds to catastrophes like 

9/11 and the 2005 hurricanes. The creation of the OII will fill the 

current lack of a lead Federal entity that understands how deciVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
34 

sions made by the Federal Government can impact the insurance 

industry. 

Second, the RAA also strongly supports empowering the OII to 

establish Federal policy on international issues. The recent Treasury Blueprint noted that foreign government officials have continued to raise issues associated with having 50-plus different insurance regulators, making coordination on international insurance 

issues difficult for both foreign regulators and companies. 

The Blueprint also noted that the NAIC’s status as a nongovernmental body and the inherent patchwork nature of the State-based 

system make it increasingly more difficult for the United States to 

speak effectively with one voice on international regulatory issues. 

That lack of a single voice is adversely impacting U.S. reinsurers 

now. For U.S. reinsurers, the E.U. Solvency II will set forth a process for determining which third countries are equivalent for purposes of their companies doing business in the European Union. 

Although this issue is still being discussed, it is our understanding that the European Parliament recently obtained a legal 

opinion stating that the European Commission cannot grant 

equivalence to a U.S. State under Solvency II. Without Federal involvement by a knowledgeable entity tasked with responsibility for 

international policy issues, the U.S. reinsurance industry will continue to be disadvantaged in these equivalence discussions. 

Third, the RAA also strongly supports the legislation’s goal to authorize the OII to ensure that State insurance measures are consistent with Federal policy. It is critical that the OII be authorized 

to ensure that its policies are uniformly respected throughout the 

States by the ability to preempt any inconsistent State insurance 

measures. To do otherwise would perpetuate the patchwork system 

and undermine the ability of the United States to effectively participate in the international arena. 

I would like now to focus on the RAA’s two significant concerns 

with the current draft of the bill: the scope; and the process provisions of the preemption section. 

The preemption provision is very important to the RAA, and we 

strongly urge that it be made consistent with the broader authority 

conferred on the OII to allow preemption of State insurance measures that are inconsistent with any Federal policy on international 

matters, not just those embodied in international agreements. Unless this occurs, States will be able to have laws, regulations, and 

policies that conflict with Federal policy so long as that Federal 

policy is not embodied in an international agreement. 

We also believe there may be serious unintended consequences 

resulting from the preemption language. A State insurance measure is preempted only to the extent that the measure treats a nonU.S. insurer less favorably than it treats a U.S. insurer. This language sets the bar for what States can do. So long as U.S. insurers 

are treated the same as non-U.S. insurers, there can be no preemption. This inappropriately transfers the power to determine policy 

within the Federal Government to the States. 

By way of example, collateral reduction is a controversial issue 

among various industry participants, including a lack of unanimity 

among State regulators on this issue. Certain insurance industry 

groups have argued rather than having any collateral reduction for 

35 

non-U.S. reinsurers, they would prefer to also impose collateral on 

U.S. entities. Under the current legislation, such a State insurance 

measure would not be preempted so long as the collateral requirements are imposed equally on U.S. reinsurers and non-U.S. reinsurers. Imposing collateral on U.S. reinsurers would be an enormous step backwards, and would be inconsistent with the goals of 

regulatory reform set forth in the Treasury Blueprint and in international insurance regulatory standards. 

Our second concern relates to the process for preempting State 

insurance measures. We agree that there should be a process. However, the process set forth in the legislation is very extended and 

includes a stay provision that can negate the director’s determination that preemption is warranted. 

That stay provision uses extremely broad standards that allow 

States to have a second bite at the apple to avoid preemption after 

a decision-making process that provides ample opportunity for notice, comment, and appeal. The RAA would urge that the stay provision be deleted as unnecessary. 

We would like to thank Chairman Kanjorski and the subcommittee for this opportunity to comment on H.R. 5840, and we 

look forward to working with you and the other members as this 

legislation moves forward. 

[The prepared statement of Ms. Laws can be found on page 58 

of the appendix.] 

Chairman KANJORSKI. Thank you very much, Ms. Laws. We appreciate that. 

And then finally, we will hear from Mr. David Sampson, president and CEO of the Property Casualty Insurers Association of 

America. 

Mr. Sampson? 

STATEMENT OF DAVID A. SAMPSON, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA 

Mr. SAMPSON. Mr. Chairman, members of the subcommittee, 

thank you for the opportunity to be with you today. I want to 

thank you especially, Mr. Chairman, for your leadership on increasing congressional knowledge about our complex industry, and 

facilitating global commerce and making sure American companies 

are not placed at a competitive disadvantage. 

