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S. HRG. 113–21 

STREAMLINING REGULATION, IMPROVING CONSUMER PROTECTION, AND INCREASING COMPETITION IN INSURANCE MARKETS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

SECURITIES, INSURANCE, AND INVESTMENT 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE CHALLENGES AND BENEFITS POSED BY THE CURRENT SYSTEM OF INSURANCE LICENSING FOR AGENTS AND BROKERS OPERATING OUTSIDE OF THEIR HOME STATES, AND FOR REGULATORS SUPERVISING THEM 

MARCH 19, 2013 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

LAURA SWANSON Deputy Staff Director 

GLEN SEARS, Deputy Policy Director 

ERIN BARRY FUHRER, Professional Staff Member 

BETH COOPER, Professional Staff Member 

WILLIAM FIELDS, Legislative Assistant 

GREG DEAN, Republican Chief Counsel 

CHAD DAVIS, Republican Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

KELLY WISMER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON SECURITIES, INSURANCE, AND INVESTMENT

JON TESTER, Montana, Chairman 

MIKE JOHANNS, Nebraska, Ranking Republican Member 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

MARK R. WARNER, Virginia 

KAY HAGAN, North Carolina 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

BOB CORKER, Tennessee 

RICHARD C. SHELBY, Alabama 

DAVID VITTER, Louisiana 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

TOM COBURN, Oklahoma 

KARA STEIN, Subcommittee Staff Director 

BRIAN WERSTLER, Republican Subcommittee Staff Director 

(II)
C O N T E N T S 

TUESDAY, MARCH 19, 2013 

Page 

Opening statement of Chairman Tester ................................................................ 1 

Opening statements, comments, or prepared statements of: 

Senator Johanns ............................................................................................... 2 

WITNESSES 

Monica J. Lindeen, Commissioner of Securities and Insurance, Montana State 

Auditor, on behalf of the National Association of Insurance Commissioners . 4 

Prepared statement .......................................................................................... 19 

Jon A. Jensen, President, Correll Insurance Group, and Chairman, Government Affairs Committee, on behalf of the Independent Insurance Agents 

and Brokers of America ....................................................................................... 6 

Prepared statement .......................................................................................... 22 

Scott Trofholz, President and CEO, The Harry A. Koch Company, Omaha, 

Nebraska, on behalf of the Council of Insurance Agents and Brokers ............ 7 

Prepared statement .......................................................................................... 25 

Baird Webel, Specialist in Financial Economics, Congressional Research Service .......................................................................................................................... 9

Prepared statement .......................................................................................... 29 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Prepared statement of the National Association of Insurance and Financial 

Advisors ................................................................................................................ 37 

Letter of support for NARAB from a coalition of insurance industry groups ..... 39 

Letter of support for NARAB from the National Association of Insurance 

Commissioners ..................................................................................................... 40 

Prepared statement of the National Association of Professional Surplus Lines 

Offices .................................................................................................................... 41 

Prepared statement of Bernd G. Heinze, Esq. Executive Director, the American Association of Managing General Agents .................................................. 43 

Prepared statement of the Advocates for Insurance Modernization ................... 52 

Prepared statement of Catherine Weatherford, President and CEO, Insured 

Retirement Institute ............................................................................................ 68 

(III)

(1) 

STREAMLINING REGULATION, IMPROVING 

CONSUMER PROTECTION, AND INCREASING 

COMPETITION IN INSURANCE MARKETS 

TUESDAY, MARCH 19, 2013 

U.S. SENATE, 

SUBCOMMITTEE ON SECURITIES, INSURANCE, 

AND INVESTMENT, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Subcommittee convened at 3 p.m. in room 538 Dirksen Senate Office Building, Hon. Jon Tester, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN JON TESTER 

Senator TESTER. I want to call to order this hearing of the Securities, Insurance, and Investment Subcommittee. This hearing is 

entitled, ‘‘Streamlining Regulation, Improving Consumer Protection, and Increasing Competition in Insurance Markets.’’ 

I look forward to hearing from our witnesses this afternoon about 

some of the challenges and benefits posed by the current system of 

insurance licensing for insurance agents and brokers operating outside of their home States and for the regulators tasked with supervising them. 

Currently, an agent or broker seeking to operate in multiple 

States must do so in each State individually, meeting different 

State-specific requirements and seeking approval from each State’s 

jurisdiction, a process that can be time consuming and unwieldy. 

Senator Johanns and I introduced legislation last year, the National Association of Registered Agents and Brokers Act, to create 

a nonprofit association to provide one-stop licensing for agents and 

brokers operating outside of their home State while preserving the 

authority of State insurance regulators to supervise these markets. 

Our legislation, S. 534, which we just reintroduced last week 

with 12 bipartisan cosponsors, would provide insurance producers 

with the option of becoming a member of the National Association 

of Registered Agents and Brokers, or otherwise called NARAB, provided they meet the professional standards set by the Association. 

Membership in NARAB would streamline the licensing process for 

agents and brokers, enabling them to be licensed once under a single standard rather than following different standards in each 

State, thus saving time and money. The Association would set rigorous professional and consumer protection standards while pre-
2 

serving the ability for regulators to supervise and discipline producers. 

The concept of NARAB was first introduced in 1999 in the 

Gramm-Leach-Bliley Act. More recently, it has been introduced as 

stand-alone legislation. The legislation that Senator Johanns and I 

have introduced enjoys the support of the National Association of 

Insurance Commissioners and representatives of the insurance industry, including those representatives with us here today. 

I think it is fitting that Senator Johanns and I begin our tenure 

as Chair and Ranking Member of this Subcommittee focused on 

this common sense legislation which we both want to see signed 

into law. And let me say how much I look forward to working with 

Senator Johanns and his staff on this Subcommittee to build consensus, to hold agencies accountable, and ensure that regulations 

and markets function fairly and efficiently. We have our work cut 

out for us, but I know that Senator Johanns will be a great partner. 

I am looking forward to hearing from all of our witnesses this 

afternoon about the impact of the NARAB legislation, its evolution 

over time, and its potential impact on consumer protection, market 

competition, and the State system of insurance regulation. 

With that, I turn it over to you, Senator Johanns, for your opening statement. 

STATEMENT OF SENATOR MIKE JOHANNS 

Senator JOHANNS. Well, thank you, Mr. Chairman, for calling 

this hearing, first of all, and to our panel of witnesses, thank you 

for being here today. We appreciate it. 

I also want to offer a word of thanks to the Senator from Montana for his leadership on S. 534, the National Association of Registered Agents and Brokers Reform Act of 2013, a piece of legislation that, as the Senator indicated, we want to see signed into law, 

and we look forward to the discussion today. 

I also want to say a special thanks to a good friend, Scott 

Trofholz from Omaha. Thank you for making the trek back out 

here. We just saw you recently, so it is good to see you here. The 

subject under discussion today, as we all know, is an important one 

to insurance agents and brokers in Nebraska, but for that matter, 

it is important across the United States. 

If we succeed in reducing administrative and bureaucratic barriers to entry in the interstate insurance marketplace, it logically 

follows that competition will increase and, hopefully, costs will go 

down. Obviously, this represents a win for everybody involved. Our 

small business insurance producers will face a reduced burden in 

obtaining licensing in other States. Customers will have greater access to insurance producers and products. And the vital role of our 

State insurance regulators will be preserved. 

The State-based insurance regulatory regime is one that works 

well, but I am extremely sympathetic to the administrative burden 

borne by our Nebraska-based producer who is seeking to write policies on a customer’s business venture mere miles away across the 

river in Iowa, write a policy on the vacation home in Colorado, and 

maybe the retirement property that they invested in in Arizona, 

hoping for that day of retirement. 
3 

I look forward to hearing from the insurance producers on our 

panel today about the specific challenges they face with the current 

system of insurance licensing and what the proposed legislation 

might do to help. 

I am also interested in hearing from the panelists on how they 

feel market competition may increase as a result of the framework 

of this legislation and to what extent this potential increase may 

result in increased insurance options for consumers. 

Further, I am encouraged that this legislation does have the support of the National Association of Insurance Commissioners, and 

I look forward to hearing Commissioner Lindeen’s perspective on 

the role our State insurance commissioners envision playing if this 

legislation is enacted. 

I also want to wrap up and just say I look forward to working 

with Senator Tester on this committee. We can get a lot done working together, and let us just go out and do it. Thank you. 

Senator TESTER. Absolutely. Well, thank you, Senator Johanns. 

And I want to welcome the four witnesses to the panel here 

today. These four folks have spent a lot of time working in this 

field and I want to thank them for their willingness to take time 

out of your busy schedule and be here with us this afternoon. I will 

introduce you all and then we will just go right down the line with 

the testimony. I would ask you ahead of time, keep your testimony, 

I think, within 5 minutes. Your entire written document will be a 

part of the record and that will give us some time to ask the difficult questions. 

Commissioner Monica Lindeen is the Montana Commissioner of 

Securities and Insurance and the State Auditor. As Auditor, she 

protects securities and insurance consumers through education, 

fairness, and transparency. During her tenure as State Auditor and 

Insurance Commissioner, her office has returned more than $200 

million to investors and insurance consumers in Montana. Montana 

is not a particularly big State. This is a big deal. And in November 

of last year, she was elected Vice President of the National Association of Insurance Commissioners. Just as a side note, I worked 

with Monica Lindeen when I was in the State Legislature when 

she was a legislator and I was a legislator. She is the hardest 

working person that I have ever been around. Thank you very 

much for being here, Monica. 

Mr. Jon A. Jensen serves as government Affairs Committee 

Chairman of the Independent Insurance Agents and Brokers of 

America, IIABA. As the President of Correll Insurance Group based 

in Spartansburg, South Carolina, he is also the South Carolina National Director for the Independent Insurance Agents and Brokers 

of America and the Past National Chairman of the Big ‘‘I’’ Insurance PAC Board of Trustees. I want to thank you, too, Jon, for taking the time for being here. Welcome to the panel. 

Scott Trofholz, who Senator Johanns spoke about, serves as 

President and Chief Executive Officer of The Harry A. Koch Company located in Omaha, Nebraska. He is also a member of the 

Board of Directors of the Council of Insurance Agents and Brokers. 

Before joining The Harry A. Koch Company, he served as Marketing Representative, Service Office Manager, Regional Marketing 

Manager, and Branch Manager of Crum and Forster, a Xerox sub-
4 

sidiary. I want to thank you for being here, Scott, and very much 

appreciate your time in making the trek from Omaha. 

And last but certainly not least, we have got Baird Webel, a Specialist in Financial Economics with the Congressional Research 

Service. Mr. Webel has written extensively on financial institution 

policy, including the insurance industry, and coordinated the CRS 

report on the Dodd-Frank Act. Before joining CRS, he worked as 

a Congressional staffer for Representative Cooksey. So I want to 

thank you for being here, Baird. As I told you when you walked 

in, you are the first ‘‘Baird’’ I ever met, so it is great to have you 

on the panel, if for that reason alone. 

With that, I want to thank you all once again, and we will start 

with your testimony, Commissioner Lindeen. 

STATEMENT OF MONICA J. LINDEEN, COMMISSIONER OF SECURITIES AND INSURANCE, MONTANA STATE AUDITOR, ON 

BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE 

COMMISSIONERS 

Ms. LINDEEN. Chairman Tester, Ranking Member Johanns, and 

Members of the Committee, thank you for the opportunity to testify 

this afternoon and for your leadership on the NARAB II legislation. 

My name is Monica Lindeen, Montana State Auditor, Commissioner of Insurance and Securities, and Vice President of the NAIC. 

The NAIC supports the current NARAB legislation before you 

today, and on March 8, we sent a letter of support to Congress. We 

also supported the Senate version of the bill in the last Congress. 

Insurance producers play a very important consumer resource 

role in the U.S. insurance system as the regulators of more than 

6.8 million individuals and business entities licensed to provide insurance services in the United States. NAIC members recognize 

that streamlined nonresident producer licensing is an important 

goal. 

However, I want to emphasize that efforts to do so must not undermine existing State authorities to protect insurance consumers 

and take enforcement action against malfeasant producers. State 

insurance regulators take our consumer protection responsibilities 

very seriously, and our support of this legislation is contingent on 

the preservation of our ability to carry out that mission as we regulate our markets and enforce State insurance laws. 

State regulators have broad authority to protect consumers 

through licensing, data collection, and taking action against violators of State insurance laws. My written testimony details our authorities in that area, but I want to briefly focus today on our enforcement record. 

In 2011, State insurance departments received millions of consumer inquiries and more than 283,000 official complaints, leading 

to many civil and criminal investigations as well as the suspension 

or revocation of nearly 25,000 licenses and nearly 5,000 fines, totaling over $73 million and resulting in $115 million in restitution for 

consumers. 

Turning to the legislation itself, allow me to offer comments 

about the road that brought us here today. Insurance commissioners have worked continuously to address nonresident producer 

licensing reform, starting with the NAIC’s Producer Licensing 
5 

Working Group in the late 1990s and the NARAB Working Group 

in the early 2000s. The NAIC developed and adopted a Producer 

Licensing Model Act to facilitate nonresident licensing and improve 

reciprocity. States met and exceeded the nonresident reciprocity requirements of the Gramm-Leach-Bliley Act and continue to work 

diligently toward uniformity in resident licensing standards. 

Even with all of our progress, NARAB II would further streamline the administrative process of nonresident licensing, but not at 

the expense of consumer protection, State revenues or market regulatory authority. Today’s bill contains improvements over previous 

versions, and hopefully, with support from both regulators and producers, it will continue to attract bipartisan cosponsors and votes 

as it works its way through the process. 

The proposed legislation would establish NARAB with a governing board comprised of eight State insurance commissioners and 

five insurance industry representatives. This strong regulatory majority ensures that consumers’ best interests are served by establishing membership criteria, drawing from the highest standards 

that exist in State law. 

In addition to the strong regulator majority on the board, the legislation also preserves the existing authorities of States with respect to resident licensing, market regulation, and consumer protection, and the supervision and enforcement of laws related to producer conduct. The bill also includes important disclosures to the 

States, maintains business entity licensing, and protects State revenues and fee structures to ensure there is no additional cost or 

revenue loss to those States. 

Another important provision requires pre-notification to State 

regulators and the NAIC of any producer seeking to do business on 

the basis of NARAB membership. While the States will no longer 

issue licenses to nonresidents seeking NARAB membership, the bill 

requires notice and a 10-day look period during which a State may 

bring up any objections to a producer that seeks to do business in 

their jurisdiction. 

Last, the bill requires the board to establish a strong ethical conduct code related to the NARAB’s affairs and operation and mandates an FBI criminal background check from applicants who have 

not had one within the last 2 years, further raising the bar in the 

area of consumer protection. 

Taken together, these provisions preserve State regulatory authority to police insurance markets and protect consumers. 

In conclusion, we look forward to working with you to advance 

the NARAB II legislation. The bill is the result of many years of 

discussions among State regulators, the producer community, and 

Congress. We cannot stress enough the improvements included in 

this version of the legislation and agreed to by all involved are absolutely critical to our support while preserving State authority, 

and our endorsement should not be interpreted as support for any 

further preemption of State insurance laws. Insurance regulatory 

reform should always begin and end with the States. 

And I thank you for your time this afternoon and look forward 

to your questions. 

Senator TESTER. Thank you, Commissioner Lindeen. 

You may proceed, Mr. Jensen. 
6 

STATEMENT OF JON A. JENSEN, PRESIDENT, CORRELL INSURANCE GROUP, AND CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE, ON BEHALF OF THE INDEPENDENT INSURANCE 

AGENTS AND BROKERS OF AMERICA 

Mr. JENSEN. Thank you, Chairman Tester and Ranking Member 

Johanns. My name is Jon Jensen and I am President of Correll Insurance Group, headquartered in South Carolina. I am also Chairman of the Government Affairs Committee of the Independent 

Agents and Brokers of America, also known as the Big ‘‘I’’. 

The Big ‘‘I’’ strongly supports S. 534, or NARAB II, which was 

introduced last week by the Chairman and Ranking Member and 

12 other bipartisan original cosponsors. This legislation is one of 

the top priorities for the Big ‘‘I’’ and I thank you both for your leadership on this issue. 

Members of the Subcommittee are likely well aware of the Big 

‘‘I’’ ’s steadfast and unwavering support for State regulation of insurance. We strongly believe that States are the most appropriate 

and effective regulators of this vital financial sector. However, 

while the foundation of State regulation remains strong, sufficient 

progress on producer licensing reform has not been achieved, despite the best effort of State regulators. As a result, there is a critical need for targeted Federal legislation, such as NARAB II. 

State law requires insurance agents and brokers to be licensed 

in every jurisdiction in which they conduct business, which forces 

most producers today to comply with inconsistent standards and 

duplicative licensing processes. These requirements are costly, they 

are burdensome and time consuming, and they hinder the ability 

of insurance agents and brokers to effectively address the needs of 

consumers. In fact, the current licensing system is so complex and 

so confusing for our members that many are forced to retain expensive consultants or vendors or hire staff people dedicated to achieving compliance with the requirements of the States in which they 

operate. 

My own firm maintains hundreds of licenses. I myself am currently licensed in 27 States. Many producers in my agency have 

more than 20 State licenses, and we have six internal staffers who 

share responsibility for maintaining and updating these licenses. 

These are six staff who could otherwise be engaged in client service 

work, but instead are mired in needless administrative paperwork. 

The compliance costs associated with maintaining these hundreds 

of licenses is significant. In addition to agent licenses, my agency 

must also maintain business licenses in many States where we operate. 

In addition to the time and compliance costs associated with the 

agent and agency licensing, I have also experienced firsthand the 

real opportunity costs the current system creates. My agency has 

on numerous occasions missed opportunities for new business solely because we are not licensed in the correct State. At one point, 

we had a license application delayed for almost 45 days because 

there was an error in the application, but no one in the insurance 

department could figure out what that error was. After 45 days, we 

found out the problem. It really was just simply that we had not 

capitalized a word. The application was corrected in literally 2 minutes and we are finally allowed to write business in that State. 
7 

There is a better way, and that is the NARAB II legislation that 

you, Mr. Chairman and Ranking Member, have introduced. The 

NARAB II proposal would immediately establish the National Association of Registered Agents and Brokers and provide a longawaited vehicle for obtaining the authority to operate on a multiState basis. NARAB II ensures that any agent, broker, or agency 

which elects to become a member of NARAB will enjoy the benefits 

of true licensing reciprocity. 

In order to join NARAB, an insurance producer must be licensed 

in good standing in his or her home State, undergo a recent criminal background check, and satisfy the criteria established by 

NARAB. This criteria would include standards for personal qualifications, training, and experience. The bill would not allow a race 

to the bottom to occur, as it instructs the board to consider the 

highest levels of insurance producer qualifications established 

under the licensing laws of the States. 

NARAB’s simple and limited mission would be to serve as a portal or central clearinghouse for insurance producers and agencies 

who seek the ability to operate in multiple States. NARAB II merely addresses marketplace entry and appropriately leaves regulatory 

authority in the hands of State officials. In short, the NARAB II 

proposal would strengthen State insurance regulation, reduce unnecessary redundancies and regulatory costs, and enable the industry to more effectively serve the needs of insurance buyers. And, it 

would achieve these results without displacing any State regulatory oversight. 

I thank the Subcommittee for its efforts on agency licensing reform and look forward to working with you all on S. 534. 

Senator TESTER. Thank you, Mr. Jensen, for your testimony. 

Please proceed, Mr. Trofholz. 

STATEMENT OF SCOTT TROFHOLZ, PRESIDENT AND CEO, THE 

HARRY A. KOCH COMPANY, OMAHA, NEBRASKA, ON BEHALF 

OF THE COUNCIL OF INSURANCE AGENTS AND BROKERS 

Mr. TROFHOLZ. Good afternoon, Chairman Tester, Ranking Member Johanns, and Members of the Subcommittee. Thanks so much 

for this opportunity. I am Scott Trofholz, the President and CEO 

of The Harry Koch Company, which is based in Omaha, Nebraska. 

From a startup small business almost 100 years ago, we have 

grown to the largest independent agency in the State of Nebraska, 

with clients including Fortune 500 companies, small businesses, 

and everything in between. 

I am testifying on behalf of my firm as well as members of the 

Council of Insurance Agents and Brokers, which represents the Nation’s largest insurance agencies and brokerage firms. I am also on 

the board of the Council. 

From our perspective, it is terrific that you are holding this hearing and that S. 534 has been introduced to create the National Association of Registered Agents and Brokers. We think the reform 

of nonresident producer licensing is an idea whose time has come. 

Let me put it to you this way. Our organization first formed a task 

force to work on this issue in 1933. 

As for myself, I hold nonresident licenses in 48 jurisdictions. We 

have over 80 licensed professionals in our firm, and you can do the 
8 

math and see the administrative cost and the compliance burden 

this creates. I am constantly filling out paperwork that requires a 

significant amount of administrative assistance and adds costs to 

our firm and to our clients’ costs. These regulations are quite often 

redundant and almost always cumbersome. 

You would have no compliant from us if these regulations were 

about assuring a standard of professionalism, but they are not. In 

addition to the initial licenses, we face annual renewals in all jurisdictions and must comply—and must satisfy all the underlying requirements, such as pre-licensing and continual as well as post-licensure oversight. 

As you Senators know very well, there has long been a debate 

about the parameters of State regulation and Federal oversight. 

Not all of us on this panel have agreed on this. But on this particular issue, consensus among the major stakeholders has been 

reached. We all agree that we need a tool such as NARAB to 

achieve administrative simplicity and uniformity while assuring 

consumer protection. 

I especially want to thank all the State regulators, including 

Commissioner Lindeen, for all their work on this issue—changing 

laws and licensing practices in their States, working together at 

the NAIC to address the issues through model standards and the 

bully pulpit, and working with all the stakeholders and legislators 

in developing this important proposal. 

Regulatory reform is a difficult process and the regulators take 

the brunt of a good deal of griping along the way. But we really 

do appreciate their diligence in protecting consumers and providing 

a vibrant insurance marketplace. 

The idea behind NARAB is pretty simple. It does not create a 

Federal license but rather would serve as a clearinghouse for nonresident producer licensure. It would be purely optional and selffunding. Not a dime of Federal money would be required. In order 

to be a member of NARAB, a producer would first have to be duly 

licensed in his or her home State. The board of NARAB, whose majority would be made up of insurance regulators, would set the criteria of NARAB membership and the standards of professionalism 

would be at least as high as the most stringent State. When a producer meets that standard, he or she can utilize NARAB as the 

clearinghouse to receive that nonresident license. 

