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[Senate Report 113-82]
[From the U.S. Government Publishing Office]

                                                       Calendar No. 151
113th Congress                                                   Report
                                 SENATE
 1st Session                                                     113-82

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  NATIONAL ASSOCIATION OF REGISTERED AGENTS AND BROKERS REFORM ACT OF 
                                  2013

                                _______
                                

                 July 29, 2013.--Ordered to be printed

                                _______
                                

 Mr. Johnson of South Dakota, from the Committee on Banking, Housing, 
               and Urban Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 534]

    The Committee on Banking, Housing, and Urban Affairs, 
having had under consideration S. 534 a bill to reform the 
National Association of Registered Agents and Brokers, and for 
other purposes, having considered the same, reports favorably 
thereon with an amendment and recommends that the bill, as 
amended, do pass.

                              INTRODUCTION

    On June 6, 2013, the Senate Committee on Banking, Housing, 
and Urban Affairs considered S. 534, entitled `The National 
Association of Registered Agents and Brokers Reform act of 
2013,' a bill to reform the National Association of Registered 
Agents and Brokers, and for other purposes. The Committee voted 
to report the bill, as amended, to the Senate.

                               BACKGROUND

    Beginning in the early 1800s, the business of insurance in 
the United States had been regulated by the States. In 1943, 
however, the Supreme Court ruled in United States v. South-
Eastern Underwriters Association, that the business of 
insurance is subject to Congress's power to regulate interstate 
commerce. Following that ruling, Congress passed the McCarran-
Ferguson Act and delegated the regulation and taxation of the 
business of insurance to the States. However, Congress reserved 
the right to regulate the business of insurance in instances 
when it may be appropriate.
    Since the passage of the McCarran-Ferguson Act, the States 
have enacted and enforced a variety of insurance laws and 
regulations specific to the needs and perils of each locality. 
For an insurance company or agent operating nationally, this 
can mean being regulated by up to 56 independent domestic 
regulators (this includes the fifty States, the District of 
Columbia and five U.S. territories). Currently, insurance 
companies and agents operating in more than one State are 
required to apply and maintain separate licenses in each State 
in which they operate, even if the license requirements and 
paperwork are similar.
    In 1999, Congress passed the Gramm-Leach-Bliley Act that 
included a provision, specifically Section 321, to encourage 
States to pass uniform agent and producer licensing regulations 
within three years of enactment. If a majority of the States 
did not pass uniform rules in that time period, the National 
Association of Registered Agents and Brokers (NARAB) would be 
created to grant licenses authorizing its members to operate in 
any State. The National Association of Insurance Commissioners 
(NAIC) determined a sufficient number of States passed uniform 
regulations, however, so NARAB was never created.
    Despite the progress made by the States towards uniform 
licensing requirements, concerns remain. In a 2009 report 
(``Insurance Reciprocity and Uniformity: NAIC and State 
Regulators Have Made Progress in Producer Licensing, Product 
Approval, and Market Conduct Regulation, but Challenges 
Remain,'' GAO-09-372), the Government Accountability Office 
(GAO) highlighted several barriers to insurance producer 
licensing uniformity and reciprocity, as well as uneven 
insurance consumer protections. The GAO report noted that 
licensing inefficiencies ``could result in higher costs for 
insurers, which in turn could be passed on to consumer[s].''
    In testimony before the Committee on March 19, 2013, Monica 
J. Lindeen, Montana State Auditor and Commissioner of 
Securities and Insurance and Vice-President of the National 
Association of Insurance Commissioners, stated: ``Even with all 
our progress, the NAIC agrees that further improvement is 
needed. The states have made such significant progress in 
reforming producer licensing that today's system is 
unrecognizable from the system of 10-15 years ago. However, the 
narrow, targeted area of the non-resident insurance producer 
licensing process is one of the exceptionally rare instances 
where we believe Federal legislation could be used.''
    To address the concerns with the current insurance producer 
licensing system highlighted by GAO, NAIC and others, Senators 
Jon Tester and Mike Johanns introduced S. 534, the National 
Association of Registered Agents and Brokers Reform Act of 
2013. This Act would create a National Association of 
Registered Agents and Brokers that will allow non-resident 
insurance producers, after meeting and maintaining certain 
eligibility criteria, to operate in States for which they pay a 
State's licensing fee.