PCIA is a trade association with over 1,000 members representing a broad diversity, from the multi-line, multi-billion-dollar 

carriers to small specialty insurers that write in a single State. 

Mr. Chairman, the PCIA board has not yet taken a position on 

the formation of an Office of Insurance Information. And while we 

have an open mind regarding the need for such an Office, our 

members do have a number of questions concerning the proposal. 

Some of our members see the potential value, and have articulated that; yet others, quite honestly, have some very deep concerns. And what I would like to do very briefly is to highlight our 

concerns regarding the scope of the proposed Office of Insurance 

Information; data collection procedures in the NAIC, serving in the 

only named role of information provider; and the power of preemption. Let me summarize those very quickly. 

36 

Regarding the scope, although the draft legislation seems to have 

been very carefully crafted to narrow the scope and reach of the 

OII to address data collection and conformity with international 

agreements and treaties, many of our member companies are concerned that this Office represents the leading edge of a comprehensive Federal insurance regulatory body. 

Secondly, with respect to data collection, data collection can be 

a very useful tool. The power of mandating information collection 

is a very powerful regulatory function in its own right. It can also 

be very expensive and inefficient. 

So we would support collection of data by the OII only where it 

has a clear and compelling reason for collecting the data, and the 

costs of collecting that data do not outweigh the expected benefits 

of collecting the data. We don’t believe that you can have someone 

sitting within Treasury and, just out of curiosity, making a significant data request for companies all across the country. 

And finally, with respect to preemption, PCIA is concerned that 

the OII could circumvent the McCarran-Ferguson Act as far as 

treaties and agreements are concerned. And we believe that circumventing a Federal statute should only occur by legislative action, not by administrative action, because it adds uncertainty to 

the regulatory environment, and uncertainty in the regulatory environment is the greatest enemy for the business community. 

We appreciate your leadership, Mr. Chairman. We look forward 

to working with you on these issues. Your efforts will help ensure 

we best serve consumers and foster a very strong, competitive U.S. 

economy. And as we continue this important debate, we encourage 

the subcommittee to address all of the questions that have been 

raised today by the companies who provide very vital insurance 

products. 

We believe that our ability to obtain answers to those questions 

and clarifications will ultimately determine our board’s position on 

the bill. And we look forward to working cooperatively with you 

and the committee as we go forward. 

Thank you, Mr. Chairman. 

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

86 of the appendix.] 

Chairman KANJORSKI. Thank you very much, Mr. Sampson. And 

to all of the witnesses, we appreciate your forthright testimony. 

First let me thank Mr. Wolin for his comment that as a former 

Treasury official, he believes Treasury would benefit from this bill, 

from this new Office. We thank you for that. It is very difficult to 

get a good, positive opinion from a Treasury official, so your bringing that forward today is very helpful. 

We have heard from the four witnesses, and I think they have 

expressed that the biggest problem is preemption. And in just the 

last week or two, I have heard more about preemption than I probably care to hear for the next year. 

But I guess I want to throw out a general question: Do you have 

any idea how we could work through this quickly? We have a very 

small window here for this legislation to proceed through the 

House and through the Senate. Is this element the killer? Or is 

there some way that we could gain the benefit of some of the witnesses here and the organizations represented here to move with 

37 

this process to craft preemption to the extent that it would be readily acceptable to so many of the different opinions of the committee 

and Members of the House and eventually the Senate? 

Anyone who wants to grab that question and run with it or 

throw it back at me is perfectly welcome to do so. Yes? 

Mr. RAHN. Well, Mr. Chairman, I guess I will start. You know, 

on behalf of the ACLI, again we are supportive of what you are 

doing here in creating the Office of Insurance Information and also 

working to address the international issues. 

We have worked hard since the bill has been introduced in the 

various versions to craft these principles, and I know that we are 

committed to working with your staff to help translate that into 

new legislative language that we would hope would begin to address those principles. So I think we stand ready to help you in 

that regard. 

Ms. LAWS. On behalf of the RAA, the preemption provision is 

very important to our members. We would certainly like to see it 

strengthened, but at a minimum, we would need to see the preemption provision stay in the bill. And we look forward to working with 

you to see how we can modify it to come to the kind of consensus 

that you need because we also would like to see this bill move forward quickly. So we have every incentive to assist you in any way 

that we can in accomplishing that. 