NARAB would submit licensing fees to the States and the States 

would not lose any revenue. This is truly a win-win scenario. If 

NARAB is not the most efficient means through which the producers can be licensed, nothing compels a producer to use it. The 

governance of the organization assures the State regulators will be 

able to fully protect and, we believe, enhance the quality of individuals engaged in insurance transactions. 

As has already been stated, the original NARAB versions in 

Gramm-Leach-Bliley created an incentive for the States to move toward reciprocity. Reciprocity has smoothed over some of the differences, but unless there is real uniformity in administrative procedures, brokers and insurance consumers will continue to suffer 

from unnecessary costs. 

Again, Mr. Chairman and Senator Johanns, we are grateful for 

your leadership on this issue and look forward to working with you. 
9 

Senator TESTER. Thank you, Mr. Trofholz. I appreciate your testimony, and we will proceed with Mr. Webel. 

Mr. Webel. 

STATEMENT OF BAIRD WEBEL, SPECIALIST IN FINANCIAL 

ECONOMICS, CONGRESSIONAL RESEARCH SERVICE 

Mr. WEBEL. Hello. Mr. Chairman and Ranking Member Johanns, 

thank you very much for the opportunity to testify today. My written testimony contains additional detail and background on insurance regulation and different Federal attempts to influence insurance regulation. Today, I will focus on NARAB and insurance producer licensing. 

Before I begin, I just would like to let everybody know, which I 

know you know, that CRS’s role is to provide objective, nonpartisan 

research and analysis for Congress and we do not take positions on 

particular legislation. 

As everyone has stated, the States are the primary regulators of 

insurance. This leads to some multiplicity of regulation across 

State jurisdictions, almost inevitably so. There have been attempts 

to unify or harmonize State regulation by both the insurance regulators and the insurance legislators at the State level for many, 

many years. But despite such efforts, we hear stories as we have 

heard from the rest of the panel about the costs and inefficiencies 

in various parts of the insurance regulatory system. 

The attempts that have been brought before Congress to address 

this have largely been in the realm of either a complete Federalization of the system or some Federal, shall we say, help for other 

bodies in the insurance regulatory system to achieve this uniformity. Although I would say, if I were writing this, the word 

‘‘help’’ might be in quotation marks, because not everyone in the 

system has welcomed such help. 

The NARAB provisions, as mentioned, were originally part of the 

Gramm-Leach-Bliley Act. They provided for the creation of a 

NARAB Association, which would allow people to operate across 

State lines with a single membership in this Association. But, as 

we have heard, there continue to be problems, partly because the 

NARAB Association in Gramm-Leach-Bliley was not mandatory. 

The States were given the opportunity to institute either reciprocity or some sort of uniformity in the system, which they did, 

and the NAIC certified that as many as 47 different jurisdictions 

reached the reciprocity standards. But I think that, again, as the 

details that have been given, there are some issues that have come 

up with it and we have continued to hear problems from people despite the reciprocity legislation that is in place. 

I think that the problems that one continues to hear, despite the 

reciprocity legislation that is in place, leads to the conclusion as we 

consider further legislation that the details of the legislation really 

do matter, that there can be little details—little differences between States can add up to big differences to the producer licensing 

experience. 

The NARAB II legislation that is before the Congress today basically does away with the conditionality that was found in NARAB 

I, and institutes the NARAB structure immediately. It has changes 

to the board structure that was originally in the NARAB I legisla-
10 

tion. It has changes, to some degree, to the oversight that the 

NAIC would have on the NARAB organization. But the organization remains deeply embedded in the State regulatory system, with 

a majority of the board being insurance commissioners. 

Another part that has been added since NARAB I are provisions 

providing for Federal Attorney General and FBI assistance or authority in background checks, which has been a point of contention 

or point of difficulty with some States in terms of accessing, I believe, the Federal resources on criminal background checks. 

I think that another lesson that can perhaps be learned in the 

15 years or so since the Gramm-Leach-Bliley is also that continued 

oversight by Congress matters. I think anyone that has been on 

Capitol Hill for a while knows that when a law is passed instructing the executive branch to do something, it really helps when Congress keeps their thumb on the executive to make sure that it happens. That is in a situation where Congress frequently has budgetary oversight or much more direct oversight mechanisms on the 

body that is undertaking the authority. 

In this case, it becomes a private body that is sanctioned by Congress, and I think that that brings up challenges as to how does 

Congress continue to oversee what it has created. And I find it very 

interesting that one of the initial NARAB legislation—NARAB II 

legislations—included reports directly to Congress. But the administration basically objected to the reporting because it was a reporting to both the executive and to Congress. The newer legislation 

does not have the reporting to Congress and I think that is in response to those concerns, but that may be something that Congress 

will want to think about again as to how it is going to oversee the 

NARAB organization going forward. 

If you have any further questions, I would be happy to answer 

them. 

Senator TESTER. Well, thank you, Mr. Webel. I appreciate your 

testimony as well as everybody else’s. 

Since it is just the Ranking Member and myself, I do not know 

that we are going to put the clock on. I am going to ask a few questions and kick it over to you, and when you get tired, you can kick 

it back. 

I want to start by once again thanking you for all the work that 

each and every one of you have done on this. Your respective organizations have been very positive in the efforts to streamline the 

State insurance licensing process and you need to take that back 

to not only yourselves, but anybody in your organization that it applies to. Without your work, I think it is fair to say that Senator 

Johanns and myself would not have been able to introduce this bill. 

So thank you for that. 

I want to talk a little bit about consumer impact, consumer protection as it relates to NARAB. Can each of you discuss from your 

perspective the potential impact of the streamlined licensing process as conceived through the NARAB on consumers, positive or 

negative. We will start with you, Commissioner. 

Ms. LINDEEN. Thank you, Mr. Chairman, Senator. I would just— 

I would start out by saying that, once again, State regulators really 

do take protecting consumers very seriously. It is our number one 

priority, as I am sure you have heard before. And our support of 
11 

this legislation really is contingent on that preservation of that 

ability to protect consumers and making sure that we are regulating our markets and enforcing State insurance laws, as I said. 

The legislation appropriately, we believe, leaves regulatory authority in the hands of State officials, which does nothing, then, to 

limit our ability to protect consumers by upholding those laws in 

our home States. So I think that is probably the number one reason why we think that this bill as it stands is a good piece of legislation. 

I would also note that, in some cases, NARAB producer membership requirements may be even tougher, may provide for even 

tougher regulations, which I think Mr. Webel mentioned, when it 

comes to fingerprinting and FBI background checks. We think that 

that is important, as well. Obviously, right now, there is only about 

half the States that actually require that. 

And, finally, I would just say that any time you can have multiple sets of eyes on something when it comes to regulation, it is 

a good thing. So we think that this is a good bill as it stands for 

consumer protection. 

Senator TESTER. Good. Mr. Jensen, do you have anything to add? 

Mr. JENSEN. Yes. Thank you, Mr. Chairman. I do find it interesting this morning, as I was preparing for this hearing, I did get 

an email from a fellow agent of mine and he said, ‘‘Make sure that 

you mention that this is not just a pro-agent bill. This is absolutely 

pro-consumer.’’ He said, ‘‘The quicker that I can go to market for 

one of my clients, the better I serve my client.’’ And I think that 

is a very appropriate comment on his part. 

I know from my own personal standpoint, when I have a client 

that is a small businessman who calls me and tells me how excited 

he is to be venturing into another State and expanding his business and I have to say, wait a minute, slow down. Do not be so 

excited. We do not have a license there. It will take us a day or 

two, or a week, or 45 days to be able to facilitate that for you. It 

is a very dampening effect, I think, on small business. There is no 

question about it. And so I think this is, by far, a very pro-consumer piece of legislation. 

Senator TESTER. OK. Scott. 

Mr. TROFHOLZ. I agree with everything that has been said so far. 

Any time we can have uniformity and less administrative headache 

and get things to the market quicker, the end is that the consumer 

benefits, and that is what we are all trying to do in the first place. 

Senator TESTER. OK. Baird, anything that—— 

Mr. WEBEL. Yes. As written, and I think as people are intending 

to carry it out, that it would result in increased competition and 

increased competition is generally good for the consumer. 

Senator TESTER. OK. Good. 

Commissioner Lindeen, to you specifically, can you comment on 

how NARAB would impact your ability and the ability of your fellow commissioners to protect consumers, and if that answer is it 

would have no impact, that is a good enough answer for me, but 

if it would have an impact, I would like to know. 

Ms. LINDEEN. Senator Tester, I would say that it would have no 

negative effect on our ability to protect consumers. 
12 

Senator TESTER. Very good. I am going to kick it over to you, 

Senator Johanns. 

Senator JOHANNS. Let me start with Scott, if I could. I used this 

example of a person who maybe lives in Iowa, but you service their 

business and they have various interests in other States. Is that a 

common occurrence? Is that something you deal with on a regular 

basis? 

Mr. TROFHOLZ. Absolutely. The world is getting smaller, and in 

many cases, you are taking an example of a personal insurance policy, but businesses do business across multi States. And so, as I 

mentioned to you, we have over 650 licenses in our small firm and 

it is just—it is not so much the process, it is which State requires 

what. I mean, it is the—we just would like to have one place to go 

to get that all done and it would speed up the process. And again, 

as we talked about, the redundancies would come out of this, which 

should be better for the consumer in the end. But that happens all 

the time. 

Senator JOHANNS. Mm-hmm. Jon, do you have thoughts on that? 

Mr. JENSEN. Yes. I absolutely concur, and it is even—it is very 

difficult for us, because the States may change their regulations 

from year to year. So we think we have a grasp of it and know 

what we are doing and then discover some change has occurred 

and all of a sudden it is back to the drawing board. I guess as 

small business owners and professionals, we find that very frustrating, to think we do not know that what we are doing is absolutely proper. 

Senator JOHANNS. Commissioner, on the issue of, let us just take 

a typical consumer complaint. Let us say that you have a—the law 

passes. You have an agent in another State other than your own 

State, but they are doing business in your State. They have lawfully complied and you have a constituent in Montana who feels 

that they have been cheated or something. Do you then have jurisdiction of that complaint? Is that how that would work, because 

that activity occurred in your State? 

Ms. LINDEEN. Senator, I would definitely be able to continue to 

investigate the consumer complaint, and if I found that there was 

any issue with a law being broken, I would be able to then deal 

with the producer in the appropriate manner, absolutely. 

Senator JOHANNS. If I could jump over to Baird, what about this 

legislation do you think has a better chance of working than previous attempts, because there have been some previous attempts to 

try to streamline or reciprocity to try to deal with this issue. What 

makes this better and different, hopefully? 

Mr. WEBEL. I think that the existence of the organization, the 

ability to have the single license is an important aspect. I think 

that it has the potential to really streamline things. But, as I said, 

a lot really depends on how things are carried out. 

I will go back to a law passed in 1981 and 1986 on risk retention 

groups that was supposed to provide, essentially, home State regulation of a risk retention group which would then operate across 

the country. If you listen to the risk retention group associations 

now, they will complain about the various barriers that have been 

put up by States which they see as not giving them access across 

the country. 
13 

So I think that, as I said, the details and the ongoing implementation of it really matters in terms of are there little things that 

are done to prevent people from truly operating across the country 

and who decides? Does it take a Federal lawsuit? If a producer 

feels like they should be able to operate in another State, but somehow is not being able to do so underneath the law, do they actually 

have to file a lawsuit in Federal court to obtain some kind of judgment that they should be able to do so? There are a lot of barriers 

that can come up after legislation is actually written. 

Senator JOHANNS. Sure. Any of the other panelists have any 

thoughts about that? We not only want to pass the legislation, but 

we would like to look out there 5 years, 10 years, and say, you 

know, this was the key. This was the secret and now we can see 

all this benefit that is occurring. 

Commissioner. 

Ms. LINDEEN. If I could, Senator, if I could, I would like to just 

step back for one moment and just kind of remind everybody that 

after passage of the Gramm-Leach-Bliley Act, I mean, there were 

these standards set in place and the States were asked—they said 

that States, at least 27, 28, 29 States had to meet those standards. 

The States worked very hard to meet those standards and exceeded 

what the Act asked for. We had, as was mentioned, I think, earlier 

in one of the testimonies, we had 47 States who were meeting 

those standards. 

So we have come a long way, and I think that a lot of times, 

these things just do not happen overnight. I think that it is very 

important that the devil is in the details. Once NARAB is created 

and we have that governing board, we are going to have 2 years 

to be able to work out the details, and I think that we have got 

a lot of history and knowledge in terms of what needs to be done 

to make sure that this works appropriately and that the process is 

more effective and more efficient for everyone involved. 

Senator JOHANNS. OK. Scott or Jon, do you have thoughts? 

Mr. TROFHOLZ. Yes. We were part of the authorship of NARAB 

I, and after seeing what some of the things that we needed to improve upon that were done, that is where we came up with NARAB 

II and helped cosponsor this and we think we have worked a lot 

of those, if I can use the term, ‘‘bugs’’ out of the system to make 

this more uniform and less costly from an administrative standpoint. 

Senator JOHANNS. Mm-hmm. Jon. 

Mr. JENSEN. Yes, Senator. I would say one critical difference, 

that this actually does create NARAB. In 1999, it was only a threat 

as such. 

Senator JOHANNS. Right. It was, if you do not do this, then you 

might get whatever. 

Mr. JENSEN. Correct. And this actually creates the vehicle. 

Senator JOHANNS. Mm-hmm. I would think insurance agents 

across the country would be desperately clamoring for this. I cannot imagine—because it would seem to me so common, like in a 

city like Omaha, because you are right on the border, you are going 

to have business from other jurisdictions around you. This would 

be, it would seem to me—it would seem like virtually every client 

who walked in would have these complexities where you have got 
14 

to make sure your licenses are current, et cetera. So it would seem 

to me that the insurance industry would absolutely demand that 

this would be implemented. Am I seeing that right? 

Mr. JENSEN. Absolutely. 

Mr. TROFHOLZ. Absolutely. Since 1933, we have been trying to do 

this correctly, so we are hoping we can push this one across the finish line. 

Mr. JENSEN. The burden is greater than you can imagine inside 

our own walls. It is tremendous. And as Scott mentioned, small 

business is expanding out. It is not just in personal lines. It is in 

those businesses seeking economic growth outside of their own 

neighborhoods. 

Senator JOHANNS. OK. I will kick it back to you, Jon. 

Senator TESTER. Thank you. 

It has only been 80 years. What the heck. Government works deliberately, I guess. That is code for slow. 

[Laughter.] 

Senator TESTER. Commissioner Lindeen, in your testimony, you 

highlight a careful balance the NARAB establishes between the 

board and the State insurance regulators. Can you highlight exactly how the NARAB Board would work in coordination with offices like yours to transmit membership decisions, fees, complaints 

to individual States. 

Ms. LINDEEN. Senator, thank you for the question. Obviously, 

once the board is in place and they have set their rules and processes and they would be—if they have a producer—I am just going 

to give you an example. If they have a producer who has somehow 

or another broken one of those rules that was set by NARAB, obviously, they are going to have an issue and take care of that with 

the producer. But they will make sure that they pass that information down to us. Are there other specific examples that you can 

think of? 

There is going to be a lot of coordination. Obviously, we have a 

lot of producer licensing databases that are in place already that 

the NAIC and the industry take advantage of in terms of tracking 

producer licensing, tracking any complaints, any violations, fines 

that have occurred. And I think that there definitely will be an 

ability for the board to continue to have access to that information 

and also have the ability to contract with an outside organization 

to do that, as well. 

Senator TESTER. OK. So you feel confident that the legislation is 

complete enough that the lines of responsibility are clear? 

Ms. LINDEEN. Senator—— 

Senator TESTER. Between the board and the commissioners’ offices? 

Ms. LINDEEN. Senator, I believe that the legislation is clear 

enough in terms of setting the parameters in an appropriate manner—— 

Senator TESTER. OK. 

Ms. LINDEEN.——with the appropriate amount of regulators on 

the board giving us the authority we need. Yes, sir, I do. 

Senator TESTER. OK. Both Mr. Jensen and Mr. Trofholz talked 

about 48 licenses, 27 licenses in different States, anywhere from six 

to 80 compliance officers on those. Have you been able to quantify 
15 

in terms of time or money the cost which the current system ends 

up costing consumers because of the added administration when 

you have to be registered in 27 States or 48 States or whatever it 

might be? 

Mr. TROFHOLZ. That is—Senator, that is difficult. Chairman, it 

is difficult for us to come up with a number. We can tell you internally what it costs us to process that, and I would assume a good 

share of that would go back into the consumer because we would 

be much more efficient. You know, that varies by agency. But we 

have one person that spends 2 days a month doing this kind of 

stuff. 

Senator TESTER. OK. 

Mr. TROFHOLZ. That is a rough estimate, and that does not include all the other things, the renewal, the State license, the continuing education, all the things that go along with that. 

Senator TESTER. OK. 

Mr. JENSEN. We know inside our office that it costs us tens of 

thousands of dollars. But to tell you, Senator, what it costs the consumer is hard to say. 

Senator TESTER. Yes. 

Mr. JENSEN. It is hard to quantify. It is a matter of quicker to 

the market, better for the consumer. 

Senator TESTER. I got you. There are people from soup to nuts 

that work in the insurance industry as far as size goes. Could you 

talk about the impacts of NARAB as it applies—I am talking to 

Jon and Scott again—as it applies to market competition and what 

the impact would be, if any, on smaller producers and their ability 

to compete. 

Mr. JENSEN. I think, personally, that the smaller producers are 

probably—have a greater benefit by NARAB. Organizations such as 

Scott and myself that have a little more size to them have resources inside the walls that can handle these things, whereas a 

smaller agent that may have four or five employees has no way of 

really being able to deal with the various regulatory climates in the 

various States. They do not have the internal resources to be able 

to do that, and in many cases, they are just having to walk away 

from pieces of business that they may be able to produce because 

they cannot handle it. They cannot serve their client in the best 

way they need to, so they must pass it on to someone else who has 

better resources. 

Mr. TROFHOLZ. That is the same answer. 

Senator TESTER. OK. 

Mr. TROFHOLZ. I agree with Jon 100 percent on that. 

Senator TESTER. All right. Baird, you talked a little bit about— 

and do not let me put words in your mouth, OK? You talked about 

the background checks, and if I heard you right, that there could 

be a problem accessing the Federal database. 

Mr. WEBEL. When you review the kinds of things that people 

have said in the past 10, 15 years, I believe there have been issues 

with the State regulators having some question as what they can 

access in terms of the Federal databases and whether they can get 

complete information or not. And so I think that the sections in the 

bill now, I believe were put in specifically because of those sorts of 

problems—— 
16 

Senator TESTER. To be able to enable that? 

Mr. WEBEL. Yes. 

Senator TESTER. You talked about the board change. You talked 

about the conditionality. Was there anything else in this bill that 

was changed that you saw that might help with its passage? It is 

a very similar question to the one Senator Johanns raised. 

Mr. WEBEL. From the original one, or—— 

Senator TESTER. Yes. From NARAB, the first one. 

Mr. WEBEL. The actual implementation rather than conditionality is the biggest thing. 

Senator TESTER. OK. 

Mr. WEBEL. I think that the fact that it continues to be very 

deeply entwined in the State regulatory system, the bill is not a 

Federal takeover of the system, this seems to be something that 

Congress has hesitated over before—Federal takeovers of the system—but is willing to sometimes use Federal preemption to make 

the system more efficient. And so the bill seems to follow in the 

same vein of the things that have passed in the past. 

Senator TESTER. OK. My last question, and actually, it will go to 

Monica again, on keeping out bad actors. I mean, how—and maybe 

it goes back to being able to have access to the database. Maybe 

it is just communication between the different States and ultimately this would help facilitate that. But how would the board ensure the highest professional ethical standards, but more importantly, how would they keep out the bad actors? How do you see 

that coming down the pike, prevent the bad actors from becoming 

NARAB members to begin with? 

Ms. LINDEEN. Well, Senator, I think that the background checks 

are an important part of that, making sure that every State in 

every case is doing those, well, through the NARAB board, that 

those background checks are occurring. And, obviously, it is also 

important, then, that the board would have access to all the data 

that is already out there about individuals through our database 

systems. So I think that that is the number one, I think, way that 

that can be accomplished. And, as you say, communication is always important. 

But I think that, once again, I just really want to—this is based 

on some comments that were made—just stress the fact that 

NARAB is not—would have no regulatory authority. Obviously, 

this is just a tool to facilitate a process that is still going to continue to preserve State regulators’ authorities to protect those consumers. 

Senator TESTER. OK. Thank you. 

Senator Johanns. 

Senator JOHANNS. If I could just follow up on that question, as 

I understand the legislation, there is a 10-day period—— 

Ms. LINDEEN. Right. 

Senator JOHANNS.——and I am assuming that that 10-day period 

would be utilized by commissioners to take a look and maybe something pops up. Maybe this person is under investigation in another 

State for some kind of wrongdoing. You could push back then on 

that person doing business in your State, right? Explain how that 

would work. 
17 

Ms. LINDEEN. Senator, I appreciate that, and I would have added 

that to my response to Senator Tester’s question, because that is 

another key element in this piece of legislation, is that each State 

would be able then to have that 10-day look-back period, and if 

they had any problems that had occurred in their jurisdiction, they 

could push back, and hopefully, that would be—that the board then 

would look at that and say, there is an issue here. 

Senator JOHANNS. OK. One thing I would always ask in the Governor’s office when people would come to me with a great idea, I 

would always say, explain to me who is for you and who is against 

you. Tell me, in this legislation, do you know of any group that 

would be out there that would, after this hearing, call us and say 

this is a problem, this is why we do not like this legislation? And, 

Commissioner, I will start with you. 

Ms. LINDEEN. I do not know of any. Honestly, Senator, I think 

it is a lovefest. 

Senator JOHANNS. Good. 

[Laughter.] 

Senator JOHANNS. We like those once in a while, too, you know. 

Ms. LINDEEN. No, but it is not something—it is not a lovefest 

that came easily, obviously. These are discussions and negotiations 

that have been occurring for years. And I think that it is—I think 

we have come to a point now where we can all agree on some specifics in order to move forward, to give industry what they want, 

which is the ability to have a streamlined process so that they can 

get their products so that they can do their work for their consumers and that we, as regulators, can do our job, as well, which 

is to protect consumers. And so I think that it is to a point where 

we all agree and we need to move forward. 