                       PURPOSE OF THE LEGISLATION

    The National Association of Registered Agents and Brokers 
Reform Act will streamline and improve the licensing process 
for approved non-resident insurance producers, eliminating 
duplicative licensing requirements for those businesses 
operating in multiple States. This Act will improve the non-
resident insurance producer licensing process and strengthen 
oversight by State insurance regulators.

                                HEARINGS

    On March 19, 2013, the Subcommittee on Securities, 
Insurance, and Investment held a hearing titled ``Streamlining 
Regulation, Improving Consumer Protection and Increasing 
Competition in Insurance Markets,'' where S. 534 was discussed. 
The witnesses testifying were: The Honorable Monica J. Lindeen, 
Commissioner of Securities and Insurance, Montana State 
Auditor, on behalf of the National Association of Insurance 
Commissioners; Mr. Jon A. Jensen, President, Correll Insurance 
Group, on behalf of Independent Insurance Agents and Brokers of 
America; Mr. Scott Trofholz, President and CEO, The Harry A. 
Koch Company of Omaha, Nebraska, on behalf of the Council of 
Insurance Agents and Brokers; and Mr. Baird Webel, Specialist 
in Financial Economics, Congressional Research Service.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

Section 2. Reestablishment of the National Association of Registered 
        Agents and Brokers

    Amends Subtitle C of title III of the Gramm-Leach-Bliley 
Act (15 U.S.C. 6751 et seq.). The section-by-section analysis 
of the amended Subtitle is:

Section 321. National Association of Registered Agents and Brokers

    Establishes the National Association of Registered Agents 
and Brokers (``Association''), which would be an independent 
non-government entity that would be incorporated as a nonprofit 
in the District of Columbia.

Section 322. Purpose

    Describes the purpose of the Association.

Section 323. Membership

    Establishes minimum Association membership criteria for 
insurance producers, authorizes the Association to create 
additional criteria, and requires the Association to create 
continuing education requirements. Allows the Association to 
take certain actions against a member who fails to maintain the 
membership criteria. This section also requires the Association 
to notify the States that an insurance producer satisfied the 
Association's membership criteria, and gives each State 10 days 
to appeal. Membership is granted on a 2-year basis.
    Establishes Association membership as the equivalent of a 
nonresident insurance producer license and authorizes 
Association members to conduct insurance business in any State 
if the member pays the licensing fee.
    The Association is authorized to share confidential 
information with certain regulators, clearinghouses, and 
databases. The Association must refer consumer complaints 
against members to the appropriate State insurance regulator.

Section 324. Board of Directors

    Establishes a bipartisan 13 member Board of Directors for 
the Association composed of eight State insurance 
commissioners, three individuals with demonstrated expertise 
and experience with property and casualty insurance producer 
licensing, and two individuals with demonstrated expertise and 
experience with life or health insurance producers licensing. 
The five experts could include industry representatives, 
consumer advocates or academics, among others.
    All 13 members will be appointed by the President of the 
United States, with the advice and consent of the U.S. Senate 
to staggered 2-year terms. The Senate will consider these 
nominations on the privileged track established during the 
112th Congress under Senate Resolution 116.

Section 325. Bylaws, standards, and disciplinary action

    Outlines the process of enacting and amending the bylaws 
and standards of the Association, as well as establishes the 
process to handle disciplinary action against an Association 
member.

Section 326. Powers

    Enumerates the powers of the Association.

Section 327. Report by Association

    Requires that the Association submit an annual report to 
the States and the President of the United States on activities 
of the Association that includes an audited financial 
statement. Given that the U.S. Department of the Treasury has a 
Federal Insurance Office, the Association's annual report to 
the President must be delivered through the Treasury 
Department.

Section 328. Liability of the Association and the board members, 
        officers, and employees of the Association

    Exempts the Association from being treated by the States as 
an insurance producer. This section also limits the personal 
liability of the Board of Directors and other Association 
employees for actions done in good faith within the scope of 
their Association duties.

Section 329. Presidential oversight

    Provides that the President of the United States may remove 
a Board member, or the entire Board, for certain reasons. This 
section also allows the President to suspend any bylaw, 
standard, or action of the Association if the President 
determines its implementation is contrary to the purpose of 
this Subtitle.