Chairman KANJORSKI. And it is readily concedable to you, I 

think, that if we do not have preemption in there, we are just passing toothpaste. Is that correct? I mean, it will be— 

Ms. LAWS. I don’t know if I would have said it that way, but that 

works. 

Chairman KANJORSKI. Thank you. 

Yes, Mr. Sampson? Do you want to get your 2 cents in on preemption? 

Mr. SAMPSON. Well, on preemption, I think the best I could do 

today would be to offer to make our staff lawyers available to work 

with your staff on seeing if there is a way. I think our general concern, however, though, is the administrative preemption process as 

opposed to a legislative preemption process. And so we would be 

happy to consult with your staff with our staff attorneys. 

Chairman KANJORSKI. I would certainly appreciate that. As I 

previously indicated, we are under terrible time constraints here, 

and I see a window of opportunity. However, if we do not move this 

Office through, it is highly unlikely that we are going to get a good 

start in the next Congress—at least the Congress will not have a 

good start, those of us who are still here. 

We really want to encourage that to happen because I am more 

acutely aware every day, with the meetings I am having with various international officials, that we are running the risk of being 

noncompetitive as an industry in the world market. It is our own 

fault because of our by failure to keep up to speed with what other 

nations in the world are doing and expect us to respond with. 

But as anything that grows like topsy, when you try and put it 

into some format that is understandable and logical, it presents 

some significant challenges. We recognize that we may have challenges, but I certainly urge you all to help us as much as you can. 

Feel free to direct your questions to the staff or myself, and anyVerDate Aug 31 2005 15:57 Oct 01, 2008 Jkt 044183 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\44183.TXT TERRIE
38 

thing you see when we are going awry, certainly give us a call on 

it. 

And now I have had my 2 cents. Mr. Royce of California, would 

you like to put your 2 cents in? 

Mr. ROYCE. Yes. I will throw in 2 cents, Mr. Chairman, 2 bits. 

I was going to ask Mr. Wolin, as I am going over his testimony 

here, if he could explain his objection to the FTC being a member 

of the advisory group. I just wanted to understand that. 

Mr. WOLIN. Congressman, it is really just a point about the FTC 

not having authority presently with respect to the insurance industry. We think that people on the advisory groups, representatives, 

ought to represent perspectives that are currently expert in insurance. As we understand it, that is really the point of the advisory 

group and of the Office itself. 

So it is really from that perspective, Congressman, that we suggest that there are more appropriate members of the advisory 

group that should be included. 

Mr. ROYCE. Mr. Rahn, you wanted to add something? 

Mr. RAHN. If I may, because we had also recommended that the 

FTC not be included for similar reasons that were just stated. Congress really removed the Federal Trade Commission from the business of insurance about 28 years ago, so it really has no expertise 

in that. 

If the issue is to try to bring a consumer perspective on these 

things, we think there are other groups that you could reach out 

to that would bring that to the advisory committee. 

Mr. ROYCE. I see. All right. 

Let me ask Ms. Laws a question, if I could, Tracey. If Congress 

were to move forward with the creation of an Office on International Insurance, in what ways would it improve your company’s 

ability to operate in the global marketplace and address these same 

issues? 

Ms. LAWS. Thank you for that question. Most of our companies 

do business on a global basis and manage their capital on a global 

basis. The ability to have a Federal seat at the table to talk with 

other regulatory bodies, to enter into supervisory authority agreements that enhance the ability for cross-border reinsurance transactions, is certainly to the benefit of our companies. 

And I might add it is to the benefit of the consumers in the 

United States. We are the largest consumer of property casualty insurance in the world, and you need the entire global reinsurance 

market in order to satisfy that need. 

Mr. ROYCE. Would you have any concern about what that Office 

would be able to study and analyze, or what they wouldn’t be able 

to study and analyze, for that matter? 

Ms. LAWS. As the bill is currently constituted? 

Mr. ROYCE. Right. 

Ms. LAWS. It seems like they have broad authority to study and 

look at all international issues at this point. It seems pretty broad. 

Mr. ROYCE. So you think that is addressed pretty well? All right. 

Well, Mr. Chairman, I will yield back. 

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

And we will have Mr. Scott of Georgia. 

39 

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

welcome to the committee. 

As I mentioned in my opening statement, our NARAB bill has 

about half of this committee, both Democrats and Republicans, who 

are joined in as cosponsors. We feel, and we are very hopeful, with 

the chairman’s blessings and guidance, that it will be included as 

a part of the entire package for insurance reform that we are working on. 