Senator JOHANNS. Jon, Scott, any thoughts on that? 

Mr. JENSEN. I completely echo that and we know of no one that 

would oppose this now. 

Senator JOHANNS. Mm-hmm. 

Mr. TROFHOLZ. I agree with Jon. 

Senator JOHANNS. Yes. 

Mr. WEBEL. I am not aware of any specific groups that have expressed opposition. I would note that it is, to some degree, a Federal preemption of some State laws. There will be people out there 

that may be unhappy about that. And having attended a conference 

of the National Conference of Insurance Legislators (NCOIL) as a 

Federal representative, I will tell you that there are insurance legislators in the country that do not trust the Federal Government 

very much. So I think that you may still hear from some people 

that are not happy with the legislation. 

Senator JOHANNS. Mm-hmm. 

Mr. WEBEL. I would just note that that organization, NCOIL, as 

a whole, has taken a neutral stance on the NARAB II legislation. 

Senator JOHANNS. You know, here is what I would offer, and 

then I have no other questions. But this is a comment I would 

offer. I do not know that there is anybody in Congress more States’ 

rights oriented than the two people sitting up here today. My entire background was State and local before I came here to join the 

President’s cabinet, entirely. I have said over and over again, I just 
18 

think regulating closest to the people affected is the best way of 

doing business. 

However, I have seen this issue rattle around and rattle around 

and rattle around, and it seems to me if there was ever a sweet 

spot to be achieved, this legislation achieved it through working together and compromise and giving here and giving there, to recognize that the States are the regulators in this area. And I do believe that the legislation respects that. I really do. 

The other thing I would say, if this problem is not solved at some 

point, then I think you have a risk of other legislation at some 

point in time that turns everything upside down. 

Ms. LINDEEN. Yes. 

Senator JOHANNS. And to me, that would be extremely worrisome. This legislation has the best chance of solving a very, very 

difficult problem, in my opinion, and I certainly agree with you. 

There are people that push back on anything that has a Federal 

flavor to it. But for the work of many who tried to reach that sweet 

spot, we would not be here today, and I just think that this is such 

an important step. Otherwise, other consequences are awaiting us 

that I do not think we will like nearly as much, because this has 

been such a problem for so long. Eighty years is long enough, and 

my hope is we can get this problem solved. 

Ms. LINDEEN. We thank you both for your leadership in helping 

us do that. 

Senator JOHANNS. I am done. 

Senator TESTER. Well, thank you, Senator Johanns. I very much 

appreciate those remarks, as I appreciate the remarks of the panel 

today. I meant it in the beginning when I said, thank you for your 

time. I know you could all be doing something else and you are not. 

You are here advocating for this bill, or at least giving us information about this bill. So I want to thank you for that. 

This hearing has really underscored the importance of legislation 

to finally establish the National Association of Registered Agents 

and Brokers and has highlighted all of the efforts that have occurred up to this point. I certainly look forward to working with 

Senator Johanns and many of our witnesses today and others in 

getting this legislation across the finish line. 

To that end, I have a few documents that I want to submit into 

the record. I have a letter of support for NARAB dated February 

19 from a broad coalition of insurance industry groups; a letter of 

support for NARAB dated March 8, 2013, from the leadership of 

the National Association of Insurance Commissioners; written testimony from the National Association of Professional Surplus Lines 

Offices; written testimony from the Advocates for Insurance Modernization; written testimony from the American Association of 

Managing General Agents; and written testimony from the Insured 

Retirement Institute. 

Senator TESTER. The hearing record will remain open for 7 days 

for any additional comments or for any questions that might be 

submitted to the record. 

With that, thank you all. This hearing is adjourned. 

[Whereupon, at 3:58 p.m., the hearing was adjourned.] 

[Prepared statements and additional material supplied for the 

record follow:] 
19 

PREPARED STATEMENT OF MONICA J. LINDEEN 

COMMISSIONER OF SECURITIES AND INSURANCE, MONTANA STATE AUDITOR

ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

MARCH 19, 2013 

Introduction 

Chairman Tester, Ranking Member Johanns, and Members of the Committee, 

thank you for the opportunity to testify this afternoon, and thank you both for your 

leadership on the NARAB II legislation, S. 534, which we are here to discuss today. 

My name is Monica Lindeen, and I am the Montana State Auditor and Commissioner of Insurance and Securities. I currently serve as Vice-President of the National Association of Insurance Commissioners (NAIC), and I present this written 

testimony on behalf of that organization. The NAIC is the United States standardsetting and regulatory support organization created and governed by the chief insurance regulators from the 50 States, the District of Columbia, and five U.S. territories. Through the NAIC, we establish standards and best practices, conduct peer 

review, and coordinate our regulatory oversight. NAIC members, together with the 

central resources of the NAIC, form the national system of State-based insurance 

regulation in the United States. 

The NAIC supports S. 534. On March 8, the other NAIC officers and I sent a letter supporting the bill to the Chairmen and Ranking members of the Senate Banking Committee and the House Financial Services Committee. We also supported the 

Senate version of the bill in the last Congress. 

As the regulators of more than 6.8 million individuals and business entities licensed to provide insurance services in the United States, the NAIC recognizes that 

streamlined nonresident producer licensing is an important goal, but I want to emphasize that efforts to do so must not undermine current State authorities to protect 

insurance consumers and take enforcement action against malfeasant producers. 

State insurance regulators take our consumer protection responsibilities very seriously, and our support of this legislation is contingent on the preservation of our 

ability to carry out that mission as we regulate our markets and enforce State insurance laws. 

Policing Insurance Producers and Protecting Consumers 

State regulators’ top priority is the protection of insurance consumers. We do this 

in a variety of ways, from licensing and collecting data on insurers and producers 

to investigating consumer complaints and violations of State insurance laws. We 

also consistently try to educate consumers regarding their rights and recourses 

against unscrupulous actors. 

Licensing 

The State insurance departments have a strong track record regarding the licensing of individuals and business entities through pre-licensure requirements and 

evaluations and post-licensure consumer protection and market regulation. In addition, State coordination is facilitated through the State Producer Licensing Database 

maintained by the NAIC. 

In order to be licensed, insurance producers must pass an examination by specific 

line of authority. In addition, many States require pre-licensing education training 

prior to a candidate taking a producer licensing examination. In addition to the examination process, producer applicants undergo a background check, which includes 

the fingerprinting of applicants in many States. 

Once licensed, most States require an insurance producer to obtain what is known 

as a company appointment to sell a company’s products. States typically require insurance producers to complete 24 hours of continuing education training every 2 

years, with three of the 24 hours addressing ethics. 

Monitoring and Tracking Producers 

State insurance departments monitor the activities of producers licensed in their 

State as part of their market conduct regulation responsibilities. When producers 

operate in multiple jurisdictions, departments must coordinate efforts to track producers and prevent violations. Special databases maintained by the NAIC assist 

States by sharing information about the activities of insurance producers. One such 

database, the Regulatory Information Retrieval System (RIRS), contains information 

on producers and companies against which some type of regulatory action has been 

taken. The Special Activities Database (SAD) contains data on unauthorized activities and disciplinary actions taken by other regulatory agencies other than a State 

insurance department. Finally, the Complaints Database System (CDS) provides online access to closed complaints. 
20 

The NAIC also maintains the State Producer Licensing Database (SPLD), a nationwide comprehensive database of individuals and business entities licensed by 

States to sell, solicit or negotiate insurance. The SPLD allows States to share information to facilitate the licensing process and track producers licensed in more than 

one State. Information shared in the Producer Database (PDB), which companies access to conduct due diligence prior to appointing an agent, includes demographic 

and biographical information, current and historical license information, types of licenses held, authorized lines of business, and a record of insurance regulatory actions (listed in RIRS). Finally, the SPLD links to SAD and CDS databases to provide States a comprehensive regulatory picture of an insurance producer. This information is pushed to the States through the NAIC’s Personalized Information Capture System or PICS Alerts. When one State takes a regulatory action against a 

producer, all States in which the producer holds a license are electronically notified. 

With SPLD in place to serve as a cornerstone, the National Insurance Producer 

Registry (NIPR), a nonprofit affiliate of the NAIC, connects State insurance departments with insurers, producers, licensing service providers, and other stakeholders 

in the licensing process. Among its many benefits of such a wide-area network, 

NIPR’s state-of-the-art electronic filing system provides efficiencies to the licensing 

of producers by facilitating the electronic licensing application process; automating 

the producer appointment and termination process; providing companies access to 

data contained in the PDB; and streamlining billing and collection of licensing and 

appointment fees. 

Complaints and Enforcement Actions 

State regulators have broad statutory authority to regulate and police their markets on behalf of consumers. State insurance departments take in hundreds of thousands of consumer complaints every year that lead to civil or criminal investigations, fines, and restitution for consumers. 

While specific processes vary from State to State, in most cases, action begins 

with a consumer complaint or inquiry. Professional staff at State insurance departments thoroughly review complaints and investigate whether State laws have been 

violated by either a producer or an insurer. If a State regulator determines a producer has violated State law, remedies include fines, cease and desist orders, and 

suspension of licenses to keep bad actors from harming consumers. In my own State 

of Montana, in 2011, we levied 29 fines totaling $125,000, and recovered over 

$78,000 for consumers through 11 restitutions. For the same year, nationwide, State 

insurance departments received more than 283,000 official complaints, leading to 

the suspension or revocation of nearly 25,000 licenses, and nearly 5,000 fines totaling over $73 million and resulting in $115 million in restitution for consumers. 

Additionally, many States have formed separate criminal insurance fraud units. 

These units, which may or may not reside within the State’s insurance department, 

investigate insurance fraud in order to prevent bad actors from harming consumers 

and to keep fraudulent claims from increasing the cost of insurance. Recent years 

have seen an increase in the number of fraud investigators employed by the States 

as awareness and scrutiny of insurance fraud has increased. 

Educational Efforts 

In addition to monitoring producers and investigating potential producer violations of State insurance laws, State regulators also provide educational materials, 

comparison guides, seminars, and strive to improve our outreach to help consumers 

know their rights. Independently and through the NAIC, State regulators issue frequent consumer alerts; we also share information about insurance companies 

through tools such as our Consumer Information Source (CIS) service, including 

closed complaints, licensing information, and financial data on producers and insurers. CIS allows consumers to obtain key information before purchasing an insurance 

policy. 

NARAB II—Background 

Turning to the legislation itself, allow me to offer comments about the road that 

brought us here today. As you know, the proposed legislation will amend the 

Gramm-Leach-Bliley Act to create a nonprofit corporation known as the National 

Association of Registered Agents and Brokers, or NARAB, in order to streamline 

nonresident market access for insurance producers licensed in their resident States. 

NARAB will be led by a Board of Directors, the majority of which will be State insurance commissioners, and the Board will establish membership requirements applicable to eligible nonresident insurance producers. Membership will permit insurance producers to access insurance markets similar to what nonresident producer 

licensing allows. 
21 

Insurance commissioners have worked for a very long time to address nonresident 

insurance producer licensing reform. Starting with the NAIC’s Producer Licensing 

Working Group in the late 1990s and the NARAB Working Group in the early 

2000s, the NAIC developed and adopted a Producer Licensing Model Act (PLMA) 

to facilitate nonresident licensing and improve reciprocity. States met and exceeded 

the nonresident reciprocity requirements of the Gramm-Leach-Bliley Act and continued to work diligently toward uniformity in resident licensing standards. 

In the mid-to-late 2000s, the NAIC reconstituted its NARAB Working Group in 

order to update and strengthen our approach to reciprocity. After a considered evaluation of new issues and administrative practices, the NARAB Working Group recommended the NAIC adopt a heightened standard for reciprocity, which was adopted by the NAIC Executive Committee and Plenary in 2009. A subsequent review 

determined that the States continued to meet and exceed GLBA’s reciprocity standard. 

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 nonresident insurance producer licensing process is one 

of the exceptionally rare instances where we believe Federal legislation could be 

used. NARAB II would streamline the administrative process of nonresident licensing (or its equivalent under NARAB), but not at the expense of consumer protection, 

State revenues or market regulatory authority. 

Specific Provisions of Interest 

Today’s bill contains improvements over versions introduced in previous Congresses, and hopefully with support from both regulators and producers, it will continue to attract bipartisan co-sponsors and votes as it works its way through the 

legislative process. I would now like to take a few moments to address some of the 

provisions in the NARAB II bill that were crucial to winning the support of State 

regulators. 

The proposed legislation would establish NARAB with a 13-member governing 

board comprised of eight State insurance commissioners and five insurance industry 

representatives. This strong regulator majority serves to ensure that while the industry has several seats at the table, regulators will be able to ensure that consumers’ best interests are served by establishing membership criteria drawing from 

the highest standards that exist in State law. NARAB will be administering what 

has been a regulatory function, and so it should be guided by regulators. As a result, 

the bar will be raised with respect to nonresident producers seeking to access other 

markets. This will virtually eliminate the risk of a race to the bottom where consumer protection is concerned. In addition to the strong regulator majority on the 

board, the legislation also preserves the existing authorities of States with respect 

to resident licensing, market regulation and consumer protection, and the supervision and enforcement of laws related to producer conduct and possible disciplinary 

actions. These components of our regulatory programs are essential to serving our 

monitoring function and protecting consumers. 

The bill also includes important disclosures to the States, maintains business entity licensing, and protects State revenues and licensing structures to ensure there 

is no additional cost or revenue loss to the States—something that is critically important. NARAB’s administrative costs will be funded through fees paid by producers. 

Another important provision from our perspective requires pre-notification to 

State regulators and the NAIC of any producer seeking to do business on the basis 

of NARAB membership. Therefore, while the States will no longer issue licenses to 

nonresidents seeking NARAB membership, the bill requires notice and a 10-day 

‘‘look’’ period during which a State may bring up any objections to a producer that 

seeks to do business in their jurisdiction through that membership. 

Lastly, the bill requires the board to establish a strong ethical conduct code related to NARAB’s affairs and operation, and mandates an FBI criminal background 

check from applicants who have not had one within the previous 2 years. The latter 

requirement further raises the bar in the area of consumer protection. 

Taken together, these provisions preserve State regulatory authority to police our 

markets and to protect insurance consumers while streamlining the licensing process for insurance producers, and help to explain why the NAIC has chosen to support the bill we are discussing today. 

Conclusion 

We look forward to continuing our consumer protection efforts and working with 

you to advance the NARAB II legislation. The bill is the result of many years of 
22 

negotiations and discussions between State regulators, the insurance producer community, and your respective staffs. We cannot stress enough that the improvements 

included in this version of the legislation, and agreed to by all involved, are absolutely critical to our support. We thank the sponsors and cosponsors for working 

with us to achieve a good bill that accomplishes the goals of facilitating nonresident 

licensing and at the same time preserving State authorities. NARAB represents a 

unique and very narrow case where Federal legislation can be used to streamline 

a process, while preserving State authority, and should not be interpreted to suggest 

support for any further preemption of State insurance laws. Insurance regulatory 

reform should always begin and end with the States. 

Thank you again for the opportunity to be here and I look forward to your questions. 

PREPARED STATEMENT OF JON A. JENSEN 

PRESIDENT, CORRELL INSURANCE GROUP, AND

CHAIRMAN, GOVERNMENT AFFAIRS COMMITTEE

ON BEHALF OF THE INDEPENDENT INSURANCE AGENTS AND BROKERS OF AMERICA

MARCH 19, 2013 

Introduction 

The Independent Agents and Brokers of America (IIABA) thanks the Committee, 

and especially Subcommittee Chairman Jon Tester and Ranking Member Mike 

Johanns, for the opportunity today to testify in support of agent licensing reform. 

IIABA’s support for State insurance regulation is well-known to observers of the insurance industry and to the Members of the Subcommittee, and we continue to confidently believe that States are the most appropriate and effective regulators of this 

vital financial sector. However, while our support for State regulation remains unwavering, we are just as strongly committed to the pursuit and implementation of 

regulatory and legislative reforms that address the inefficiencies and unnecessary 

duplication that continue to hinder its effectiveness. The foundation of State regulation remains strong and offers considerable benefits, but the difficult truth is that 

sufficient progress on producer licensing reform and similar marketplace access 

issues has not been achieved. The need for effective licensing reform is greater than 

ever. 

Producer Licensing Reform and the Need for NARAB II 

State law requires insurance agents and brokers to be licensed in every jurisdiction in which they conduct business, which forces most producers today to comply 

with inconsistent standards and duplicative licensing processes. These requirements 

are costly, burdensome and time consuming, and they hinder the ability of insurance agents and brokers to effectively address the needs of consumers. In fact, the 

current licensing system is so complex and confusing for our members that many 

are forced to retain expensive consultants or vendors or hire staff people dedicated 

to achieving compliance with the requirements of the States in which they operate. 

Some observers mistakenly believe that most insurance agents operate only within the borders of the State in which they are physically located and that the problems associated with the current licensing system only affect the Nation’s largest 

insurance providers. The marketplace, however, has changed considerably in recent 

decades. There are certainly agencies that have elected to remain small and perhaps 

only service the needs of clients in one or two States, but that is no longer the norm. 

My firm spends tens of thousands of dollars per year on licensing fees alone, but 

the more significant cost for us is the immeasurable staff time that goes into maintaining hundreds licenses and responding to the duplicative State requirements and 

document requests. For smaller businesses, which lack the staff and resources of 

larger competitors, the exorbitant cost and unnecessary complexity of ongoing licensing compliance is especially burdensome. Research conducted by IIABA has 

found the following: 

• Approximately 60 percent of IIABA member businesses have a staffer whose duties are dedicated to obtaining and maintain the appropriate insurance licenses 

for the agency and its personnel. On average (across all agencies surveyed), insurance agencies have one full-time equivalent employee dedicated to such activities. 

• About 3 percent of insurance agency operating expenses, on average, are spent 

on licensing compliance efforts. This percentage is highest for the smallest 

agencies (4.3 percent). 
23 

The inefficiencies, unwarranted expenses, and redundancy associated with the existing licensing system are further exacerbated because many insurance agents 

serve the needs of consumers and business located in other jurisdictions. Both society and the insurance marketplace have changed considerably in recent decades, 

and it is incredibly common for insurance agencies to work with customers in other 

States. IIABA’s largest members today operate in all 50 States, and it is increasingly common for small and mid-sized agencies to be licensed in 25–50 jurisdictions 

as well. In fact, research conducted by our association has found that producers who 

operate in more than one State are licensed in an average of nine jurisdictions. 

Lack of True Reciprocity 

Perhaps the most significant deficiency with the current licensing mechanism is 

the inability of States—despite their best efforts—to fully implement true licensing 

reciprocity. 

Congress recognized the need to reform the multi-State licensing system in 1999, 

when it incorporated the original NARAB subtitle into the Gramm-Leach-Bliley Act 

(GLBA). GLBA did not provide for the immediate establishment of the National Association of Registered Agents and Brokers and instead included a series of ‘‘act or 

else’’ provisions that encouraged the States to simplify the licensing process. In 

order to forestall the creation of NARAB, at least a majority of States (interpreted 

to be 29 jurisdictions) were required to license nonresidents on a reciprocal basis. 

To be deemed ‘‘NARAB compliant,’’ GLBA mandated that States issue a nonresident 

license to any applicant who meets three simple criteria: (1) is licensed in good 

standing in his/her home State, (2) submits the appropriate application, and (3) pays 

the required fee. The Act is precise and States that a nonresident license must be 

issued ‘‘without satisfying any additional requirements.’’ In short, GLBA required 

compliant States to accept the licensing process of a producer’s home State as adequate and complete, and no additional paperwork requests or other requirements 

are permitted (no matter how trivial or important they may seem). 

Unfortunately, true reciprocity remains elusive. Agents and brokers hoped meaningful and tangible reform was imminent following GLBA’s passage and the subsequent enactment of at least elements of the Producer Licensing Model Act (PLMA) 

by most jurisdictions, but insurance producers still await the promised benefits a 

dozen years later. Producers expected the implementation of something analogous 

to a driver’s license-type system, which might allow nonresidents to easily and efficiently operate in multiple States after qualifying for licensure at home. Congress’s 

action in the late 1990s spurred some activity and modest State-level improvements, 

but insurance producers have been largely disappointed by the lack of meaningful 

progress made in recent years. 

States too often ignore the principle of reciprocity and opt instead to reevaluate 

and second-guess the licensing decisions of a person’s resident State. Although the 

GLBA and the PLMA clearly establish the limits of what may be required of a nonresident applicant—a nonresident in good standing in his/her home State shall receive a license if the proper application or notice is submitted and the fees are paid— 

States continue to impose additional conditions and fail to respect the licensing determinations made by resident regulators. The imposition of these extra requirements (such as the submission of documents and other information that have already been provided to the home State regulator) makes it impossible for many insurance producers to quickly obtain and efficiently maintain the necessary licenses 

and violates the reciprocity standards established in Federal and State law. 

The Gramm-Leach-Bliley Act empowers the National Association of Insurance 

Commissioners (NAIC) to determine whether States have achieved and maintain 

compliance with the requirements of the NARAB reciprocity standard. The NAIC 

has previously asserted that nearly every State has satisfied the standard, yet the 

suggestion that so many jurisdictions recognize nonresidents on a truly reciprocal 

basis would surprise the practitioners who must regularly comply with the extra 

hurdles and requirements imposed by States. 

Duplicative Layers of Licensing Requirements 

While most observers are aware that insurance agents and brokers must obtain 

a license in every State in which they operate, fewer recognize that nonresidents 

often confront three layers of duplicative and redundant licensing requirements in 

each jurisdiction. Specifically, many insurance departments require nonresidents to 

(1) obtain an individual insurance license, (2) obtain a similar license for the applicant’s agency, and (3) register as a foreign corporation with the Secretary of State, 

even when the State’s corporate statutes impose no such mandate. These multiple 

layers of licensure offer no additional benefit or protection to consumers, yet they 

impose considerable costs, delays, and unintended consequences on the agent and 
24 

broker community. The effects of these requirements are considerable for insurance 

producers who operate in multiple States, and the enforcement of many of these 

rules violates the principle of reciprocity and the GLBA/NARAB standard. Addressing these problems would produce significant benefits and enable insurance firms 

to focus greater resources on serving the needs of consumers. 