Section 330. Relationship to State law

    Preempts only State laws that relate to the licensing of 
non-resident insurance producers, conflict with Association 
membership requirements or discriminate against Association 
members. Preserves the McCarran-Ferguson Act's State-based 
regulatory authority to investigate and discipline insurance 
producers doing business in their state.

Section 331. Coordination with regulators

    Requires the Association to coordinate with the Financial 
Industry Regulatory Authority (FINRA) to ease any unnecessary 
administrative burdens for FINRA-regulated Association members.

Section 332. Right of action

    Confers jurisdiction for any civil action taken against the 
Association to an appropriate United States district court.

Section 333. Federal funding prohibited

    Prohibits the Association from receiving, accepting, or 
borrowing funds from the Federal Government to cover 
establishment or operational costs.

Section 334. Definitions

                          COST OF LEGISLATION

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    Summary: S. 534 would establish the National Association of 
Registered Agents and Brokers (NARAB) and authorize it to 
license producers of insurance (mostly agents and brokers) to 
operate in multiple states. Under current law, each state 
establishes requirements for licensing insurance producers 
within that state; producers must comply with the requirements 
of each state where they are licensed to operate. Under the 
bill, insurance producers that join the NARAB would be able to 
obtain a license to act as a producer in any state other than 
their home state by meeting the NARAB's eligibility 
requirements and paying certain fees.
    CBO estimates that enacting S. 534 would increase revenues 
by $490 million and increase direct spending by $483 million; 
taken together, those effects would reduce the deficit by $7 
million over the 2014-2023 period. Pay-as-you-go procedures 
apply because enacting the legislation would affect direct 
spending and revenues. Implementing S. 534 would not have a 
significant net effect on discretionary spending.
    S. 534 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA). CBO estimates that the 
costs to state, local, and tribal governments of complying with 
the mandates would be less than $1 million in 2016 and each 
year thereafter. Those costs would not exceed the annual 
threshold for intergovernmental mandates established in UMRA 
($75 million in 2013, adjusted annually for inflation). S. 534 
contains no new private-sector mandates as defined in UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 534 is shown in the following table. The 
costs of this legislation fall within budget function 370 
(commerce and housing credit).

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                                                                                         By fiscal year, in millions of dollars--
                                                                ----------------------------------------------------------------------------------------
                                                                                                                                                   2014-
                                                                  2014   2015   2016   2017   2018   2019   2020   2021   2022   2023  2014-2018   2023
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                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority.....................................      1      2     53     56     57     59     61     64     67     70       169      490
Estimated Outlays..............................................      1      2     47     55     57     59     61     64     67     70       162      483

                                                                   CHANGES IN REVENUES

Estimated Revenues.............................................      0      0     56     56     57     59     61     64     67     70       169      490

                                        NET DECREASE IN THE DEFICIT FROM CHANGES IN DIRECT SPENDING AND RECEIPTS

Impact on Deficit..............................................      1      2     -9     -1      0      0      0      0      0      0        -7      -7
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Note: CBO estimates that implementing S. 534 would not have a significant net effect on discretionary spending.

    Basis of estimate: CBO expects that cash flows related to 
the NARAB would be recorded in the budget as revenues and 
direct spending because the association's authority would exist 
only through a preemption of states' power to regulate the 
licensing of insurance producers. This preemption would stem 
from an exercise of the sovereign power of the federal 
government.
    Under the current regime for licensing insurance producers, 
a producer who wishes to operate in more than one state must 
meet the licensing requirements in each of those states and pay 
the appropriate licensing fees. The National Insurance Producer 
Registry (NIPR), an affiliate of the National Association of 
Insurance Commissioners (NAIC), facilitates that multi-state 
licensing process by providing a single portal to submit 
applications and pay licensing fees. Under S. 534, an insurance 
producer who meets the eligibility requirements established by 
the NARAB and becomes a member would be eligible to sell 
insurance in any state where the member pays the appropriate 
state licensing fee. In 2012, approximately 2.4 million active 
insurance producers used the services of the NIPR; about 1.7 
million of those producers were licensed in only one state. CBO 
expects that the NARAB's membership base would be made up of 
some, but not all, of the remaining active producers 
(approximately 730,000) because we expect that some producers 
operating in multiple states would find it cost-effective to 
forgo membership in the NARAB and follow each state's licensing 
procedures.
    For this estimate, CBO assumes that S. 534 will be enacted 
near the start of fiscal year 2014.