And with that in mind, with that level of support and interest 

that we have in this committee, I thought it might be interesting 

to get a comment from a couple of you, particularly you, Mr. Sampson, because as I understand it, many of the companies which you 

represent do utilize insurance agents. Is that correct? 

Mr. SAMPSON. Yes. And our board recently endorsed in concept 

the NARAB II proposal. Obviously, as with any piece of legislation, 

the devil is always in the details. And we did articulate some specific concerns. But we do believe that the NARAB II proposal would 

be of significant benefit to our member companies. 

Mr. SCOTT. That is very good, and good to hear. And certainly, 

for those of us who are working on this issue, it is good to know 

of that level of support. 

And Mr. Wolin—is that correct, Wolin? 

Mr. WOLIN. Yes. 

Mr. SCOTT. As I understand it, independent agents serve as a 

distribution force for your products as well. And I wonder if you 

might comment on the usefulness of our legislation. 

Mr. WOLIN. Sure, Congressman. Speaking as the president of 

The Hartford’s property and casualty companies, we have been for 

our almost 200-year history an independent agency company. And 

we support legislation that will make it easier for our agents, and 

for that matter, for us, to do business in the licensing area. So that 

is where we stand. 

Mr. SCOTT. Very good. 

Thank you very much, Mr. Chairman. I yield back my time. 

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

The gentlelady from Illinois, Ms. Bean. 

Ms. BEAN. Thank you, Mr. Chairman. 

I am particularly interested in learning a little more about the 

preemption language in the new draft of H.R. 5840, and how it 

might apply to State insurance measures today. 

If Congress enacted the draft version of H.R. 5840 tomorrow, 

what current State insurance measures that are inconsistent with 

‘‘international insurance matters’’ would that new law preempt? 

And what future State insurance measures might this preemption 

apply to? Do you envision it applying to solvency laws? Could it 

apply to accounting standards? 

Ms. LAWS. I will go first. It is our understanding, as Treasury 

testified, that this is in terms of regulatory agreements. So it would 

be on a prospective basis. And because of the detailed process that 

allows for the input by the board, it seems like they would have 

input into the actual agreement that might be drafted. And so the 

process could take care of taking concerns of State laws. 

I am always a little bit confused when people talk about State 

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40 

tion, and certainly with reinsurance, is solvency. And I think that 

can be construed very broadly. So I think it is important to focus 

on exactly what the specific laws would be. But I think the process 

would take care of it, and it would be prospective. 

Ms. BEAN. Mr. Wolin? 

Mr. WOLIN. Congresswoman, I think that the best example is 

probably in the collateral area that Deputy Assistant Secretary 

Norton spoke of earlier on the first panel. 

As Ms. Laws has suggested, though, I think in order for the preemptive effect to take place, you would first need an international 

agreement and for this Office to set policy, and then to see where 

State laws conflict with whatever that agreement and policy happens to be. 

But I think collateral is an area where different States have 

taken different approaches, and calls out for this idea of the United 

States speaking with one voice and having one position on matters 

that deal with international insurance issues. 

Ms. BEAN. Mr. Rahn, did you want to comment? 

Mr. RAHN. I think you began with a proposition that currently 

you have no Federal agency that has responsibility for setting policy on international issues on insurance, and the fact that there is 

currently no authority for preemption of any State laws. 

And so I think looking forward, you have looming out there—you 

have Solvency II, you have collateral, reinsurance collateralization, 

as issues that need to be addressed. And they are enormous issues 

from a public policy perspective because depending upon the direction that those go, it could affect how insurance companies in this 

country—for example, where they want to locate, where they want 

to operate. 

So I think the key is to have someone to focus on those issues, 

to look at the laws that should be preempted, but do it in a way 

that is consistent with our principles. Don’t disadvantage U.S. insurers. Don’t create any solvency problems. And also, then, help 

address a major regulatory issue. 

Ms. BEAN. Mr. Sampson? 

Mr. SAMPSON. I think the primary issue— 

Ms. BEAN. And if there are any current State measures that you 

think this would apply to, I would also like to get that, not just 

looking forward. 

Mr. SAMPSON. I am sorry? 

Ms. BEAN. If there are any current State measures that you 

think this would apply to as well. 

Mr. SAMPSON. I understand that there may be some issues as to 

where a ceding insurer can get credit for reinsurance only under 

certain circumstances. But we would be happy to provide you more 

specific details on that. 

Ms. BEAN. Thank you. I don’t have anything further. 