The NARAB II Proposal 

IIABA believes the most efficient, effective, and sensible way to address the licensing and marketplace access problems discussed above is through targeted legislation at the Federal level. Limited Federal legislation can effectively remedy identified deficiencies in the current system, establish greater interstate consistency in 

key areas, and preserve day-to-day regulation in the hands of State officials. This 

pragmatic and politically feasible approach can be used on a compartmentalized 

issue-by-issue basis to address acknowledged problems and to establish uniformity 

and interstate consistency where necessary. 

Our experience in recent years suggests that there are certain problems with the 

State regulatory system that are resistant to reform via the traditional path of 

model laws and State-by-State legislative action. Targeted Federal legislation can 

overcome the structural impediments, collective action challenges, and other practical and political barriers that have stalled previous reform efforts. There are only 

a finite number of areas where uniformity and consistency are essential, and Congress has the ability to address each of these issues on a national basis. This can 

be done through a single legislative act or a series of bills and can be achieved without dismantling, replacing, or impairing the State-based system. State regulators do 

a tremendous job protecting consumers and ensuring the solvency of insurers, and 

nothing should be done to undermine or jeopardize their ability to do so on a prospective basis. 

IIABA specifically supports the use of this approach to address the licensing problems identified above, and the most appropriate and practical way to do so is 

through the NARAB II legislation, which has twice passed the House of Representatives. This legislation, S. 534, has once again been introduced in this Congress by 

Subcommittee Chairman Jon Tester and Ranking Member Mike Johanns. Companion legislation (H.R. 1155) has been introduced in the House of Representatives 

by Insurance Subcommittee Chairman Randy Neugebauer and Rep. David Scott. 

The NARAB II proposal would, as the NAIC has previously stated, ‘‘achieve the goal 

of nonresident reciprocity in insurance producer licensing’’ and ‘‘work in partnership 

with existing State licensing operations.’’ The measure has enjoyed broad industry 

support, and nearly the entire insurance industry has endorsed the legislation. The 

NAIC, too, has fully endorsed S. 534. Finally, the legislation enjoys strong bipartisan Congressional support, and in fact it already enjoys the support of 14 bipartisan original cosponsors in the Senate and 41 in the House. 

The NARAB II proposal would immediately establish the National Association of 

Registered Agents and Brokers and provide agents and brokers with a long-awaited 

vehicle for obtaining the authority to operate on a multistate basis. It would eliminate barriers faced by agents who operate in multiple States, establish licensing reciprocity, and create a one-stop facility for those who require nonresident licenses. 

The bipartisan proposal benefits policyholders by increasing marketplace competition and consumer choice and by enabling insurance producers to more quickly and 

responsively serve the needs of consumers. S. 534 ensures that any agent or broker 

who elects to become a member of NARAB will enjoy the benefits of true licensing 

reciprocity. In order to join NARAB, however, an insurance producer must be licensed in good standing in his/her home State, undergo a recent criminal background check (long a priority of State insurance regulators), and satisfy the criteria 

established by NARAB. These criteria would include standards for personal qualifications, training, and experience, and—in order to discourage forum shopping and 

prevent a race to the bottom—the bill instructs the board to ‘‘consider the highest 

levels of insurance producer qualifications established under the licensing laws of 

the States.’’ 

NARAB’s simple and limited mission would be to serve as a portal or central 

clearinghouse for insurance producers and agencies who seek the regulatory authority to operate in multiple States. The bill discretely utilizes targeted congressional 

action to produce efficiencies and is deferential to States’ rights at the same time. 

S. 534 merely addresses marketplace entry and appropriately leaves regulatory authority in the hands of State officials. The proposal does nothing to limit or restrict 

the ability of State regulators to enforce State marketplace and consumer protection 

laws. State officials will continue to be responsible for regulating the conduct of producers and will, for example, investigate complaints and take enforcement and disciplinary action against any agent or broker who violates the law. In short, the 
25 

NARAB II proposal would strengthen State insurance regulation, reduce unnecessary redundancies and regulatory costs, and enable the industry to more effectively 

serve the needs of insurance buyers—and it would achieve these results without displacing or adversely affecting State regulatory oversight. 

Conclusion 

The IIABA thanks the Subcommittee for its efforts—past and present—to implement tangible and effective insurance marketplace improvements. We appreciate today’s hearing on ‘‘Streamlining Regulation, Improving Consumer Protection and Increasing Competition in Insurance Markets’’ and we look forward to working with 

you on passage of the NARAB II proposal. 

PREPARED STATEMENT OF SCOTT TROFHOLZ 

PRESIDENT AND CEO, THE HARRY A. KOCH COMPANY

ON BEHALF OF THE COUNCIL OF INSURANCE AGENTS AND BROKERS

MARCH 19, 2013 

Chairman Tester and Members of the Subcommittee, thank you for the opportunity to testify before you today in support of The National Association of Registered Agents and Brokers Reform Act. My name is Scott Trofholz. I am the President and CEO of The Harry A. Koch Company, based in Omaha, Nebraska. I personally have been with The Koch Co. for 22 years. We are a profitable and growing 

96-year-old firm offering consulting and insurance solutions for businesses and individuals with exposures throughout country. Koch clients include Fortune 500 Companies, small businesses and everything in between. We offer commercial lines, employee benefits, bonds and personal insurance. We are the largest family owned 

agency in Nebraska and employee around 100 residents. My testimony today is on 

behalf of my firm, as well as the member firms of the Council of Insurance Agents 

and Brokers (The Council). I’m a member of the Board of Directors of The Council, 

which represents the Nation’s leading, most productive and most profitable commercial agencies and brokerage firms. Council members specialize in a wide range of 

insurance products and risk management services for business, industry, government, and the public. Operating both nationally and internationally, Council members conduct business in more than 3,000 locations, employ more than 120,000 people, and annually place approximately 80 percent—well over $250 billion—of all 

U.S. insurance products and services protecting business, industry, government and 

the public at-large, and they administer billions of dollars in employee benefits. 

Since 1913, The Council has worked in the best interests of its members like myself, 

securing innovative solutions and creating new market opportunities at home and 

abroad. 

Creating an effective and efficient insurance regulatory system in the United 

States is important not only to insurance brokers and the industry in general, but 

to policyholders and the economy as a whole. Agent and broker licensing is a critical 

piece of the insurance regulatory scheme. 

Nonresident insurance agent and broker (‘‘producer’’) licensing is a growing bureaucratic issue for me and my colleagues. For example, I currently hold nonresident licenses in 48 jurisdictions. Our agency has approximately 88 licensed individuals, 35 of whom are licensed in multiple jurisdictions, who hold a total of 630 

licenses across the country. Besides the licensed individuals, the agency is also licensed as a nonresident in 49 States and holds a resident license in our home State. 

For an agency of 103 staff members, we have a dedicated person who is responsible 

for all licensing compliance. The time spent on renewals and new license applications is considerable due to the fact there are certain States that require additional 

requirements, besides the license application or renewal fees. These additional requirements must be submitted to the State before the license can be issued. These 

items include (but are not limited to) criminal background checks, proof of citizenship, and fingerprints. These additional compliance requirements create more costs 

to the agency, take time away from the producers, and make the licensing process 

more unwieldy. I’m constantly facing paperwork to try to stay on top of the multitude of regulations that are quite often redundant and almost always cumbersome. 

As for our trade association, my predecessors on our Board of Directors formed a 

task force to work on the growing problems of nonresident producer licensure—in 

1933. 

Although insurance agent and broker licensing processes have improved over the 

last decade and a half—due to the enactment of the NARAB provisions of the 
26 

1Pub. L. No. 106–102, 113 Stat. 1338 (1999). 

2The 56 jurisdictions are the 50 States, the District of Columbia, Guam, the Northern Mariana Islands, Puerto Rico, Samoa and the Virgin Islands. 3 NAIC NARAB (EX) Working Group Report: Certification of States for Producer Licensing 

Reciprocity Adopted Aug. 8, 2002; NAIC Certification of States for Producer Licensing Reciprocity, Sept. 10, 2002. 4 NAIC NARAB (EX) Working Group, First Supplement to the ‘‘Report of the NARAB Working 

Group: Recommendations of States Continuing to Meet Reciprocity Requirements of the GrammLeach-Bliley Act,’’ Sept. 2011, available at http://www.naic.org/committeeslexlpltfl narabwg.htm. 

Gramm-Leach-Bliley Act (GLBA)1 and the reforms put in place by the States since 

that time—there remain redundancies, inefficiencies and inconsistencies across the 

States that result in unnecessary costs on insurance producers and consumers due 

to the regulatory and administrative burdens the requirements impose. This is why 

The Council supports adoption of The National Association of Registered Agents and 

Brokers Reform Act of 2013 (‘‘NARAB II’’), and the creation of NARAB. We are especially grateful to you, Mr. Chairman, and Sen. Johanns, for your willingness to lead 

on this issue through the introduction of S. 534 (and the 12 bipartisan other sponsors in the Senate) and we look forward to working with all of the members of this 

Committee to see this effort through. 

We believe that creation of NARAB is the best means through which we can 

achieve comprehensive producer licensing reform. NARAB II creates a national 

‘‘passport’’ for such licensure. Insurance producers licensed in their home States can 

obtain nonresident licenses for any and all other States through the NARAB licensing clearinghouse. It is optional for agents—so an agent can choose to go through 

NARAB or directly through the States. Moreover, NARAB would not replace or displace State insurance regulation. Indeed, the legislation takes great pains to ensure 

that there is no question regarding State authority, and clarifies the State’s continuing role in the licensure process through the notice period and regulator participation in NARAB, as well as incorporation of the highest State standards in 

NARAB’s licensing requirements. 

In my testimony today, I will provide you with an overview of the difficulties faced 

by Council members in their daily efforts to comply with the current State licensing 

requirements, as well as a brief discussion of the proposed legislation. First, however, I would like to thank the State insurance regulators, including Commissioner 

Lindeen, Montana’s Insurance Commissioner and the NAIC’s Vice President, for all 

their work on this issue: changing laws and licensing practices in their States; working together at the NAIC to address the issue through models, standards, FAQs and 

the bully pulpit; and working with all the stakeholders in developing this important 

proposal. The regulators are to be commended for working in good faith to develop 

a NARAB proposal that will work for everyone—consumers, insurance producers, 

and regulators. Regulatory reform is a difficult process, and the regulators have 

been the brunt of a good deal of griping along the way, but we really do appreciate 

their hard work, diligence, and patience, and look forward to continuing to work 

with them as the process continues. 

State Insurance Agent and Broker Licensing Today 

GLBA’s NARAB provisions required that a majority of the 56 U.S. insurance regulatory jurisdictions 2 enact either uniform agent and broker licensure laws or reciprocal laws permitting an agent or broker licensed in one State to be licensed in all 

other reciprocal jurisdictions simply by demonstrating proof of licensure and submitting the requisite licensing fee. 

After enactment of GLBA, the State insurance regulators, through the NAIC, 

chose to pursue enactment of reciprocal licensing requirements, and pledged to ultimately exceed reciprocity by establishing uniform producer licensing requirements 

in all the States. The regulators amended the NAIC’s Producer Licensing Model Act 

(PLMA) to meet the NARAB reciprocity provisions, and most of the States followed 

by enacting some sort of licensing reforms. In 2002, the NAIC officially certified that 

a majority of the 56 U.S. insurance regulatory jurisdictions met the NARAB reciprocity requirements, thereby averting creation of NARAB.3 In 2010, the NAIC recently undertook a recertification review and determined that 40 jurisdictions (39 

States and the District of Columbia) are currently reciprocal for producer licensing 

purposes.4 Seven States that had previously been certified as reciprocal are no 

longer so. 

Even among the States deemed reciprocal, however, administrative inefficiencies 

and inconsistencies remain that affect every insurer, every producer and every insurance consumer. In a study scheduled to be released this spring, the Foundation 
27 

5FAME is a 501(c)(3) charitable and educational organization administered by The Council 

of Insurance Agents & Brokers and is located in Washington D.C. 6 NAIC Producer Licensing (EX) Working Group, Producer Licensing Assessment Aggregate 

Report of Findings, Feb. 19, 2008; NAIC Producer Licensing (EX) Working Group, Producer Licensing Assessment Progress Report, Mar. 16, 2009. 7 NAIC Producer Licensing (EX) Working Group, Producer Licensing Assessment Aggregate 

Report of Findings, Feb. 19, 2008, p. 14. 

for Agency Management Excellence (FAME)5 has compiled extensive data on State 

licensing laws and regulations, as well as implementation of those laws and rules. 

Despite similar requirements in many of the States, the research shows that differences and inconsistencies abound—whether its business entity lines of authority 

(required in approximately 30 States, but not required in the rest); pre-licensing 

education requirements (some States require no pre-licensing education, the rest require between 20 and 200 hours of education); producer appointments (some States 

require individuals to be appointed with carriers, some require agencies to be appointed, some require both, some require renewals, some are perpetual, etc.); and 

numerous other requirements. While these may seem like small issues, they can 

easily turn into large problem for entities with insurance producers licensed as residents in multiple jurisdictions: they must constantly renew licenses throughout the 

year, based upon the individual requirements in each State. 

Reciprocity has helped smooth over some of these differences, but unless there is 

real uniformity in administrative procedures as well as statutory requirements, brokers—and insurance consumers—will continue to suffer from unnecessary costs. 

Almost all of the member firms of our association, like our own, continue to hold 

hundreds of resident and nonresident licenses across the country. For some, the 

number of licenses has actually increased since enactment of GLBA. One Council 

member, for instance, has approximately 5,000 licensed individuals, 3,100 of whom 

are licensed in multiple jurisdictions, who hold 76,100 licenses across the country. 

Another member has approximately 1,400 individuals holding 12,000 licenses nationwide. In addition to initial licenses, Council members face annual renewals in 

51-plus jurisdictions, and must satisfy all the underlying requirements, such as prelicensing and continuing education, as well as post-licensure oversight. This redundancy costs Council members anywhere from tens of thousands to many millions of 

dollars annually to administer. 

In addition to the lack of full reciprocity, the standards by which the States measure compliance with licensing requirements differ from State to State, as well. 

These include substantive requirements—pre-licensing education, continuing education and criminal background checks, for example—as well as the administrative 

procedures to comply with these requirements. In addition to the day-to-day difficulties the current set-up imposes, the lack of uniform application of law among the 

States inhibits efforts to reach full reciprocity. Some States may be disinclined to 

license as a nonresident a producer whose home State has ‘‘inferior’’ licensing standards, even a State with similar or identical statutory language. In fact, several 

States that have failed to adopt compliant licensure reciprocity regimes (notably 

California and Florida) claim their refusal is based on this absence of uniform 

standards—thus implying that the standards of other States do not measure up. 

The NAIC has attempted to move the States toward uniformity, and we are especially grateful for the herculean efforts that many State regulators have made toward this goal. Following on the PLMA, the NAIC adopted uniform licensing standards (ULS), which include 42 separate standards purporting to establish uniform 

approaches to licensing issues ranging from an applicant’s age, to education requirements, to examinations, to applications. The NAIC has spent most of the last decade 

encouraging the States to adopt the ULS, and in 2008 performed as assessment of 

every State’s compliance with the standards. A report was issued, and a follow-up 

was done in 2009.6 The 2008 report and 2009 follow-up found a significant lack of 

uniformity across the States, particularly on licensure requirements such as 

fingerprinting/background checks, where divergent State approaches are extremely 

burdensome on producers.7

Even if there were broad State compliance with the ULS, however, producer licensing requirements would be far short of uniformity for the simple reason that 

a significant number of the ‘‘uniform standards’’ do not create a single requirement 

for the States to meet, rather they serve more as suggestions or a menu of options 

to guide State action. 

Of the 42 standards, there are roughly 17 that do not require the States to meet 

a uniform requirement. Some of the 17 are clearer than others in their lack of 

standard-setting (Standard 12, for example, provides that the standard for failure 

of examination and re-testing is to be ‘‘determined by each State’’), but all give the 
28 

States flexibility that is unwarranted if the goal is to have the same requirements 

in every State. 

These numbers—and, more critically, the regulatory and administrative burdens 

they represent—vividly demonstrate that, despite the improvements that resulted 

from the enactment of NARAB, comprehensive reciprocity and uniformity in producer licensing laws remains elusive, and it does not appear the NAIC and the 

States are capable of fully satisfying those goals. That is not a slight on the regulators—it is almost an impossible task getting regulators, legislators, and other 

stakeholders from 56 different jurisdictions to agree to a single set of licensing requirements and procedures—but it is the reason we need a national licensing framework. 

NARAB II 

The inability of the States to fully implement licensing reciprocity and to make 

real progress toward uniform laws and regulations has been demonstrated repeatedly in the dozen years since GLBA’s enactment. The Federal law put pressure on 

the States and resulted in real improvements in licensing processes, but the resistance to comprehensive change has stymied attempts to achieve comprehensive reform. As a result, brokers continue to face differing licensing obligations across the 

States, imposing administrative and financial burdens that affect not only brokers, 

but consumers as well. This is why The Council—as well as all other major stakeholders, including the State insurance regulators represented through the NAIC, 

support enactment of S. 534, the NARAB II legislation. 

NARAB would be a self-regulatory national licensing authority operated by a 

Presidentially appointed Board of Directors. A majority of the Board would be State 

insurance regulators, with the remainder representing the various segments of the 

insurance industry. 

NARAB membership would be voluntary. Insurance producers—agents, brokers, 

and agencies—who opt to become members of NARAB would have to obtain resident 

licenses from their home States before applying for NARAB membership. Once licensed in their home States, producers operating in multiple jurisdictions could 

apply for NARAB membership and one-stop nonresident licensing. To qualify for 

membership, a producer would be required to comply with NARAB’s membership 

criteria. The NARAB Board would establish the membership criteria, which would 

include standards for personal qualifications, education, training and experience. In 

addition, NARAB member applicants would be required to undergo a national criminal background check if their resident State does not require one. Nonresident 

States would be prohibited from imposing any requirement upon a member of 

NARAB that is different from the criteria imposed by NARAB. 

Applicants would have to pay the fees mandated by each State to receive licenses. 

Moreover, NARAB would levy and collect assessments from members to cover administrative expenses. The licenses would be obtained from, and the fees would be 

paid to, NARAB, which would ensure that appropriate licensure applications are 

filed with, and the requisite fees paid to, each State from which NARAB members 

seek a license. In other words, NARAB would function as a clearinghouse to more 

efficiently process multi-State license applications. 

NARAB membership would be renewed annually, and NARAB would have the authority to bring disciplinary actions to deny, suspend, revoke or decline renewal of 

membership. The membership criteria for any NARAB member must meet and exceed the highest professional requirements that currently exist among States. Thus, 

as a practical matter, to be eligible for NARAB membership a producer would have 

to effectively satisfy the substantive licensing requirements for all the States. 

NARAB would thus be given the authority, among other things, to: 

• Create a clearinghouse for processing insurance producer licenses which would 

avoid duplication of paperwork and effort State-by-State; 

• Issue uniform insurance producer applications and renewal applications to 

apply for the issuance or renewal of State licenses; 

• Develop uniform continuing education standards and/or establish a reciprocity 

process for continuing education credits; 

• Create a national licensing exam process; and 

• Utilize a national database for the collection of regulatory information concerning the activities of insurance producers. 

Finally, the legislation does not seek to replace or displace State insurance regulation. Indeed, the bill very clearly retains State regulatory authority over insurance 

producers. Although NARAB would have an important role in the licensing of nonresident insurance producers, the bill clarifies the State regulators’ continuing role 
29 

in the licensure process through the notice period and regulator participation on the 

NARAB Board and in standard setting. Moreover, State regulators would continue 

to supervise and discipline producers, and would continue to enforce State consumer 

protection laws. 

Conclusion 

The licensing of insurance agents and brokers across the country is unnecessarily 

burdensome, inefficient and costly. The States have worked for years to devise a system to overcome the obstacles created by 56 different jurisdictions seeking to do it 

their own ways, but for understandable reasons, the political dynamic in those jurisdictions has precluded uniformity. The NARAB provisions of the Gramm-Leach-Bliley Act, enacted in 1999, were the first step in the process toward creating a sensible, streamlined system. Meanwhile, the pace of interstate activity in the insurance marketplace has outstripped the pace of reform efforts in individual States. 

The NAIC leadership is to be commended for embracing the administrative simplicity that would be achieved through the enactment of S. 534. We strongly believe 

that this legislation is needed to finally create a State insurance producer licensing 

system that works for today’s agents and brokers—and today’s marketplace. 

Thank you for your consideration of our views, and for your willingness to devote 

your legislative attention to this issue. 

PREPARED STATEMENT OF BAIRD WEBEL 

SPECIALIST IN FINANCIAL ECONOMICS, CONGRESSIONAL RESEARCH SERVICE

MARCH 19, 2013 

Mr. Chairman, Ranking Member Johanns, Members of the Subcommittee: 

Thank you for the opportunity to testify before the Subcommittee. My name is 

Baird Webel. I am a Specialist in Financial Economics at the Congressional Research Service. This statement responds to your request for testimony addressing 

the general topic of today’s hearing and particularly legislation before the Subcommittee. My written testimony begins with a discussion of some general approaches that Congress has taken in addressing insurance regulation in the past 

and this is followed with a section addressing insurance producer licensing, past 

proposals for a National Association of Registered Agents and Brokers, and S. 534, 

the National Association of Registered Agents and Brokers Reform Act of 2013. The 

testimony concludes with an appendix providing general background on insurance 

regulation drawn from forthcoming and past CRS reports. 

CRS’s role is to provide objective, nonpartisan research and analysis to Congress. 

CRS takes no position on the desirability of any specific policy. Any arguments presented in my written and oral testimony are for the purposes of informing Congress, 

not to advocate for a particular policy outcome. 

Insurance Regulation and Federal Legislation 

The individual States have been the primary regulators of insurance in this country for the past 150 years. The 1945 McCarran-Ferguson Act specifically authorized 

the States’ role and Congress has recognized State primacy in insurance regulation 

in more recent laws shaping the financial regulatory system, such as the GrammLeach-Bliley Act (GLBA), also known as the Financial Services Modernization Act 

of 1999 (P. L. 106–102), and the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (the Dodd-Frank Act; P.L. 111–203). Although Congress may have 

generally reaffirmed the State-based system in such laws, the operation of the system has continued to be of interest to Congress, as evidenced, for example, by this 

hearing today. 