Direct spending

    Under S. 534, the NARAB would be responsible for 
establishing eligibility requirements for membership in the 
association, evaluating applicants' eligibility for membership, 
and managing licensing requirements for members. S. 534 would 
direct the NARAB to establish separate classes of membership 
for businesses and individuals and require members to meet 
certain continuing education requirements.
    The bill would authorize the NARAB to establish a system 
that simplifies the process of notifying a state of a 
producer's intent to operate there and paying the required 
fees. Similarly, S. 534 would authorize the NARAB to create a 
database to centralize information about regulatory actions 
taken by states against insurance producers. Currently, the 
NIPR offers services that streamline the process to apply for a 
nonresident license. Similarly, the NAIC maintains a database 
of state regulatory actions. The bill would allow the NARAB to 
establish those capabilities or make use of the systems already 
in place.
    The bill would provide at least two years from the date of 
enactment for the association to set up operations. During that 
time, the NARAB would be authorized to borrow funds from the 
public to cover start-up costs, which would be repaid from 
membership fees.
    Based on information about the cost to operate similar 
professional organizations, CBO estimates that enacting S. 534 
would increase direct spending by $483 million over the 2014-
2023 period to cover start-up, staffing, and operating costs of 
the association.

Revenues

    S. 534 would authorize the NARAB to charge members fees to 
cover the cost of operating the organization. CBO assumes that 
the NARAB would use its authority to borrow funds to organize 
and begin its operations before membership fees could be 
collected. CBO estimates that collecting those fees would 
increase revenues by $490 million over the 2014-2023 period.

Spending subject to appropriation

    Under S. 534, membership in the NARAB would be available to 
insurance producers who have undergone a background check 
conducted by the Attorney General. Applicants that have 
undergone a similar background check within two years of 
submitting an application to the NARAB would be exempt from 
this requirement. Otherwise, the NARAB would be authorized to 
request such background checks as part of its review of an 
applicant's eligibility.
    The bill would direct the Attorney General to establish 
regulations to implement this new requirement and to collect 
fees to carry out background checks. We expect that those fees 
would be classified as offsetting collections and would be 
credited to the salaries and expenses appropriation of the 
Federal Bureau of Investigation (FBI). This is the same 
budgetary treatment accorded to fees currently collected by the 
FBI for similar purposes. CBO estimates that the collections 
and spending of those fees would have no significant effect on 
net discretionary spending in any year.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

   CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR S. 534 AS ORDERED REPORTED BY THE SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS ON JUNE 6, 2013
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                                                                                    By fiscal year, in millions of dollars--
                                                      --------------------------------------------------------------------------------------------------
                                                        2013   2014   2015   2016   2017   2018   2019   2020   2021   2022   2023  2013-2018  2013-2023
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                                                       NET INCREASE OR DECREASE (-) IN THE DEFICIT

Statutory Pay-As-You-Go Impact.......................      0      1      2     -9     -1      0      0      0      0      0      0        -7         -7
Memorandum:
    Changes in Outlays...............................      0      1      2     47     55     57     59     61     64     67     70       162        483
    Changes in Revenues..............................      0      0      0     56     56     57     59     61     64     67     70       169        490
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    Estimated impact on state, local, and tribal governments: 
S. 534 contains intergovernmental mandates as defined in UMRA 
because it would preempt state laws and impose a notification 
requirement on state insurance regulators. CBO estimates that 
the aggregate cost of intergovernmental mandates in the bill 
would be less than $1 million in 2016 and each year thereafter. 
Those costs would not exceed the annual threshold for 
intergovernmental mandates established in UMRA ($75 million in 
2013, adjusted annually for inflation).

Registration with Secretaries of State

    Under current law, about 10 states require nonresident 
insurance producers to register with their respective 
secretaries of state, and to pay fees. The bill would prohibit 
states from imposing this requirement and from collecting those 
fees. Based on the number of producers that are currently 
registered in states that impose this requirement, CBO 
estimates that the states would lose less than $1 million in 
fee revenue in 2016 and each year thereafter.