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

Now we will hear from the gentleman from Connecticut, Mr. 

Murphy. 

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

Mr. Wolin, I want to take advantage of your unique status of 

having been inside Treasury and now out in the industry to just 

41 

maybe expand a little bit on your comments at the outset of your 

testimony as to the barriers that exist right now within Treasury. 

They are frequently appearing before this committee, as you 

have noted, on a dizzying array of insurance proposals that we 

have seen just in the last year-and-a-half. But I think it would be 

instructive to hear a little bit more on some of the barriers that 

exist right now to having that type of full participation that we are 

inevitably going to continue to need as we rehash a lot of the proposals that we have seen in the last 16 months. 

Mr. WOLIN. Thank you, Congressman. The principal barrier is 

that there really isn’t a unit within the Treasury that has developed expertise, that has staff, that has resources, that has authority to collect data, to analyze it, and to be an advisor to the President and the Secretary of the Treasury on the one hand, and to 

this committee and to others in Congress on the other. 

And I think the principal barriers are really those—expertise, 

staff, resources, and then the capacity to bring data and information together to formulate those judgments and to exercise therefore that advice function. 

Mr. MURPHY. This question is sort of keyed off of some of your 

testimony, Mr. Wolin. But I will open it up to the panel. I am particularly interested in the new regulatory structure that the E.U. 

is in the process of developing. And the suggestion in your testimony, Mr. Wolin, is that this is something that we need to be particularly concerned about and may sit at a particular disadvantage, 

given our State regulatory structure. 

And I am interested as to how this Office might help facilitate 

that conversation. Without full regulatory oversight from a Federal 

agency through OFC, how might this new Office be able to help our 

industry in what is going to be potentially a difficult conversation 

with the new European standards that we are about to be living 

under? 

Mr. WOLIN. Congressman, I think the principal way in which it 

can assist is to create one place, one focal point, with what foreign 

regulators, in this case the E.U., can interact with us and where 

we as a country can speak with one voice in the other direction so 

that from a policy perspective, in figuring out how to structure and 

then to think about and then structure the regulatory environment 

here and how it interacts with the European regulatory structure, 

that we have coherence as opposed to a multiplicity of voices, which 

is very, very difficult to deal with—in fact nearly impossible to deal 

with—when you are talking about international conversations 

about regulatory topics, in this case in the insurance industry. 

Mr. MURPHY. And specifically with regard to Solvency II, is it too 

late for that conversation to happen? Is it too late for us to have 

that one singular voice with an effective seat at the table? 

Mr. WOLIN. I am not sure that it is too late, Congressman, but 

it is getting on toward the witching hour, is how I would say it. 

Ms. LAWS. Congressman, if I could just add on, I agree with everything Mr. Wolin said. And the specific example would be from 

my testimony regarding the reinsurers. They are deciding now, 

under Solvency II, how reinsurers that are not domiciled in the 

E.U. will be able to do business in the E.U., how the equivalence 

standard is going to work. 

42 

They have had interaction with the NAIC, but the NAIC does not 

speak for the United States. I have talked about the problems, it 

appears, from the legal opinion and how they are not going to 

grant equivalence to a U.S. State under Solvency II. From the U.S. 

reinsurer’s perspective, having that single voice with the authority 

to negotiate would be critical. 

And to answer your timing question, yes, it doesn’t go into effect 

until 2012. But the decisions are being made now so that it can 

then go through the implementation process. 

Mr. MURPHY. Mr. Rahn? 

Mr. RAHN. I would just agree with—yes, thanks. I don’t want to 

take your time, but I agree with what has been said. And it may 

be late, but it is certainly better late than never, as they say, and 

I think that this will move things forward. 

But don’t lose sight of the advantage they will have for the domestic issue, on domestic issues, too. Because currently Congress 

has no place to go for information that this Office could collect on 

domestic insurance issues. 

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

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

Well, I think we have completed the hearing. Does anyone else 

have any additional questions? Ms. Bean, are you satisfied? Okay. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

Before we adjourn, the following written statements will be made 

part of the record of this hearing: The American Home Ownership 

Protection Coalition; the National Association of Mutual Insurance 

Companies; and Mr. Eric Gerst. Without objection, it is so ordered 

that the statements are submitted and entered into the record. 

The panel is thanked and dismissed, and this hearing is adjourned. 

[Whereupon, at 12:26 p.m., the hearing was adjourned.] 

(43) 

A P P E N D I X 

June 10, 2008 

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