Legislative proposals to change various aspects of the insurance regulatory system 

have been introduced periodically over the years since 1945. These proposals have 

ranged from relatively minor adjustments to completely rethinking the role of the 

Federal Government in the system. The approaches considered by Congress in the 

past have included: 

Creation of a Broad and Optional Federal Regulatory System for Insurance 

Examples of this include several different bills calling for an optional Federal 

charter for insurers akin to the current dual banking regulatory system, in which 

a bank may receive a charter from either an individual State or a Federal regulator. 

The most recent such legislation to be introduced was H.R. 1880 in the 111th Congress, which was referred to the House Committee on Financial Services. 
30 

Creation of a Federal Regulatory System for Particular Types of Insurance 

In the discussion over the past decade about the possibility of increased Federal 

involvement in insurance issues, arguments are sometimes made regarding the differing local characteristics of insurance, which is particularly applicable to property/ 

casualty insurance. Some have thus suggested that, rather than a full-scale Federal 

charter for insurance, it would be more appropriate to have Federal regulation for 

lines of insurance that face largely the same characteristics across the country. During House committee consideration of legislation (H.R. 2609, 111th Congress) incorporated into the Dodd-Frank Act, amendments were offered to create a Federal 

charter for reinsurers and to create a Federal charter for bond insurers. These 

amendments were withdrawn before being voted upon in committee. The reinsurer 

amendment was also offered as a stand-alone bill (H.R. 6529, 111th Congress), 

which was referred to the House Committee on Financial Services. 

Expansion of Other Federal Regulatory Powers to Include Insurance 

Federal oversight on insurance could be implemented from entities that are not 

set up specifically to address insurance. For example, legislation (H.R. 3126, 111th 

Congress) incorporated into the Dodd-Frank Act initially would have authorized the 

Consumer Financial Protection Bureau to oversee title, credit, and mortgage insurance, although the final bill did not do so. The Federal Reserve, following the DoddFrank Act, regulates holding companies that have banking subsidiaries, including 

many whose primary business is insurance, as well any companies designated by 

the Financial Stability Oversight Council (FSOC) as systemically important, which 

could include insurance companies. 

Federal Preemption of Multiple State Regulatory Authority in Favor of a 

Single State 

Congress took this approach in the Liability Risk Retention Act (LRRA; 15 U.S.C. 

§ 3901 et seq), which was enacted in 1981 and amended in 1986. The LRRA allows 

a limited range of State-chartered insurance companies to operate throughout the 

country without licenses from the individual States. Other examples include the 

Nonadmitted and Reinsurance Reform Act (NRRA), which was enacted as part of 

the Dodd-Frank Act. The NRRA provides that the home State of the insurance consumer would have primary tax and regulatory authority over surplus lines insurance. 

Broad Federal Standard Setting to be Carried Out by Other Entities 

The National Association of Registered Agents and Brokers (NARAB) provisions 

of the Gramm-Leach-Bliley Act, which would be further amended by S. 534 under 

discussion today, are a primary example of this sort of approach. Congress sets the 

broad goals of uniformity and reciprocity in insurance producer licensing but creates 

a private body with the authority to fill in the details and manage the process. Another example would be a provision of the NRRA, which preempts State laws on 

eligibility of surplus lines insurers if they conflict with National Association of Insurance Commissioner (NAIC) model laws. 

Insurance Producer Licensing and NARAB 

Licensing of insurance agents and brokers (known generally as ‘‘producers’’) has 

long been an integral part of the insurance regulatory system. Individual States 

typically require that insurance producers operating within their borders obtain a 

license from that State, and different licenses are also often required for different 

lines of insurance. Such licensure provides a mechanism for insurance regulators to 

enforce standards of conduct, particularly with regard to consumer protections, as 

well as providing a revenue source to help defray the cost of the insurance regulatory system. Aspects of insurance producer licensing include specific education or 

knowledge requirements, such as continuing education, and, in some States, criminal background checks. The NAIC has adopted model laws regarding licensure and 

a model insurance producer license form, but individual States are free to modify 

NAIC models, or not adopt them at all, resulting in variability in licensing requirements across the country. Insurance producers who operate in multiple States have 

long sought increased uniformity and reciprocity across States to reduce their costs 

resulting from the multiplicity of license requirements. 

In addition to the costs that might result from the specific aspects of the insurance licensing system, any professional licensing regime acts as a barrier to entry 

for those who might be interested in providing services that require a license. Economic theory suggests that such barriers increase consumer costs to some degree 

and have the potential to be used as a protectionist measure to prevent competition, 

allowing license-holders to extract economic rents from consumers. Whether or not 

the public benefits resulting from licensure outweigh the costs is a decision to be 
31 

1Statement of Tom Minkler on behalf of the Independent Insurance Agents & Brokers of 

America, Subcommittee on Capital Markets, Government-Sponsored Enterprises, and Insurance, 

Committee on Financial Services, U.S. House of Representatives, April 16, 2008, p. 6, available 

at http://archives.financialservices.house.gov/hearing110/minkler041608.pdf. 

2 U.S. Government Accountability Office, Insurance Reciprocity and Uniformity, GAO–09–372, 

April 6, 2009, p. 21, http://www.gao.gov/products/GAO–09–372. 

evaluated on a case-by-case basis by public policymakers. Some form of licensure for 

those in the financial services industry has been generally accepted and is required 

in Federal law for people involved in securities transactions with the public, for example. 

GLBA and NARAB I 

Provisions in the Gramm-Leach-Bliley Act sought to address insurance producer 

complaints about the variation in State licensing requirements through a sort of 

provisional Federal preemption of State laws. The law called for the creation of a 

private, nonprofit licensing body, the National Association of Registered Agents and 

Brokers, whose insurance producer members would have been authorized to operate 

across State lines without individual licenses from every State. While backed by 

Federal authority, the NARAB to be created by the provisions in GLBA (hereafter 

referred to as ‘‘NARAB I’’) would have been entwined in the system of State regulation. Membership in NARAB I would have been open only to people already holding 

a State insurance producer license and the NAIC would have appointed the members of the NARAB I board and had other oversight authorities. 

The NARAB I language in GLBA also offered the States the opportunity to avoid 

creation of the NARAB I organization if a majority of the States created among 

themselves systems of either uniformity or reciprocity in insurance producer licensing within a 3-year window after passage of GLBA. The NAIC was given the authority to determine whether the States met the GLBA standard with the possibility of 

Federal judicial review of this determination. The individual States and the NAIC 

reacted relatively quickly to this opportunity with the promulgation of an NAIC 

model law that would provide for reciprocity and the adoption of laws providing for 

reciprocity in sufficient number of States that the NAIC determined the GLBA 

standards were met; as a result, the NARAB I organization was not created. 

The GLBA statutory requirements for reciprocity may have been satisfied by 

2002, but insurance producers continued to identify inefficiencies and costs of the 

State licensing system in the years following. In 2008, testimony before a House 

subcommittee, for example, an insurance agent representative indicated that States 

continued to ‘‘impose additional conditions and requirements’’1 on nonresident 

agents despite the reciprocity called for in law. In 2009, the Government Accountability Office (GAO) cited issues regarding fingerprinting and background checks as 

particular barriers to uniformity or reciprocity in producer licensing and as potentially posing a problem for insurance consumer protection. GAO also found differences in licensing requirements and insurance line definitions as potentially creating inefficiencies that ‘‘could result in higher costs for insurers, which in turn 

could be passed on to consumer[s].’’2 In addition to concerns about the substance of 

the reciprocity in place, reciprocity laws have not been adopted by every State. The 

NAIC certified 47 States as reciprocal, but the three States not certified were California, Florida, and Washington, which together have nearly 20 percent of the Nation’s population. 

Concerns about the effect, or lack of effect, of the NARAB I provisions have 

prompted some Members of Congress to seek a further legislative solution. 

NARAB II Legislation 

Legislation to mandate the creation of a NARAB organization (hereafter referred 

to as NARAB II) was first introduced into the House of Representatives in the 110th 

Congress (H.R. 5611), with similar legislation in the 111th Congress (H.R. 2554). 

The House passed these bills in both Congresses by voice vote, but the legislation 

was referred to committee when received by the Senate. NARAB II legislation was 

introduced in the 112th Congress (H.R. 1112) and the 113th Congress (H.R. 1155). 

Unlike the previous Congresses, the House did not bring H.R. 1112 to the floor in 

the 112th Congress. H.R. 1155 has been referred to committee in this Congress. 

Senate legislation to create NARAB II was first introduced in the 112th Congress 

(S. 2342), with the bill reintroduced in this Congress as S. 534. 

Although specific legislative provisions, such as the precise makeup of the NARAB 

organization’s board, have changed in the various iterations of NARAB II legislation, the bills have retained the same essential purpose. The bills would amend the 

NARAB sections from GLBA to remove the conditionality and instead create a 

NARAB organization regardless of State actions on reciprocity and uniformity. The 
32 

3The NAIC could lose this appointment authority if (1) States representing 50 percent of the 

total commercial lines insurance premiums did not satisfy uniformity or reciprocity requirements and (2) the NAIC had not approved the bylaws or was unable to supervise the organization. 4The NAIC could lose its oversight authority under the same conditions as the possible loss 

of its board appointment authority. 5Premium amounts used are net premiums written from AM Best, 2012 Statistical Study: 

U.S. Property/Casualty—2011 Financial Results, March 26, 2012, and AM Best, 2012 Statistical 

Study: U.S. Life/Health—2011 Financial Results, March 28, 2012. 6P.L. 93–406, 88 Stat. 829. 

7P.L. 111–148, 124 Stat. 119. 

8Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1868). 

NARAB II legislation would create an organization very similar to that originally 

envisioned in GLBA. It would be a nonprofit, private body, whose members would 

be required to be State-licensed insurance producers, but who would also be able 

to operate across States without having licenses from the individual States. 

Among the differences between the NARAB II proposed in S. 534 and the original 

NARAB I are—— 

• Appointment of the Board: 

NARAB I was to have a seven-member board appointed by the NAIC.3 S. 534 

specifies a 13-member board appointed by the President and confirmed by the Senate. Eight of the 13 are to be State insurance commissioners, with the remainder 

being representative of the insurance industry. 

• Oversight by the NAIC: 

In addition to the board appointments, NARAB I provided several other methods 

of NAIC oversight, including NAIC approval of NARAB bylaw changes and rules, 

and NAIC review of disciplinary actions.4 S. 354 gives much less direct authority 

to the NAIC. For example, NARAB II would file changes to bylaws with the NAIC, 

but the NAIC would not have the authority to disapprove the changes. 

• Criminal Background Checks: 

S. 354 requires a Federal criminal background check prior to membership in 

NARAB II and provides for the performance of these checks by the U.S. Attorney 

General, including the authority of the Attorney General to charge fees to defray 

the costs incurred. There were no similar provisions on background checks in GLBA 

for NARAB I. 

Appendix. Background on Insurance and Insurance Regulation 

Insurance companies constitute a major segment of the U.S. financial services industry. The industry is often separated into two parts: life and health insurance 

companies, which also often offer annuity products, and property and casualty insurance companies, which include most other lines of insurance, such as homeowners 

insurance, automobile insurance, and various commercial lines of insurance purchased by businesses. Premiums for life/health companies in 2011 totaled $581.4 billion and premiums for property/casualty insurance companies totaled $436.0 billion.5 Assets held by the insurance industry totaled approximately $7.5 trillion according to the National Association of Insurance Commissioners (NAIC). 

Different lines of insurance present very different characteristics and risks. Life 

insurance typically is a longer-term proposition with contracts stretching into decades and insurance risks that are relatively well defined in actuarial tables. Property/casualty insurance typically is a shorter-term proposition with 6-month or 1- 

year contracts and greater exposure to catastrophic risks. Health insurance has 

evolved in a very different direction, with many insurance companies heavily involved with healthcare delivery, including negotiating contracts with physicians and 

hospitals and a regulatory system much more influenced by the Federal Government through Medicare, Medicaid, the Employee Retirement Income Security Act of 

1974 (ERISA),6 and the Patient Protection and Affordable Care Act (ACA).7 This 

testimony will concentrate primarily on nonhealth insurance. 

Insurance companies, unlike banks and securities firms, have been chartered and 

regulated solely by the States for the past 150 years. One important reason for this 

is an 1868 U.S. Supreme Court decision.8 In Paul v. Virginia, the Court held that 

the issuance of an insurance policy was not a transaction occurring in interstate 

commerce and thus not subject to regulation by the Federal Government under the 

Commerce Clause of the U.S. Constitution. Courts followed that precedent for the 

next 75 years. In a 1944 decision, U.S. v. South-Eastern Underwriters Association, 

the Court found that the Federal antitrust laws were applicable to an insurance as-
33 

9 U.S. v. South-Eastern Underwriters Association, 322 U.S. 533 (1944). 10 15 U.S.C. § 1011 et seq. 11 Richard Cordero, Exemption or Immunity from Federal Antitrust Liability Under McCarranFerguson (15 U.S.C. 1011–1013) and State Action and Noer-Pennington Doctrines for Business 

of Insurance and Persons Engaged in It, 116 ALR Fed 163, 194 (1993). 12 15 U.S.C. § 1012(b). The Supreme Court has made clear that the business of insurance does 

not include all business of insurers in Group Health and Life Insurance, Co. v. Royal Drug, Co., 

440 U.S. 205, 279 (1979). For further explanation of this distinction, see the CRS Report 

RL33683, Courts Narrow McCarran-Ferguson Antitrust Exemption for ‘‘Business of Insurance’’: 

Viability of ‘‘State Action’’ Doctrine as an Alternative, by Janice E. Rubin. 13 15 U.S.C. § 3901 et seq. See CRS Report RL32176, The Liability Risk Retention Act: Background, Issues, and Current Legislation, by Baird Webel. 14Most such proposals prior to the 1990s focused on relatively narrow amendments to 

McCarran-Ferguson rather than large-scale replacement of the State regulatory system. 15See, for example, ‘‘17-Year Sentence Affirmed for Investor Who Looted Insurers,’’ New York 

Times, March 24, 2006, available at http://www.nytimes.com/2006/03/24frankel.html?ref= 

martinfrankel. 16For more information, see CRS Report RL32175, Insurance Guaranty Funds, by Baird 

Webel. 

sociation’s interstate activities in restraint of trade.9 Although the 1944 Court did 

not specifically overrule its prior holding in Paul, South-Eastern Underwriters created significant apprehension about the continued viability of State insurance regulation and taxation of insurance premiums. By 1944, the State insurance regulatory 

structure was well established, and a joint effort by State regulators and insurance 

industry leaders to legislatively overturn the South-Eastern Underwriters decision 

led to the passage of the McCarran-Ferguson Act of 1945.10 The Act’s primary purpose was to preserve the States’ authority to regulate and tax insurance.11 The Act 

also granted a Federal antitrust exemption to the insurance industry for ‘‘the business of insurance.’’12

After 1945, the jurisdictional stewardship entrusted to the States under 

McCarran-Ferguson was reviewed by Congress on various occasions. Some narrow 

exceptions to the 50-State structure of insurance regulation have been enacted, such 

as one for some types of liability insurance in the Liability Risk Retention Act 

(LRRA) created by Congress in 1981 and amended in 1986.13 In general, however, 

when proposals were made in the past 14 to transfer insurance regulatory authority 

to the Federal Government, they were successfully opposed by the States as well 

as by a united insurance industry. Such proposals for increased Federal involvement 

usually spurred a series of regulatory reform efforts at the individual State level 

and by State groups, such as the NAIC and the National Conference of Insurance 

Legislators (NCOIL). Such efforts were directed at correcting perceived deficiencies 

in State regulation and forestalling Federal involvement. They were generally accompanied by pledges from State regulators to work for more uniformity and efficiency in the State regulatory process. 

A major effort to transfer insurance regulatory authority to the Federal Government began in the mid-1980s and was spurred by the insolvencies of several large 

insurance companies. Former House Energy and Commerce Committee Chairman 

John Dingell, whose committee had jurisdiction over insurance at the time, questioned whether State regulation was up to the task of overseeing such a large and 

diversified industry. He chaired several hearings on the State regulatory structure 

and also proposed legislation that would have created a Federal insurance regulatory agency modeled on the Securities and Exchange Commission (SEC). State insurance regulators and the insurance industry opposed this approach and worked 

together to implement a series of reforms at the State level and at the NAIC. 

Among the reforms implemented was a new State accreditation program setting 

baseline standards for State solvency regulation. Under the accreditation standards, 

to obtain and retain its accreditation, each State must have adequate statutory and 

administrative authority to regulate an insurer’s corporate and financial affairs and 

the necessary resources to carry out that authority. In spite of these changes, however, another breach in the State regulatory system occurred in the late 1990s. Martin Frankel, an individual who had previously been barred from securities dealing 

by the SEC, slipped through the oversight of several States’ insurance regulators 

and diverted more than $200 million in premiums and assets from a number of 

small life insurance companies into overseas accounts.15

Another State reform largely implemented in the late 1980s and early 1990s was 

the introduction of State insurance guaranty funds.16 These funds, somewhat analogous in function to the Federal Deposit Insurance Corporation (FDIC) for banks, 

provide protection for insurance consumers who hold policies from failed insurance 

companies. If an insurance company is judged by a State insurance regulator to be 

insolvent and unable to fulfill its commitments, the State steps in to rehabilitate 
34 

17 National Conference of Insurance Guaranty Funds, ‘‘Facts and Statistics,’’ available at 

http://www.ncigf.org/media-facts. 18 National Organization of Life & Health Insurance Guaranty Associations, ‘‘Frequently 

Asked Questions,’’ available at http://www.nolhga.com/policyholderinfo/main.cfm/location/ 

questions. 19P.L. 106–102, 113 Stat. 1338. 20Functional regulation would entail, for example, insurance regulators overseeing insurance 

products being offered by banks, while banking regulators would oversee banking products offered by insurers. Institutional regulation tends to focus more on the charter of the institution 

so, for example, banking regulators oversee all the activities of a bank even if the bank is offering insurance products. 21 Banking charters are available from both the individual States and the Federal Government. For more information on optional Federal charter legislation, see CRS Report RL34286, 

Insurance Regulation: Federal Charter Legislation, by Baird Webel. 

or liquidate the insurer’s assets. The guaranty fund then uses the assets to pay the 

claims on the company, typically up to a limit of $300,000 for property/casualty insurance 17 and $300,000 for life insurance death benefits and $100,000 for life insurance cash value and annuities.18 In most States, the existing insurers in the State 

are assessed to make up the difference should the company’s assets be unable to 

fund the guaranty fund payments. This after the fact assessment stands in contrast 

to the FDIC, which is funded by assessments on banks prior to a bank failure and 

which holds those assessments in a segregated fund until needed. Insurers who are 

assessed by guaranty funds generally are permitted to write off the assessments on 

future State taxes, which indirectly provide State support for the guaranty funds. 

The Gramm-Leach-Bliley Act 

The 1999 Gramm-Leach-Bliley Act (GLBA)19 significantly overhauled the general 

financial regulatory system in the United States. Support for GLBA came largely 

as a result of market developments frequently referred to as ‘‘convergence.’’ Convergence in the financial services context refers to the breakdown of distinctions separating different types of financial products and services, as well as the providers of 

once separate products. Drivers of such convergence include globalization, new technology, e-commerce, deregulation, market liberalization, increased competition, 

tighter profit margins, and the growing number of financially sophisticated consumers. 

GLBA intended to repeal Federal laws that were inconsistent with the way that 

financial services products were actually being delivered, and it removed many barriers that kept banks or securities firms from competing with, or affiliating with, 

insurance companies. The result was the creation of a new competitive paradigm 

in which insurance companies found themselves in direct competition with 

brokerages, mutual funds, and commercial banks. GLBA did not, however, change 

the basic regulatory structure for insurance or other financial products. Instead, it 

reaffirmed the McCarran-Ferguson Act, recognizing State insurance regulators as 

the ‘‘functional’’ regulators of insurance products and those who sell them.20

Some insurance companies believe that in the post-GLBA environment, State regulation places them at a competitive disadvantage in the marketplace. They maintain that their noninsurer competitors in certain lines of products have federally 

based systems of regulation that are more efficient, while insurers remain subject 

to perceived inefficiencies of State insurance regulation, such as the regulation of 

rates and forms as well as other delays in getting their products to market. For example, life insurers with products aimed at retirement and asset accumulation must 

now compete with similar bank products. Banks can roll out such new products nationwide in a matter of weeks, while some insurers maintain that it can take as 

long as 2 years to obtain all of the necessary State approvals for a similar national 

insurance product launch. In the aftermath of GLBA, the largely united industry 

resistance to Federal intervention in insurance changed. Many industry participants, particularly life insurers, larger property/casualty insurers, and larger insurance brokers, began supporting broad regulatory change for insurance in the form 

of an optional Federal charter for insurance patterned after the dual chartering system for banks.21

GLBA also addressed the issue of modernizing State laws dealing with the licensing of insurance agents and brokers and made provision for a federally backed licensing association, the National Association of Registered Agents and Brokers 

(NARAB). NARAB would have come into existence 3 years after the date of GLBA’s 

enactment if a majority of the States failed to enact the necessary legislation for 

uniformity or reciprocity at the individual State level. The requisite number of 

States enacted this legislation within the 3-year period, and thus the NARAB provisions never came into effect. The issue of insurance producer licensing reciprocity 
35 

22See CRS Report RS21827, Insurance Regulation After the Gramm-Leach-Bliley Act, by Carolyn Cobb. 23 Broad proposals from the 107th to 110th Congresses included the National Insurance Act 

of 2007 (S. 40 and H.R. 3200, 110th Congress); the National Insurance Act of 2006 (S. 2509 

and H.R. 6225, 109th Congress); the Insurance Consumer Protection Act of 2003 (S. 1373, 108th 

Congress); and the Insurance Industry Modernization and Consumer Protection Act (H.R. 3766, 

107th Congress), and the 2008 Blueprint for a Modernized Financial Regulatory Structure re- leased by the U.S. Treasury and available at http://www.treasury.gov/press-center/press-releases/Documents/Blueprint.pdf. 24Surplus lines insurance is insurance sold by insurance companies not licensed in the particular State where it is sold. For background on this insurance, see CRS Report RS22506, Surplus Lines Insurance: Background and Current Legislation, by Baird Webel. 

or uniformity continued, as some saw and continue to see problems in the actions 

taken by the individual States. Not every State has passed legislation implementing 

reciprocity, and some have argued that it has not always been implemented as 

smoothly as desired even in those States that did. 