Licensing requirements

    Most states collect a fee from nonresident insurance 
producers when they obtain a license. Under the bill, the NARAB 
would collect those fees from their members and remit them to 
the states.
    Although states might receive those fees with some delay, 
CBO estimates that the cost to states of the mandate would be 
minimal.

Notification requirement

    The bill would require state insurance regulators to notify 
the NARAB of the results of complaint investigations. CBO 
estimates that the cost to states of that notification 
requirement would be minimal.

Education and bonding requirements

    Finally, the bill would prohibit states from requiring 
nonresident producers to be bonded and to complete education 
requirements. States do not collect revenue in connection with 
their education or bonding requirements; therefore, states 
would not incur a cost to comply with this mandate.
    Estimated impact on the private sector: S. 534 contains no 
new private-sector mandates as defined in UMRA.
    Estimate prepared by: Federal costs: Susan Willie; Impact 
on state, local, and tribal governments: Elizabeth Cove 
Delisle; Impact on the private sector: Paige Piper/Bach.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                      REGULATORY IMPACT STATEMENT

    In accordance with paragraph 11(b), rule XXVI, of the 
Standing Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact of the bill.
    This legislation seeks to address several deficiencies 
within the current State-based regulation structure of the 
insurance industry, specifically the licensing of non-resident 
insurance producers.
    Currently, insurance companies and agents operating in more 
than one State are required to apply and maintain separate 
licenses in each State in which they operate. This Act creates 
a new, independent, non-profit association that is authorized 
to grant membership to certain individuals and companies who 
meet criteria established by this Act, and allows those members 
to be licensed for the business of insurance in any State in 
which the member pays a licensing fee. This will streamline the 
licensing process for members, eliminating duplicative 
application and licensing requirements. Because of this, this 
Act will reduce unnecessary costs while strengthening 
coordination and oversight by State insurance regulators.
    Furthermore, while this Act streamlines the licensing 
process for non-resident insurers, it does not alter or preempt 
the State-based regulation of the business of insurance, 
including market conduct and consumer protection. It does not 
alter or preempt State investigative or disciplinary authority 
over insurance producers and agents licensed in each State. It 
is not expected that the reported bill will have any burdensome 
impact on the individuals or companies being regulated.
    Subsection (j) of the newly amended section 323 of the 
Gramm-Leach-Bliley Act allows for the creation of a 
clearinghouse and a database for the States and the 
Association's members to use to share information regarding the 
licensing status of its members, as well as other information 
and data. The confidential or privileged information the 
Association is authorized to share under this subsection must 
remain confidential or privileged, and allows the Association 
to limit the sharing of certain information to non-governmental 
entities that they deem sensitive. Because of this, this Act 
will protect the personal privacy of the Association's members.

               JUSTIFICATION FOR NEW EXECUTIVE POSITIONS

    In accordance with Section 4, of Senate Resolution 116 of 
the 112th Congress, the Committee makes the following 
evaluation and justification for the creation of new positions 
requiring appointment by the President.
    This legislation creates a 13 member Board of Director for 
the National Association of Registered Agents and Brokers, with 
staggered terms of two years, all of which require Presidential 
appointment with the advice and consent of the Senate. As 
reported by the Committee, all of the 13 nominations will be 
considered under the privileged track established in Section 1 
of Senate Resolution 116 of the 112th Congress.
    In order for the Association to achieve the goals 
established under this legislation, a Board of Directors 
consisting of adequate representation of both the public and 
private sectors is needed. Because of the power granted to the 
Association and its Board of Directors, the Committee agrees 
with the portion of the United States Department of Justice's 
opinion, expressed in a 2008 letter from the Department to the 
Senate, that the Members of the Board should be appointed by 
the President, with the advice and consent of the Senate.

                 CHANGES IN EXISTING LAW (CORDON RULE)

    On June 6, 2013, the Committee unanimously approved a 
motion by Senator Johnson to waive the Cordon rule. Thus, in 
the opinion of the Committee, it is necessary to dispense with 
section 12 of rule XXVI of the Standing Rules of the Senate in 
order to expedite the business of the Senate.

                                  
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