Insurance after the Gramm-Leach-Bliley Act 

Congress passed the Gramm-Leach-Bliley Act to enhance competition among financial services providers. Though many observers expected banks, securities firms, 

and insurers to converge as institutions after it passed, this has not occurred as expected. In fact, the major merger between a large bank, Citibank, and a large insurer, Travelers, which partially motivated the passage of GLBA, has effectively 

been undone. The corporation that resulted from the merger, Citigroup, has divested 

itself of almost all of its insurance subsidiaries. Although large bank-insurer mergers did not occur as expected, significant convergence continued. Instead of merging 

across sectoral lines, banks began distributing-but not ‘‘manufacturing’’-insurance, 

and insurers began creating products that closely resembled savings or investment 

vehicles. Consolidation also continued within each sector, as banks merged with 

banks and insurers with insurers. In addition, although Congress instituted functional regulation in GLBA, regulation since has still tended to track institutional 

lines.22

From the 107th through the 110th Congresses, congressional interest in insurance 

regulatory issues continued. A number of broad proposals for some form of Federal 

chartering or other Federal intervention in insurance regulation were put forward 

in both houses of Congress and by the Administration, but none were marked up 

or reported by the various committees of jurisdiction.23 In the same timeframe, a 

number of narrower bills affecting different facets of insurance regulation and regulatory requirements were also introduced in Congress, including bills addressing 

surplus lines 24 and reinsurance, insurance producer licensing, and expansion of the 

Liability Risk Retention Act beyond liability insurance. 

Insurance and the Financial Crisis 

As the 110th Congress approached its close, the financial crisis that began in 2007 

reached panic proportions with the conservatorship of Fannie Mae and Freddie Mac, 

the failure of Lehman Brothers, and the government rescue of American International Group (AIG) in September 2008. This crisis overlaid a range of new issues 

and arguments to the previously existing debate on insurance regulatory reforms. 

The financial crisis grew largely from sectors of the financial industry that had previously been perceived as presenting little systemic risk, including insurers. Some 

see the crisis as resulting from failures or holes in the financial regulatory structure, particularly a lack of oversight for the system as a whole and a lack of coordinated oversight for the largest actors in the system. Those holding this perspective 

increased the urgency in calls for overall regulatory changes, such as the implementation of increased systemic risk regulation and Federal oversight of insurance, particularly larger insurance firms. The generally good performance of insurers in the 

crisis, however, also provided additional affirmation to those seeking to retain the 

State-based insurance system. 

Although insurers in general are considered to have weathered the financial crisis 

reasonably well, the insurance industry saw two notable failures—one general and 

one specific. The first failure was spread across the financial guarantee or monoline 

bond insurers. Before the crisis, there were about a dozen bond insurers in total, 

with four large companies dominating the business. This type of insurance originated in the 1970s to cover municipal bonds but the insurers expanded their businesses since the 1990s to include significant amounts of mortgage-backed securities. 

In late 2007 and early 2008, strains began to appear due to this exposure to mortgage-backed securities. Ultimately some bond insurers failed and others saw their 

previously triple-A ratings cut significantly. These downgrades rippled throughout 
36 

25See CRS Report R40438, Federal Government Assistance for American International Group 

(AIG), by Baird Webel. 26P.L. 111–203, 124 Stat. 1376. See CRS Report R41350, The Dodd-Frank Wall Street Reform 

and Consumer Protection Act: Issues and Summary, coordinated by Baird Webel. 27For more information on the specific insurance provisions in the Dodd-Frank Act, see CRS 

Report R41372, The Dodd-Frank Wall Street Reform and Consumer Protection Act: Insurance 

Provisions, by Baird Webel. 

the municipal bond markets, causing unexpected difficulties for both individual investors and municipalities who might have thought they were relatively insulated 

from problems stemming from rising mortgage defaults. 

The second failure in the insurance industry was that of a specific company, 

American International Group.25 AIG had been a global giant of the industry, but 

it essentially failed in mid-September 2008. To prevent bankruptcy in September 

and October 2008, AIG sought more than $100 billion in assistance from the Federal 

Reserve, which received both interest payments and warrants for 79.9 percent of the 

equity in the company in return. Multiple restructurings of the assistance have followed, including nearly $70 billion through the U.S. Treasury’s Troubled Asset Relief Program (TARP). The rescue ultimately resulted in the U.S. Government owning 

92 percent of the company. The assistance for AIG has ended with all the Federal 

Reserve assistance repaid and the sale by the U.S. Treasury of all of its equity stake 

in the company. 

The near collapse of the bond insurers and AIG could be construed as regulatory 

failures. One of the responsibilities of an insurance regulator is to make sure the 

insurer remains solvent and is able to pay its claims. Because the States are the 

primary insurance regulators, some may go further and argue that these cases specifically demonstrate the need for increased Federal involvement in insurance. The 

case of AIG, however, is a complicated one. Although AIG was primarily made up 

of State-chartered insurance subsidiaries, at the holding company level it was a federally regulated thrift-holding company with oversight by the Office of Thrift Supervision (OTS). The immediate losses that caused AIG’s failure came from both derivatives operations overseen by OTS and from securities lending operations that originated with securities from State-chartered insurance companies. 

The 111th Congress responded to the financial crisis with the Dodd-Frank Wall 

Street Reform and Consumer Protection Act,26 which enacted broad financial regulatory reform. Although the Dodd-Frank Act had a number of provisions that directly and indirectly addressed insurance, it left the States as the primary functional regulators of insurance. The Dodd-Frank Act provisions that most directly addressed insurance and are of ongoing concern were (1) creation of a Federal Insurance Office (FIO); (2) systemic-risk provisions, such as the creation of a Financial 

Stability Oversight Council (FSOC) with the authority to oversee systemically important insurers; and (3) previously introduced provisions harmonizing the tax and 

regulatory treatment of surplus lines insurance and reinsurance (the Nonadmitted 

and Reinsurance Reform Act).27 Provisions in the law regarding holding company 

oversight could also affect a number of companies who are primarily insurers, but 

who also have banking or thrift subsidiaries and are thus overseen by the Federal 

Reserve following the Dodd-Frank Act. 

Attention on insurance regulation in the 112th Congress was largely occupied 

with follow-up to the Dodd-Frank Act. The Dodd-Frank Act left many of the specifics up to regulatory rulemaking and this rulemaking is still ongoing. Of particular 

concern was the specific approach that the Federal Reserve may take to bank or 

thrift-holding companies who are primarily involved in insurance and the possibility 

of FSOC designating some insurers and systemically important and thus subject to 

additional oversight. Neither issue reached a resolution during the 112th Congress. 
37 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

About NAIFA: 

Testimony of 

National Association of Insurance and Financ ial AdviKlrs 

sefore the ~na e COlTUTlittee on Bankin" HouSin,and Urban Affairs 

March 19, 2013 

Streamlininll Rellulation, Improvinll Consumer Protection and 

Intreasinll Competition in Insurance Markets 

founded in 1890 as The Nation;ll Assoc iation of life underwriters (NALLI), NAif A Is one of the nation's 

oldert and larllest assoc iations representinll the interests 01 insurance professionals from every 

Conllressional district in the United States. NAIFA members assisttonsumers byfocusinll the ir practices 

on one or more of the followinll: life insurante and annuities, health insurance and employee benefits, 

mu ltiline, and finantiel advisinll and investments. NA IFA's mission is to advocate for a positive lellislative 

and re,ulatory environment enhance bUSiness and professional skills, and promote the ethic.1 conduct 

of its members. For more Information about NAIFA, visit wwwnaila,orr. 

We appretiate the opportunity to submit testimony totoday's hurinll. 

Badvound: 

Insuranceallents and brokers are requiredtobe IIcensed ]n every state in which they conductbusiness. 

In orderto obtain .nd maintain licenses, producersmust comply with different.nd often inconsistent 

standards innumerous states and contendwith duplicative licensinllprocesses. For NAIFA members, 

the overwhelminlrTliljorfty of whom are licensed in multiple ~ multi·state licensinlloblillations 

mpo~ cortiy and time-<onsuminll burdens. 

Multi·stlte licensinll hiS Improved within the list 1S yurs. In 1999, the NARAS provisions of the 

Gr Irntf>.Leach·Bliley Act (GlBA) successfully pushed the States to enact producer !icensinll reforms. In 

2000, the NA IC .dopted the Producu licensinIlModeIAct{PLMAl.. which provides for • system of 

rec iprocallicensinllinthe Stales pursuant to the NARAB requirements. The PLMA has been enacted in 

Klme form in over40 rtales end in the District of Columbia. 

NAif A has supported the NAIC's producerlicensin,reformeffOrl$ at every step of the way and NAif A 

members are,in Ilflle part, responsible for enactment of the PLMA in the States. In addition, NAif A WlS 

involved in the development of the NationallnsUfance Producer Re&islry (NIPR), wh ich operates the 

electronic database of producer information that has made licensinesienificantly faster and usier, 

electronically"smoothinll over" manv of the differences in the States' application requlrements.A 

NA if A epre~ntativetUrrentlySefVeSOn NIPR's Board and has held the position olVice President for 

fouryea.s. 

~sp te this provess, however, administratiVe diffe rences.mone the $Iates remain, causinll 

inefficiencies and unnecessary costs fo. insurance producers and consumers. 
38 

Our Position: 

NAif A ~upports the enKtment of S. S3 .le&i~lation creatin,the National A~soc ation of Reailtered 

Aaents and Brokers (NARAB II ), because it would allow insurance producers who are licensed to operate 

in multiple tatts to comply with a sinele set of non-resident licensineand continuina education rults. 

The need to ~trumline the non're~ dentl cen~inlprocns ~ important for NA if A member~ who 

Irequentlyrelinquish clients when they move to another sUIte because 01 the burdens imposed by 

multistatt licel'lsil'le. NA IFA members are in the bUSiness of helpineindividuals and families address 

the ir basic financ ial ~ecur ty needs and prepare lor retirement by helpin, them secure risk transfer 

based products such as lile insurance, annuities and other retirementproducts. lonl·ttrm care, 

dlsabiHty income coveraie, medical and hosplUlI insurance. The relatiOl'lshipS our members have with 

the irdlents are ba~ed on a tru$! developedthrou,h yursof providin,important ,uidance and 

assisUlnce in preparinlfor life 's inevitable risks of dyin, too soon. livina too lon£ becomin, skkor 

disabled and/or needil'li 10000e·ttrm care. 

For many NA IFA members. however, the varyin, licensin,compliance requirementsfromstatt·to·statt 

make it uMecessarily burdensome tofoUow a client to anotherstatt when he or she moves. As a result, 

NA IFA members must hold icense~ n multiple state~ and frequently must rdertheir clientsto another 

a~el'lt. Enactment of this leaislation is necessary because, in todays intreasln,lymobile world, it is a 

dis~ervketo imurance comumer~to have a reaulatorysystem in piKe that makes it difficult for I 

COl'lsumerto reUlin their trusted alent when they move to another sUItt. Accordin,to a 2012 poll, 80" 

of NA IFA mtmbers surveyed have lost clients ....mo moved to iI sUIte in ....mich the NA IFA mtmber was not 

licensed.12" of survey respondents hilve lost over SO clients due to their dientsmovina to sUItes in 

wh ich the producer was not Ikensed. 

Importantly. NARAB ll upholds state authority to reeulate and offer consumer protections; will establish 

hi,h level member~h p criteria, includin, I criminal bacqround ched; will benefitconsumer~ throu,,", 

increased competition amon, aients and brokers and ,reater COl'Isumtrchoice; and, will allow 

producers who are licensed and operate in multiple states to comply with I sln&fe set of non·resident 

licensin,and continuin, education rule~. 

NA IFA encouril,esand supports enKtment of S. S34and the crutionofthe National Assoc iation of 

Re&i~teredA,ents and 6roker~and thanks Senators Te~ter and ./lUwuu.for the introduction of this 

imporUnt le,lslatiOl'l. 

Respectfully submitted, 

Robe rtO. Smith. J.D .• ClU. Ql.K tiC 

PreSident 

National Associiltion of Insu rance and Financial Advisors 

2901~COurt 

Falls Church, VA 22042 

103·170-8000 
39 

Ffflmary 19, 20 13 

Chairmall Tim JOJUlSOU 

Senm Banking Comnunl'E' 

The United States Senate 

Chaiml.'Ul Jeb Hensarling 

Hou>e F maJlClal SenlCe> COlluruneoe 

U.S. Hoo>e ofRepre>entatire> 

~ar Chaimlt'n aJld Rallklllg Menlbers: 

Ranking Ml'lIW Mike Crapo 

Senm Banking Comnuneoe 

The United States S,mate 

Ranking Member MaXine Water> 

Hoo>e FlllrulClal SenlCes Conuruneoe 

U.S. Hoo>e ofRepre>l'lltati\·e> 

The IlIIdmigned OrgaruzatlOllS are Imtmg to expn'Ss our ,Irollg support of legislation that would 

establish the NallOnal Associallon of R~stffld Agents and Brokers (NARAB). TIns cOilunon·Sl'llst 

legislation would mate a streamlined agent ruid broker licensing 'ysteuJ. that strengthens tM 

rotnpl'titiw msuranct' m.arl::et 1I11lle llullntaining Important cousulller protectiOiIS. In rul increasingly 

mobtle society, NARAB would allow agents and brokers to more efficil'lltly operate Oil a multi·state 

baSIS. 

SpKlficaUy, the legtsJatlOl\ would create a nonprofit board for insurance agents and brokers to obtain 

apprm"3lto operateon a multL-State ba,I,. NARAB would be goWLl\ed. by a panel OOlllillat€'d by state 

regmators and lI"oold establish standards for l1It'1llberillip that exreed the existmg requireml'llts ill allY 

state. A prospecti,·e NARAB memberwollid be reqUlfed to be fully IiC"t'llsed In his or her home state 

and sallsfy rigorous lIll'luberslup criteria, and an appro..-ed NARAB member could Uliliu the associatlOiI 

to obtain the regulatory approral necessary to operate m any other selected. )llrisdi.CtiOll. 

hI addition to the support oCthe below orgaruzallOn\ the legt\latiOiI has also rtCeL\·ed. the eLldorseLnent 

of the National Assonation ofhlsurance COllllwssioners. R.epreseutall\·es Randy Nffigebauer (R. IX) 

and Dand Secn (D-GA) and Senators Jon Tester D-~fl) 3Jid Mike JOhatUIS (R.}';""E) plan to illlroduce 

the legtslation lIlthE'lf respe<'II\·e chatubers in the coming \I"eoeks, and we urge roo to IIIppC1!1 tim bill 

that will prom\(' UllpOl1ruU benefits to inluranc~ conswlll'f'i. 

SlI\Cerely, 

American ASSOCiatlOil of 1I1allaging Genml Agents 

American hlsurance AssoriallOn 

COOIICt! of inlurance AgeLlts and Brokers 

htdependtnt instu"ance Agents and Brokers of Amenca 

hlSIlred. Retirement hlstinne 

National ASSOCIation of insurance and FUllIncial Adll)()J'; 

NatiOital ASSOCiation ofMurual insUta!ICe Companies 

National ASSOCIation of Prof('<;siOlIllI SllIplus l..uJes Offices 

Property Casualty h1,urance Assocllltion of America 
40 

f,latth B, 2011 

ChairmIII Tim JobDsoD 

Somt. B~ CommiltH 

Ullited Stites Somt. 

Cblirmul J.b H'DSarIillS 

House FiIIaIIcial SeMce, Committft 

HOURorRep~.." 

Otlr c:haJ.-.. """ iWlk:iDS Mfmbon: 

IWIkin& Member Mike Crapo 

SeIl&t1! Santin! CommiltH 

Ullited Stlt .. SOUt. 

RIlIIciq Member Mum. Wlten 

H""", FiuDcial 5...icfl CommittH 

U,S. H""", or ftep<=t>ti,.." 

w. Mit. today o~ behalf or the NltioIl&l A .. odlo"" of 1n<Ul"all« Commisoi.,....,.. (NAtq ill support of tbt 

NltioIl&l A...,.u.oOll ofRopmM. A~ """ Brok .... Reform Aot 2013 (NARAB m. FOUDCIed ill ]&7], the 

NAtC i. the U.s. JWldard4ettiq &lid ~tory ... ppon orpDiDtion created &lid so,"m>ed by the chief 

iImIraDce ''"!Ulaton (rom the ~ O1lt.., tbt Di<Gict of C~lurnbia &lid the Ihoe U.s. lmitorifl. Throup Ihe NAIC, 

,tit. ilIsuraDoe •• plato .. ertabli.tl a lDdlflb ODd best practices, coachiot peo:r R\;tw. IDd COOfcliDat. Ihftr 

•• platory O\"ftSipl, NAlC .... mbm, IO!'"OO wilh tbt CGltnl ~SOUfcn of tbo NAIC, form the llllioual J)"Il .... 

of stote-baud iIl--=t ~!"booa;" the U.S. 

Tho NARAB D Iosidonoa O$tlb~$he$ the N.tional. A...,.u.1ioD ot R.p .Ler...t A!""II &lid Broktn (NAMB) t(I 

prO\w • ....a...i_ {Of li«mins. <oarim.in& M.<otiou. &lid otb« D~t ~ prodD<tr qn.olilieniao 

.tqWremtms. A~1l &lid broktn PUr ID imporwIl tole ill the imwmo. mart.tpt... by ~ .01HWl>On .... 

• ble '0 obi .... ill.........., p"""''' tho, b .. , 6, tL.tir -.15. S ........ p;ulo,.,... . ....-ry aDd 0W<Si~, 0....,. . S ..... aDd 

b.oken pro'~ aino.! protectiom. 10 oo-....n of ilIsuraDoe pn>:IoctI. Th. NARAB D IepLotiou pr .. ..,..." 

\be$e prott<1ioa$ aDd !",ides .ppropriat ....... ruret (..- iq>~n .... of the NARAB. "" ...ury abndy .. fer .... 0<1. ... tbe Gnmm_~a<.h BW.)" A<t. W. hope )'OIl .. ill ~ .01OlHltr ""J'poniDS mi, ]'pLoo ..... 

Sbould you wish '0 di ....... mio 101 ... ..- ""y other .... _ relatiq 10 tbe NAlC', 'wo OIl mio proposed 

Ieplatioa, pl .... do IIGI besitat. 10 <0llI1Ot Edw> SotmidKm, DiMet(l, of 00\'.........,1 Rolao ...... II 002) 47]· 

3980 0' Mark SI&.I, COIII".11Dd MIDIF', riDaooiaJ Polity aDd ~p<1otiOtl, .1 002) 4 71·39&7. 

SiDo ... ly. 

l_J. DoaoIoa 

>We ....... 

t.o..i.iaa ~ o-m" ;,.,,,. 

Mo ..... J.l..iDdHa 

NAlC Vi« Presidtw 

MoaWII Commisoio ..... of Securitia & !o.rurm« 

NAte 

--

I'midaII·Ekct 

NOflh 0ak0ll """"'-~ 

Mkha,1 F. CoouodiDt 

NAlC Seo:'..wy.T ...... "m 

Poanryl,""" lrmu.1IU CO<IlIIlissioaor 

UlMm llfFlCl,,",,""'h(.l,,,~ __ "'_IQ1 .• ......,....OC/llllll.ll1f plll»lI1J1111 1lllla,.,l 

OIlTUlIIIJJ(I · 11III __ Iu.l~ """(iljMO'UCll_ml pillUII.IIIIII 11'11"'''1$ 

U,"Iu.IlllIUl\III\'III_fllW.n1II11IJ(( , __ -"16_· _a.l.," _ _ pllll"'_ t 1111JIIlJOT 
41 

Niltionill Asso,iiltion of Profenionill Surplus Linn Offi,n, Ltd . 

200N E. ~4"Street · s."t.! 200 ' KlnWC,ty. M06411S ' 816/741-3910 · Fa.dI6/74\.30409 

www_n,pslo·O<I 

TutirrDnyof 

The N5tiontl Assoc~on of Profession,1 SUrplus Unes OffICes !HAPSlO) 

~fore the 

SeMle Committee on !linkin&. Houslnl ind Urbln Afflirs 

Mlrch 19. 2013 

Wasl\inKtOn,O.c. 

"od~~.l.'", 

PO<" .. n,""" 

HAPSlO Is the n'tion,1 tride assoclftion representin, the surplus lines Industry ... d the 

MlnleHle inwr ance distribution ~st.!m. Sina its formation in 1975, HAPSLO has become the 

authoritative voice of the surplu. line. industry. idvocotin, fo< the Industry'. vitol role I. I "Hfety 

vllve" for hird-t~place Ind specil ltylnsullnce risknnd for the In dustry's IlfIIX)rl.nce In the Insu r,nce 

markellliace II1d tlobal economy. 

HAPSlO's membersl\ip consists of apprn.imaleIy400 brokelil~ member ~,ms, 100 complnv 

member ~rms and 200 ISsociot.! membi!r firms. on of whom operate ov.r 1.500 off" •• representin, 

approximately 1 5.000 to 20.000 ind ividu , I brokers. in IUfOnc e c amp Iny professionals, und.rwr~rs and 

other Inw,"n,e pro",,,,,,,,"I, In the sn <lIt.!, Ind the Q;<ttict of Columbi. PSlO i. unloue in that 

IInth sur plus)ine I broke.s In d sur plus line I cOO'Ij)anies are fu II members nf the associftion; th ul HA PSlO 

repr.sents and .puksfor the surplus lin .. MlOI.Hle marketplace. 

We appreciate the oppo~nlty 10 submit t.!stimony 10 today's hurln,. 

NAPSlOco ......... nds Sens. Tester and Johanns for the IntrodlSClion of the N.~on.1 Associ.~on of 

ReCiste,ed A~nts and Broke .. Act (HARAB) and for the other orlCinl1 cospon.ors to thisietilillion. This 

importont letisl.tion will .Ir.amline If"nt ... d brat.r licensin, for those ope .. ~nl on a multi .. totoc 

basis. Specificilly, the letisJotion creiltes I nOnprOfil ~.d ,overned by- I panel of stilte Insu 'lnce 

re,ulolOr< and indu.try repr.sentotive. to crelle ricorou •• tond .. d. and ethical requirements with • 

coal of I Pplyinl licenlin&. conlin~l", educa~on Ind nonrelident Insu .. nce producer st.ndardson. 

multi-mle basis. To be ltilnledmembershipln HARAB.an "entor broker will rtill need 10 be licensed 

within his or her home ,til. and Hlisfy III the membership requirements th.reln.Once In a~nt or 

broker hi S melthe re~uirements set fo<th bVNARAB, thevwill bt Ible 10 become licensed I nd operate 

on a multi..tlte basis. Currently. these Hme broke" .. e required 10 obtain I license in each jurisdiction 

individually. relultinr in onerous filinp and pap.erwo.k which 15 often duplicltive and ineff"ienl 

It i, al.o important 10 note what thi.le,i.lo~on doe. not do. HARAB doe. not make Iny chln,e. 

10 the r.,ul.~on oflnwtlnce from, slnlle Stille or _lti-stlle perspective. NAPSlO wonlly supports 

the mte-based ~~m of In surance .erulaliol\lnd is plelsedthilletisliltion will preserve the Iilws Ind 

re,ulo~on' of individuII .totu. The le,t.lotion ,i"",fy addr.,se. market entry b.rrier, by "utin, a 

"one·slOp" liceltsin, Issociotion 10 ensure that III a,tnts and brokers Cln operate In multiple 

jur;sdic~ons with Increased uniformity Ind effic iency. 
42 

Again, w~ commend the sponso~ of this thoughtful allCl ~ffective approach and encourage this 

Committee's prompt consideration of the legislation. NAPSLO is wilmgand eilger to offer ~s resources 

to answer any questions about the bill's impact on the Industry and stands ready to assist the 

Committee, ~s Members ind slaff, in any capacity we can. Think YQu again for the opportunity to 

subm~ testimony to this Important hearing. 
43 

!3_ MMGA 

_ .0.._ .. """'00 

_ M..-"' ..... _ .. "" ..... "' __ Cooooo I_,,' ~ .. -""',..,. ~ 

"" .,o.tIOZ.oo::! 11O< 61UIIIAWl 

WRITTEN STATEMENT OF 

BERNOG. HElfI,'ZE, ESQ. 

EXE:currvE DIRECTOR OF m E 

AMERICAN ASSOCIATION Of MANAGING GENERAL AGENTS 

BEFORE THE 

UB II TTEEON SECURmf.s. INSURANCF. AND INVESTMENT 

OI' THF. UNITED STATF.s SEN ATE 

COM MIlTEEON BANKING. HOUSINQAND URBAN AFFAIRS 

ON 

STRfA~ IUNING REGUL .. TlON. [~ PROV I'lG CONSU~ F. R PROTECTION AND 

INCRE'\SING COMPETITION IN INSURANCE MARKETS 

llllrodll('liOil 

Good Morning Chairman c~r. RJIlkinjl ~mb,)r JohaMs., and Mcmb,)n of 100 

SuOCornrnill ...... M)' I\affi.' is &>md G. ~i JV"'. I am Ill<> EXecu1i" ~ Oin'C'IOI' of lho! 

AITo.'~.lIl AOOO3liOll of M:rn3 in~ OC ..... r;ll AgenlS (AAMG ~ b.>)Ijq\llllcll.'d in King 

of Prussil P~RlI!)' "1ni . juS! west of l'IIil:J(\('lphia 

Til,) AAMOA is an inlCmaliooal Ir.lIk associ:tion romplised of .u5 OOI)lOIllIC 

mem~r ~~nu.. brolci'S, insur:ulce. o.":lpli"e :md Il.'insura ... ~ oornpani;.>!o, U<l}"d's of 

LondoQ 5)"ndt.:.lIi.'s:md u ....... tW~ICrs. stahl st~mping.1lld surplus Iiiii' offi.;es .1lld ",Ialed 

prokssiooa l Nllilio's :Ill g3g..'1l in Ille wl\ol;>S3 1i' il\';lII1IIlo.'\' maria>lpl:K\' in Iik' Unili'd 

Slak's.1lld Iik' Uniloo Kingdom. 

Si ... ,\, 1926. AAMGA mcmhets l\:J\'e bo. n oommin?d to !<'i'\'ing admill<.'<,1 nod 

e~(\'u .1IId surplus li]\'S I1l.VI.:I'IS Wilh rl'li.tb1i' inK'gril)'. and in fk~ng oom(X'lilive. 

fIl'31iv~. Ihl"'ooabli' if6l11111lo.'\' prodlt.:!S. ,..,,'i(\'5 ~oo solo~ s 10 ilhy and on iljlk' 

ri ~ exp05ull.'S . Colli'C!iwl)', IlleSi' effons are emb>.'malic of lhe A~soci~lioo's ro~ as 1 

~and .... d i1.oarerQf III.! "I\oli'~ insuranre I1l.VI.:I'L and as a Cf\.-.Jiblol aUlhority 10 malli'rs 

ofimpoo,1ll(>,' to lhe oon\;,'Slic and glob;ol in>OJ'aJ'li:eoommuni1)', 
44 

Wrilltt ..... nI oflltn.l G. IlriRlt. F.s:j. 

A ....... "" A_ioa or M'l\3j\iog o. .. W All'1U 

M""b 19.):ILJ 

""-'" 

TIll AAMGA's 2~1 Ill('mb.'r mlluging 8"lI('r:tl 3jJ~nts all' 1oc.1l.~d in all 5(} M~LCS 

and are cal~d UJ>OIL 10"'011 "'ilh It'lail agclUs and lheir polic)floJd,)r MIOImn Kross lhe 

ooun:ry in :tIllil\'sof insuranoo b\t!i ...... ss. In 2(1 12. lhe)' w~ inuooss of$W.6 billion in 

annual w~Kcn pl1'miwn. OUt Ill('l"Ilbo-r ag<-JIIS emplO)' O'oW 25.1Xll emplo)'N's in O'o'Cf JOO 

~lorefrollLs ocross Am.:'~"'. 

Thu s.. e3Ch da)' we lei.' the h:lll~ng<- s and Of'llC'!1 unitiot>s lhac eliSi in Ihis m:utct 

and 3re hooon.'<l 10 hl"C the f'I"i'·ii..'8'"' !O !oh."Ul' OUf ,'ie"'S in !.UJlIlOI1 of lhe 

Subcomminee's on·going dfons in 11"p.'I."L of ml'amlining Iiii' n>gulatioll. implO\'ing 

OOIlsurrer JlIOI"I."Lion. allil iocreasing rom",.,.ilion in Ihe insunlJ."\' m.:u~clplX\'. 

OUf ((,Mimon)' (003)' p"na.ins sJ"'.'Cifkall)· to plO\'i~ additional infOllTl.1tion in 

suf'Ilc'!1 of and the IIt\'d for p~§3g~ of lhe bip.vti>an Bill. S. 53-4: Iill' "Nalional 

Associalion of Regis\ered Agenes and Ilrokm Rdonu Acl of 2013" (hereinafli'f :tis\) 

refmcd 10 ~ "NAMII 11"). Tho' AAMGA romn~nds ~h )'00 Mr. Cl\.linmn. :md 

Ranl.:ing M~mN>f Johanns. for champiolling til;, introduction of Ihis "'gislalion. and 

F3I"II('fing lhe ~uong bip.vti§3n SUf'IlC'!1 mda!.). We also "'ish 10 adllO"· ... d~e III;, oogoing 

effons of Ihis Subcomminee. for ils conlinuing focus to e~arnioo "'a)'S in "'hieh to 

IIlOdo.'mi~ corrun.:Rial insurall."\'" m.vu,ls and. 11I.: .... b)·. imp"'lI\{"I'll pmoodUfCS :md 

Mreamli ...... re~u .1lions Ih.1l. "'ill cnh.1noo uniformi!)". ctflcii'ocies.oJ comp..'1ition. whi'" 

maintaining the lila!..' b3.Wd sy.\1cm of inSUl\I1l\"\' wgulati\lll and ensuring consunll'f 

proIoctions in the !l'CUlililalion of fisk rxposures. 

The passage of NAMIIIl is imponanllo AAMGA fl\'m~ rs - and all "M~s;l~ 

insu~"'"e pl"ofessionals -;IS Ih?re m CUrT\"RlI)" more (ban 2 million indi,·i<.lual$;tnd more 

Ihan 500.000 b\t!i ...... >S entities lia>nSl'd 10 f!Il"' ~ insw.lJlCl' S('1\'icl's in lhi' Un ili'd SI:Ili'S. 

Whi ... presel\'ingSille inwrance d;.opanl~n(S· sUp.'I\·isiono'.er prodlK\'f octivilii's as pan 

of a romprehi'nsi'e r~gul .. ory fr3l1lCworl: designed to proIe("\ insurallCe roosun);)r 

inli'f~!U in insurall."\'" Irans lions. lhis i..,!islation will allow uniformi!)' in lioonsill.g and 

ad,'ance ronsurref pro1i'("\ions!lS \\1' 11 as compliance lirrel)' ami co!ol.ly etflricocies for 

Pfoourers opl'raling in nlUllip'" m~s. 

The who"'~ insllJ"afl(."e maru,lplace ;s comprised of If"nls and brol.:l'rs 

CRlru!ol.OO wilh uflokrw~ting aUlhoril)" from 100 oJom;.>!oI.ic ;tnd iflcmal;ooal insUl.lJlCl' 

OOIllpanii'S. Submissions for III.: plOLoction of ~sk exposures lI"I' obIairlCd from I\"lail 

produrers IflRSacling bu,in'S:! w~h III;, wholes .... agen!! and brol.:l'rs. who w'c 

sp."ialil.ed cXpi'nise and cXp;'rii'1lCl' in spociflC liJlo)S of busill(')S. 

.""1 Hen/age of Inltt"ty and P,aftuton.h.m 
45 

\\'AII<I SUIt ..... DI 01 Btro.I G. ll<irw. E.'Ol-

...... riI: .. A!SIX"'''' ofM>""ii", Co ...... 'WIU ~l$:h 19;:!O1l 

""""" 

Tb: wbolo.'$ak' in~ur,mce Inar~ ~1 is ess,mtial 10 our n;1lwo'$ o/\'""OI"IOIllir 

infra;:t~tllll.'. II pro" iIi's jYou'(lion and uril)' to rl:llional industrial and ~31 

romIlIo'rc"iai bu ;l\' ss~s. too!O'" associllN! with o~rat ion of major public f3("i~lil'" s ~te 

airpons. schools. municipal utililil'"S. and WI~ ft~ lar ge~ poll facilities in too rolImry. 

In II\;.' pri'·.1Ie !O'"rtor. key com~r ial n~rpri 5CS and consumers simiIJtl)' I\'I}' 011 

thl' "'holi'sali' im,l.Ir:uo..... lTLlOO-tpl.lC>'_ Tb:SI' risks iocllld!'". for ex.1mpli'. tbo!O'" associali'"d 

with eli'"Clrical gelK'"rllion. oil prodOOion and I\'fining. ~.1\')' ronstru..... ioo. pri"a!;) 

3,'ialioll di I\'wrts. llUCking rompanics. re~al.lr.llllS and small busil1C§les. ~rosp<lOO 

manub .. ,uring. mining. aoo 3gricullUre. nursing I\omcS and dJ)' cam O!OlClS.. large and 

small romll"lCrc"ia l 3IId I\'sido.'"ntial ronS1~tion projl.'"ClS: mariti8\' risks from;:-1 skis 10 

t:ll1l.:i'"r'·e5.Sl'" Is andevNy dJy risks from Main Sll\'"Ct 10 Wall SlIl';'t. 

AAMGA ag~ nI and Ilrol.:i'"r Il"ICmbi'1'J iocllkk professiona l insur.llK\'" facilities of 

"al}'ing si1~ and multi->1JIi'" operllions to small 3IId famil)' busil\'~S "it31 10 

maintainingl the spirit of entreprel1Curial ~fO\\ th in t~ inwraoce industry and our 

eC"OllOmy. 

As the bllSil1Css elllo.'lJlri!O'"s and risk exposull'"s of ronSUffil'"f"S /m'C ,·('ftlUred across 

sta.e t>orU:rs.. so 10 ha" ~ too aCli"ities of ",hoksali'" insurance ~m5 and brokers as .he)· 

Ir;\l\SaCI and ulrl.>rwfilol bUSiness IX'")-ood the Ilorne Sl:l1e in ",hich .hey are inCOf(lOf3li'd (J( 

ma..ma.n their priOClpilt pt.lCl.'" or buslI1CSS. In a."'"ro~ "'lln \laiC la"·S,. In.s I\'quil\'S DOl 

thl' COf(IOf3Ii' l'I1tity. but e'"CIY 19l!m and broker of tl\;.' ,,-holi'"salil 3~ncy or t>roke ~ 

tf;\l\SaCl ing busilli'"ss across Slat.! lil\'s 10 IX'" in rornpli:m.~ "'ilh each Sllli"S li rensi~ 

l"I'quil\'n,-,ms. OUr ~mbi'rs h.:l'l'" InI to ensure rompli.1ll(:C With. whal most li~s 

l moont to I\'dundant lirensing Il'"quil\'n'-'ms. b!»"OOd tbore that are 311\'3<1)' Il.-ing 

complil'"d with IxIscd upon the holl"lC .Ita ~·s lin'"nsillg requill'lTl('"nlS. Olll;>rs 1~' rely on 

rompli:tlll.'l'" ikp;u1lTl('"nlS tooy ro.>ed.>d to Cleal>.'" to too and cnwre IMt ~"ery atrnrs and 

brokers liO! nse r"'luiremeru in each and e')!I)' Sl ~ in "hirn busilli'"ss is lX'"i~ 

tr;\l\SaCll'd:l/1.' tf1l("ked. maimlinN! andooOlpl...~d . 

Tb:!O'" acti'·it .... s impo!O'" costl)' eX pi'ndilul\'s of ti~. I\'sourres and funds. and t.1l;~ 

IW3)" from til;> It1OO'" import:l!lt objl.'"ctive of ~pi'd "" nl . pt"UIl.."'Ilt 3IId professional 

uoo:rwriling to secure the ri!l: exposuro.'S of COIlsumers. For mUlli-statc managing 8Cn;.>r31 

ag~ s and brokers tile "arious Sl3Iil I;';-ensing. OOfllinuing ooucation requifeflt'mS and 

IlOIHI'"Cipt"Ol:al Silt.! regulations ad..! unf'-'resw)" burd('fts ;t/Hl C"OSU Without a ("()Ill!lIi.'llSllllIk' incl\'~ in nlu.:'- to lhe ("OI1suflt'r. 

lW ... fits ofllJr No ti,",,1 " ,_ialion of I«- S1~ d ,\ l.'l' 1t1S 

oltd Flrokr< 8((orm M t nf21l1 .1 

lnsUJ":lllo>e is III;> DNA of ("lIpitalism and fl\'"C ntar~~ ~prc l\'urship. Pfo\';(1i~ 

IhI' a" ailabili,)" of "al}'i~ ""'Cli of SlXlltil)' from ri!l: mulat ~s IhI' gro"th of bu~ine ss 
46 

\\''''''''" S."'II>IOI oflltf'lod G, II/oi~. Es!. 

limo", .. AW<Qion of ~bll>£ill& Go",,,,, AgO .... 

~tc..:b 19. 2013 

"""" 

all(! of'llOl1u nil .... s. P'O"i(k'S illCl'nli"es for 1l.'Si.':II"~h :md ~"doJ'lT".'nI Ihm ~Ip 10 O'I'alC 

jobs .1Bd pos~i"~ II'lumS 011 inw>l1lIo"111 and "'luil)': .1Bd. for lhe public and pri'OIle 

conWlnl'r. affools conlinuity and 1I'0000'rl)' from fortuilous t\\,nlS based on Ib.:- lerms:md 

coodi(ionsof w'O)~. 

S. 534 is ~rl iC3llo;tl1 our rn.'mbt'rs.1Bd Oilie r a~nlS.1Bd brotcrs op.'ratil18 011 a 

nlUlli-SIlle bJosis. To llill rxl;'m. Wi' join in I~ leSlimoll)' of (lie 11I(\..1"'(}(j(,nl Insur:lOO' 

A~('fI(S and Broi;rrs of AIlIo"OCa. (II;> Council of Insul'lfl(l' Ag<'nls and Brokers,.1Bd OII\.'rs 

~ul'J'Olljn~ Ihis II'gisla(ion. NARAB II will bUild upon IIIe lI'~ula(Qfy up:1ii'1ICl" at (b.:-

Slaie Ie"cl. promote COIIsi>leocy in:l8"nt and a~ ry lirensing. and impro't markelplace 

Il.'lf'Onsi\'cll(' ~. lhc Bill will pro"iok Il('<.'(k'll r'l' ci proc;1)' in prodUCl.'r lio('rnsing;'\ll"lOllg IIIe 

~S. 3Bd P'O"iok poli('}'boid'rs wilh III;> opponunil)' 10 bm;.-fi( from &Il.'merrompo:'lilion 

among agents and trokrrs, 

Til;> clo:ari nghou se Ihl "'ould re created (ollO" in~ 1"liS-1g<' of lhe lo.--gisl<uion 

would aUQ\O' wboll'sale insu~ agents and trok~rs 10 ooclin r~ciproc~)" in all U3leS in 

whic h 11k-)' ace Ir;lllsacting busilli.'SS 011 bo.'h:1If of polio('yhoid'rs. 50 1000g as lbo.'y haw first 

sccull.'d approprl<ue and proprr licensing in thl'ir Millo" stlles.. Rl'gU1310rs wilhin (hi' 

indi"Klwl Slales will Wlllinll(' 10 II'gulalr. liCl'nse and discip1i1\i' a£"n(s and brokers 

locilled "'i(hin Iheir II'spo..'1."Ii'·e juri>diCiions and. (~II'by. conlinl.l.! 10 rn(on:~ OOfIsulrer 

I'f\lI<Clion I;'l\<'s. HQ..·c'·er. lhe NARAB II ),:J!:islalion ... ill funher ;'ld-.·ance lhe inlerc>ls 

poli~}'hoId>rs. as (11;» ' will bo.' :lffordc'll (II;> enh;lllced proI('{'(ions aoo bo.'n.:fits of gr~~r 

com~(i(ion based upon (/lose 38"nlS and t>rokers "oluntaril)' parlio.ip~ling in NARAB 11 

nICml:>!rsbip. 

Whil<' loo!! stIli'S JlIl'scolI)' mainl.1jn a "ariN)' of indi"i<!ual licen,ing 

l'NIuill'lren(s- man)' diff~ 1 in lI' ~ard 10 Iill' ,'ariou!> certific3(ions- f~s- fingerprinting and 

Olrer dir ...... ""1i'·es.. M\I!.l probl<'mllic ~re lhe di!>p3I"ilies 3mo11S (re Silles in II'gml (0} (he 

lio('ensing of bus;lIi.'ss elllilies. Whikl lhe Nalional Assoo.i~li(ln of Insur;'\l\Cl' 

C(lmmi!.liOll('rs (NAIC) ProdUcel lio('~nsing Modi'l Ao:! (PI.MA) troughl 9.)1111.' 

uniformil)' 10 lhi'. pmdu."\'r licensing pr{l('l'ss. il ;till HI mall)' of (hose d..yisions 

II'garuinf IIIe licellSing process 10 Iill' indi"i<!ual SUI<'s.. Whili' SOllY of Ire stale!> h:,,"e 

cllXli'd (hi' enlill' Pv.1A. a nun-hr ha'll only cn~d lhe II'ciproci1)' pM'i,ions of (he 

1 act Of lhose (hm h3~e a;;Iop4ed I~ enlill.' model ~¥('f.ll st~Ii'S ha,'e d.wi31...'t.I 

sig.nific;IIlII )· from ils originallal18W8" and imel'l. 

TII;>sc inconsi,wn.:ie:l and inrfficieocies imp.KI c"ery Ig<>nl. brol.:\'! and insur:uK\' 

COIISUInl'r. Ewry AAMGA ... hoI.>s.akl 3g<'nI and broker ~mlx'r u:\IIsxling busi~ss 011 a 

mullist31e rosis conlinl.l.!s 10 oold both Il.'sid:nt and llOII-re sidcm lirenses for lheir 

u(}(j(,""rlling ;Io..""1i'·il .... s across lhe Wuntfy. SOIre of lhese lio('enSl'5 numbo.'1 illio lbe 

Ihoos.1B(ls b.1sru upoo c.xh of lbe agenls and broi;crs ffilpl0)"l:.j and (be number of Slales 

in .. hich busi~ss is Ir;lllS3Cloo. 
47 

Wr\IIn s.. ..... Mofll<l1od G.ll<irw, F..<q. 

........ Ii< ... "'"""i>lion or ~b",,*,iog C.",r:tI ... #1U 

tnb 19.:'(11) 

""'" 

Most all of lile St.1li.' lir\'n!l'S .1I5o) must be I\'rrwed .1Olnuall)· Ihroughout lile )'CJf 

based upon tile indi"idual state l\'!juilt'lTo'nts- Moroowr . .II.11i.'S lIso !m'e continuing 

I\'gulatO;>I)" requir~ment li and po.II·lirensure ()"\'might "'ith which aj!C/lIS and brol.:crs must 

also be in compliallre. 

We also wi!llio 1lOO' III.: difficult;">s c,""-"'OOn1;.'wj;l$ tile various SllW regulalors 

and rourts int~rprt'l tmns such as whal ~stitutcs tile "!I'liing: "soliciting"' and 

"rrgotiating" of imurnocc. While m3Jl)' of tile pro"isions of SI:fO' n>gulations are 

idi>ntiCllI. tll..";r intcrpretatic>n is nol. This ~ads to;> lIdditiooal m.:ui;(>tplare and enfol\.'l'lTo'nt 

i,""-""OIlsi$lcncies and ineffICiencie s. as "'ClllS unnere>SaI)' coos and fru$llJtions ~ng 

"-ho~sak agents and brol:crs see!ting 10 comply With idi:nciClll wording bill "3!)'ing 

in1;.'rpn'latiOllS. 

For all tll;> !I' rn>ons. tho.- AAMGA suppoos tl\> Nation31 Association of 

Regisk'red Al;"nl:l and Broters Refoon Act of 2013. and ape:orecilles till efforts of til;> 

sponsors and cosponsors Ofloo Bill in utililing this opponuni!)' to fonlS 00100 n~d for 

insurnoce regulalOl)' ref<)fm. This Jl'lO\krnilalion of Slaw regulaliOfl is targ~d onl)' to 

maR:Clpl:o:e enl!)', as opposed to II\> d:I~'lo-da)' I\'gIIlation of insUr3r.:>.' b)' lhe- $la1;.'1 

TlJ.">rl'fol\'. til..' ilK"ll'N of conl(\'lilion and I\'dlJ."1ion of compliaoce costs will ptm'idi: 

benefits to coosum:'rs and wholi'Slik ag~n1S and brok~rs alikl'. 

TI"r;> AA MGA and its n"ri'mber; It'!op'ClfUIl)· taL:e 111;> position thai tile p1O"isions of 

NARAB II wililnod;:,mili' tile cur~nt cumrerson"ri' la nsing requil\'ffi('nts in til;> nlious 

states- NARAB II "'ill also allow a more eiluit ab~ and errlCient fr~lnc""o R: " 'ilhin ,,-hieh 

an insurnoce Plm'ti-"lief CJn " '<)fk wjlh tlleir agenl or broker of choice. 

Condu<ioo 

Mr. ChairllUll. lhis ACt is an importanl stl'p in !lJstaining tltt> insunflC(' milkers 

err~CI ;,"c. cfficienl and ocooomiCllI !l'1"ires to tOO public and pc,":(c tor ... -hii;) 

m~antlining lltt> proressi ng. li~nsjng;tnd compliance conlponent1 Most importantly. ic 

"'ill (I,)",lop and crelW l unifocm and ronsistcnt fou/ld1lion on wbich essential slate 

based II'gulat;on ("all ronrim .... wilhoutre-straining IIle- crelti,"i!)·. in,"l"Slm.:'nt and uri!)' 

ptm·i(J."'il by tile whol.'sal.' insut:lOO' tn;ul;e\. 

NARAB II "'ill fun~r facilitate tOO ~n m~rl;et. enti-"U1ce rompclition. allow 

~gents. brol.:ers and insureN to be more responsi"e (0 conSUlTo'r r...'et.lS and PfIl"i& tile 

f1o.>xibilil)· in tile bu)'iog doc--cisiOl1s reing f1I.ldo.>. 

TI"r;> AAMGA loots forw;ud to worl.".ing wilh you Mr. Cbairll1.ll1. Ranting 

~m""r Johanns. M~mbom of Ihi Subrommin .... and OHJXl11501ll of tho.- N.1Iional 

Associal ion of R~gi>1ered A~nts and Brokers Reform ACl of 2<11.\ as "'c ll as on ~Iler 
48 

\\' ...... _ ..... 0111<,... G, Ht;RI<, F ..... 

~meh:" ~>JX"iorI 01 ~tanoei og c. ... r;lJlog: Il$ 

M,",,~I9-.!OI J 

""'" 

nl3tlo.'fS in funlli.'nn& to tJ,,>\1.'1op tl\;) s~~foCS ;mo;J impl.:Rli'mation of COnlRli'rrial 

insuraoce refoon and rnOO:milalion. 

Th:lnk you for Itt.- opponunit)· to prO>'itJ,,> tt..;. "i ..... ·s ofl h.- ARli'n~n ASSOCi3t ioo 

of Managing Gerrrnl Agents- We loot forward to responding to any que ions )w m:l)" 

hJ.Vt. and prm'idin& :!dditiollal informalioll as may t..;. "'3/T3m!'d b)' III.- SUb.."OInmillo.'e'S 

'l\kIitiooa l Xli"itics in lookin& into III.- propri.:'l)" of effoo£ {Q funh.-r m~iI/l1lioo Iiii.' 

I'I'gul aHon :tOO impro>'in ~ ronsunwr prol<.'Cllon :tnd incl'l' as in~ comp.'Iilion in III.-

insuraoc~ mar\rlpllQ.'. 
49 

lIernd G. illt e. Es<j uire 

lI iog, rJphi l SUmmM" 

BrrDil G. IttiRlt. Esqui .. has bua !be ft.<oIi"~ di~ of Ibe AllY""'" A...nOlliom of 

M",,:oginll Gtnml AgeD'S (AAMGA) ar>.:I ils ..,a-jlNfi1 Uni"."i!), since 2001. lit ~:W, 

[«Iif ..... 1e~ lu l't$.-.d It:d .... befM' i~ pooimio .... s. f'lIIing l",nci«. C«lg:miOll3l ond ""* Iegi~Olors ond '"8"1>1"", inoWry orpnil.>lions. coI~. ar>.:I uDi' .. rsilin i. Ibe Us. 

C.rm:lny""d Ibe UailN Kiagdon' On • '"8"1 .. bo.is. "" is oJso Ibe ftMlti," , <lilor of lbe 

qu:rtrrly!nilt I"b~"'lion 1I 'I>oI~~/~ I"JIU""'~ N .... ,s. -WIN M~iot:· ,,'hi<b iJ di,tribultd in 

ovt. oIOrnJ.tri .. """,nd lbe ... orU 

Vi«·Prtsidonl lUId 01;'( litig;uio. Cowo.<I f", a I'oouo< $00 Insur:un 

Cornpany. ,,'''',., '" " .... "'I"'DSible for Ibe mona",""DI <II oi l P"'P"'Y ond 

<3,\I3IIy ~li ~.Doa. d:im.lUId 00'0'0'"'8' ... ordinV naaon"icie 

.. «lui!), liliplioa ponnor "'illl .. in ...... lionoJ bow firm oa i~ dd,n .. 

lUId CC1o .... ~ "' .... 

legi>lati"" assinanl I. Coagrt ........ )""k Komp in tb: W.shinzto .. OC and 

Buffalo. NY o/fi" .. 

ft<'CU';'" IL<5iSWllUld deJlu!)' P"' '' ....... taI)' 10 Erie County (Ny) &'«lIIi>', Ea-'ard I. Rulk .... ·w in Buff .... N .... York and 

.. · .. k. nd .. C'hor for W A V A N .... >Rodio in W..tUaglOCl. OC 

Mr, Itt ... " gm:IlIIJItd .. ilh a BA in Inltm.li ...... Rtl3lion. 3nd Economic, from tho 

Cui,n..C<JIJ.go (1978) i~ Bulf:>lo. NY .......... ""'d to ODd ..... dod ,1M ",,"igo 1'ooIi<y $<I>00I 

:\I Arrerbn Uar.·mil)' in WMllinglOll. OC Ind obtaint.:l bi. Juri, DocIor de£l'lt "ilh IIonors 

fJ(lll1 ' ''' Tu'flle Uoi",,1li1)' &1I00I of La .. ' (1983) iD PIIilad<lrtU .. H. i. IkI'DSiN 10 pl';>(lict' 

t.> f<n Ibe Uoilt<! S!3It. 3nd p.,~S),,,,,,, .. Suftt .... ClUl$. aod tho f<'dernl COlIn< of 

A.M.ylv ... i .. "" i, aI"" otnif .... t". 011 !late ia",,,,,",,, del"n .... nl$ 10 prntal ""nl inuin~ 

«I ...... i .. ~' peru.ioiog!(l inlUr:un and Itg3l ",b",d "'''''<s. fit boId •• be hil.flo:' SI J'OS,ibl,> 

pm ""leW "AV Pro.minonl Raliof for ~pI Abib !), and &hi.,.. SWId. nh from I. .. i. 

No"!I!Il.v1indaie IIubI!otU . .>ad b... bocn n"""'" ""nually ... 0'"' of tb: -r"" 100 I ......... "" 

Pro .... ioIW. io NcnII A""ri"," by"'" In""aM' [)i.rib",ion VII"';"'" 2001. fit is. n .. _, 

of t!o: Board of Covernon of lhe Atadtn1)' of Riok .uwl [D 'O"...,. Maute"",nl O1lbe Sl Jo .. ""'. 

Uni" ... ily in PIIil .... lrtU .. PA. lUId 1he Board <II Dirtttor. of AppaI",hi .. S .... Un;' .. rsi1y in 

800ee. NorthC~ina. 

fit b bolo. a:lID."d ·Ho ..... of Ibe Year" t". Ibe Now k rsq Surplu, lin:. As.oc>:;"'ioa 

(20 ~ ao.d ~w. of "'" y.,..- by tho DiaM" Rt ... ...,h Iow,u .. Found.1ion (2012). 

M" flti ..... II.\< !IeI"<td :Ill ru. <II t!o: Morllgon .. ry To" .. \hip. PA lndu,trial 

Do,,,q.m.nl Aulllorily, .>ad _"'p'" booo as Gt ...... Coon .. 1 rM lIIoo ··Whyd'" &pedilioe," 

lbe projoello .. cover aod "" .... " .. 11>: ,"nuia, of 1be only docu"", ... d pi ..... ship '0 sink in 

1717 off"'" """~ of.be US. 

"" and hi , ~ife Ii,. ia suburbaa PIIibdelrtU. and h,,, .. "" 0 dausb ..... Mr. Hoi ... i, oJ"" 

"'" fOllnde •. p1"tSidtll >ad 311 o"n.. yol"n .. , ... ftrtfigtt .. , with "'" Fi,., Dof'W""'D' of 

MonlgoJnCf}' T""""'ip. PA. 

A H .... fat< 0/ Inugwy and p",,r<.,,,,nal1,m 
50 

TIWIII Ii' U SII \lOi'Y ~q O<:I IKr 

Ull CO~L'IlTIn: ON SECURITIE5. INSURANCE AN]) 1l\'\' rsrMENT 

orIm; UNITED STA n :s : 

CO.\ll\I ITIH: ON II.\NKIXG. 1I0USING AND URII,\ N " FFAIRS 

I Your NlI/ll): 8frnd G. lI einu, ~. 

I. Ar~ )·op ~>Iifyl $. on rellJlf of a ~ral SI~ ~.or Local 

Go">~ mrrenl emil)·? I E] 

2. M~ )"ou tifyl~ on bdu.Jf of an emit)" OIlier Iron ~ Eli Go">~fJtJtl;' nl entil)·? 

3.. PJ..>aSl,' liSi any r~d.:r:J.I gra,uorconl r.l(CIS (in;:lu(!ing SOOgf2t1ts or 

SUilconlr.l(Cls) which \1"IU hilW f\'!j\'j'.('j! sin.."I.' OciotJ.>r I. 1m: 

None 

. OIhi'r Ihan yourwlf. pJ..>aSl' liSi whal enlil)" or rnlilie! you are repreSl'n1ing: 

1"one 

~. If yoor anSW('f to qlk'Siion nWllbtr 2 is )\!"~ J'Io' ase liSi an)· offices ex rli'cl;'d 

posilions b:>kl Qf br;"fI)· d.">:lcr ~ )·oor It'JIIl'SI'nlaliona l Mf!:K"ily wilh til<' enlil;"'s 

diKlosed in qUo!lIion num~r~: 

NlA 

6. If )"oor an",";.'!' 10 q\O!Mion nWlliX't 2 is )"e~ do an)· of the II enl;1;"! diKloSl'd in q""'Slion nul1'b:r ~ tIl'·e pan: nl 

organilalions. snbsidilries. or pan~Mips 10 lhi' emil "'s for 

whom you all' ~ Il'pil'senling? 
51 

1.1[lre allS" r(Q ql>:' ioo numbi.'r2 is}u plcolSC b>l an)" [C<krol Fran ~or 

roJllf3ClS i~lwing $Ubgr;lfllsor $Ub.,."'"(IW2(1$) "'hich " 'ffi' c,'-~ i"ed b)' Ire 

enlili."'s lilted urr.J."or qlt.'siion-l sin..--e 0..' 00...,. I. 1999. whim exc..-ed 1000flhc 

enlilies I\'wnlle in Ib.' )\' ;1[" re.:ei,·ed, induding lhi' :IOUIl."e ;llld amoUni Kh 

j:l"ilnl or ronlr:J(l to be liS(OO; 

lI,,"d G. Iki ....... Esq. 

A .... i<aa A..ooOl;"" of >IIogi~g Gtn<r.Sl A!." .... 

610 Fr«dom Ih$i "" ",Ct .. tr 

Suil< 11 0 

Ki., of PI'usli .. PA 190106 610.911200:JI (0) 

610.91120019 (1) 

Nrnif't .. m',, ~rs 

I".: Mor'. It. 2") 
52 

Streamlining Regulation, Improving 

Consumer Protection and Increasing 

Competition in Insurance Markets 

CO~IMmEE ON B,\NKING. 1I000S[l'G. AN!) URO,\N ,\Ff AIRS SUOCmlM1TIEE ON 

SECURlTlES.I:-ISURANCE. ANI) INVESnlE1\'T 

T\1<.'Sdo.y. Ma~h I? 2013 

~J8 Dirucn Scnalc Ollie<: llI'ilding 
53 

Mr. Chainnan. lhank you for holding this important hearing on streamlining I'<'gula1ion. 

improving consumer protection. and increasing competition in iruUr.ulC<: nHui.:cts. This objectil'e 

is the I'~ry mission of our organization, Adl'ocates for Insurance lIIodcmization. We appreciate 

Ihe opponunity to prOl'ide wnnen lestimony fOTlhc record to infonn Ihc Comminec's 

CQI15ideralion. 

The modern msurance busmess holds a commandmg position m lhe ".commerce of ollr 

NallOtL (/)t has become one aflhe largest and mos/ Imporlant branches of Comlllerce .. 

Perhaps no lIIodern cOllllllercial enterprise directly affeclS sa lIIany persons m al/lI'alb 

of life as does ... irosllrance. Jrosuraroce louches Ihe home, Ihefalllily. arod ... the busmess of 

almosl (evcl}'Qne)". m Ihe Urmed SWles. 

U",ted States v. South-Eastern Under .... ritersAssociaUon 

United Slates Supl'l,:mc Coon D.:cision. 1944 

As the fonner Chair of lhe lionse Financial S-.!rviees Committee observed a decade ago. 

insu(lll1ce is "Ihe glue that hold!; oor economy together."' Insurance manages risk. prolects assets. 

and provides families, businesses. and communilies with the peace of mind to im'cst and expand. 

Thus, "[i1n the absence of insurance, just about any OOlcomc seems 10 be a matlcr of hlc!;,.,,1 

Without insurance prolection. there would be no lransportation. no homCO\\llcrship. 110 financial 

plaruling. and II<) oonllncrcial im'eSlment In short. inSlInlnce is a foundalion for economic 

gro\\1h and ~..:e$Saty for economic recowry. 

In unn '" & The Economy 

• 1l1llunncc carrien and related activities :tCcOU1Iled for $.125 billion or 3.0 

percent of U.S. groS!I domestic product in 2009. 

The U.S, insunncc indusll)'cmplo)"w ""cr 22 million JlOOple in 20]0. 

• II1ll .... ancc companies provide businCSl!cs with c"l'i!.11 for """areb. eXp:lnsioos. 

and other venlutt:S. In 2008. insur:tncc companies contributed S3.3 trillion to 

business d(:\'(;]opment through thc:ir hoLdings in .,ocks and bonds. 

• Ins .... ance oom""nies invest thc premiums they collec\ in SlalC and local public 

projc<:l!I. sPCh M schools and roads. In 2009. insurance companies inl'estcd 

$4427 billion in munici",,1 sc<:urities. 

• Insurance companies ",,)' levies on insurance pl"Cmiums "hieh amounted to 

515.8 billion in 2010. or 55] for each person livin8 in the U.S. 

I Iksr. Rev""', Jon. 1.2002, ·Oxley urg .. 1trt,..bacblop-" 

, er Berns ..... Againsl lhe GodsIThe In:,edibl. Slory of RIsk. 10m Wiley & Sons (1996) 01 203·204 

2 
54 

Despite Ihe imponance of me insurance induslry to the modem economy, Ihere is growing 

consensus Ihal Ihe exiSling insurance regulalory sySlem has not kepi pace wilh Ihe changing 

national and inlernational markelplace. 

Advocates for Insurance [odcmilation (A[M), an organization committed to advancing a 

modem insurar>ee regulatory system. By bringing together fomler state insurance regulators, 

AIM off...", an esperience-based p<:npective on the past and prescnt challenges facing the 

induslry, as well as the oppOf1unities to create a system designed to promote compelition, 

innovation, and economic gro\\1h. 

With these conSlmctivc goals in mind, I~I offers the following testimony for Ihe Commillce's 

consideration. AIM recognizes Ihal an honest assessmenl must begin wilh the recognition Ihat 

exiSling insurance markets are impaired by an outdated regulatory system plagued by local 

impediments that prevent markets from operating in an cfficient and optimal fashion. From the 

stl\lclural challenges created by a system of 51 sets of regulatory reslrictions to the substantive 

impact of market regulalions th.at fail to promote pl\ld('1J.I risk management, the current system is 

incapable of efficiently regulating national and global commerce. 

Given the importance of the insurance industry to Ihe overall economy, it is critical thai Congress 

lay the foundalion for a regulatory system that encourages economic grol11h an d provides 

consumers wilh the full range of benefits of an open and compctilive insurance market. 

An Indust ry Affected In En ry Way 8 y Its lA'gal History 

The insurance regulatory system is unique in its Slruclure and its substance, both of which grow 

out ofa well-chronicled hislory. 

[n 1868, the U.S. Supreme Coun declared that the entire business of insurance was not subject 10 

Commerce Clause regulation, even when insurance contracts crossed state lines. l This precedent 

held until the Coun reversed itself in 1944 in the Southeasterll Ullderwriters case,' which hcld 

the obvious: insurance is interslate commcrcc- Ihc vcry son Ihm led the Framers 10 replace thc 

Anicles of Confederation with a Conslitution in order to establish a Federal government wilh 

sufficient power to overcome parochial, stale by Slale oversighl of trade. 

In its decision, Ihe Court quoted no less than a half a dozen Federalist Papet'll and Ihe collected 

works of Alexander Hamilton to support the proposition .. that there is no object, either as it 

respects the interests of trade or finance, that more strongly demands a Federal superintendence" 

than interstate commerce, and mat "the regulation of policies of insurance" was of such a 

character. 

1 PAul Y. Virginia. 75 U.S ($ Watt) 668(l869). 

"'U.S. Y. Southeasttrn Undtrwritrrs, 322 US 533 (J944). 

3 
55 

By changing the constitutional status of insurance overnight, how~\'~r. the Court threw a hot 

potato into Congress's lap. With the federal gOl'emm~nt ul1crly lacking in e.~pericnce and 

c':pertise relevant to the insurance market. and with its allentiou focused on the existential 

challcnges posed by World War 11 , Congress quickly fashioned a minimalist. band·aid solll1ion. 

111C McCarrran-Ferguson Act, in less than ~OO words. created a lUli(]ue and parochial system of 

regulating interstate commcrce which has had cl'erlasting repercussions. StnlCturally, it 

preserved the primacy of state rcgulation by crafting an unprecedcnted re\'erse preemption 

regime with 1'0 Federal regulator of insurancc, Substantively. it addressed Ihe regulatory issue 

which triggered the amilrost action brought by Ihe U.S. gowrnme1l1 in the SOluheas/em 

U"den<'rilers case by imposing a Federal policy, which heavily incenlivized the imposilion of 

state price controls (known Illore commonl y as a limited antitmst exemption). 

Si.~ly-six years 131 ..... the existin g regulalory system is a complete anomaly. In the 224 years since 

the Constilluion was mtified. in large part. 10 prevcnt states from interfering with interstate 

commerce, iliSurance remai.iS the only significant part of the eeonomy that continues to be 

plagued by the same parochial int .... ests the Commcree Clause was imendcd to supersede. And 

although price controls have becQllle fully outdated. tlley ha\'e endured, mutated and become a 

corncrstone of iliSUrJnCC product regulation, frequemly characterized by command and control 

rather Ihan competilion. 

The lesson is this: just a.~ Congress Heated this parO<jhial ~\"tcm of regulation, it ha< hoth the 

authoritv and the cou,tilutional dutv to addr"". the ,tmctural and <uoot:01ti "c eflect, of it. OWn 

outdated Fedcraloolicv choice<, 

Strncturallssucs: An Inconsistent and Inrfficient Model 

The existing insurance regulatory stmClllrc in the U.S. is an antiquated system that rdics on a 

complex web of more than 50 separale slale-based regulatory systems. ~l different insurance 

regulators. and 99 stale legislali\'e bodies. each with its own procedures. regulations and legal 

definitions of insurance. As struclured. Ihe ability 10 develop and implement Imifornl national 

standards requires the agrecment of 99 legj~lativc bodies and ~O governors - a virtually 

impossible task. In the modem national marketplace, the stntetllral problcnl is simple: the 

existing insurance regulatory system lacks a mcchanismto implcmellt efTectiw uniforn. policies. 

Whelher il is surplus lines reform, new product inno\'alion and appro"al, agc111 licensing. or price 

controls that sap the benefits of competition, the current patchwork approach to these issues 

directly impacts consumers by restricting choices and increasing prices. For example. the 

c)<isting syste111 ",quires iliSurers to obtain appro"al from multiple state insurance departments 

each lime Ihey change prices (including lowering mles), bring a new product 10 market, make a 

simple change to a policy fonn. or licem;e Ihe agents who selllhcir p<odudS_ Each variation 

between the states rcquir<lS insurers to implemcnt diff .... ent procedures, fonns, training, and other 

aC<.'()mlllodation~ which arC inherently ineflicient and cost ly. 

, 
56 

Und~r th~ ~xislin8 slal~·bas<:<l re8ulalQry syslem. nsuran~~ companio:s 

mUSI comply willi difT .. ,.cm la"s and regulalions in eacll Slale wileI'\! Illey 

sell insurance. 

For ~xamplc. insurance companies mUSI license and appoinl cacll ofthcir 

agents in every slate "IICT~ lI'a1 agent s~lIs insuran>e. This rcquiro:s an 

agent doing busino:ss in multiple states 1'1 con'ply with muhipl~. often 

duplicati,·c. licensing requirements that include nrious applicati'1ns. fees. 

exams, <:<Iucation fC<IUiremenlS. and background chocks. 

AIJ.I·s n:seareh suggests Ihat a national company se lling personal lines of 

insUT3IlL\: in all S I insurance jurisdiclions acrOSS the country. with ag..'flts 

licensed and appoinled 10 sell imuran>e in at least two states. spends in 

excess ofSl4 million just t'1 license and "I'I"'inl ilS agents, In addition. 

,lIai same rompan)' WQuid be mjuired 'Q pay all addi,ional S7 million a 

year t'1 maimain tll;:ir agents' lic~nses. 

The$<: figures d'1 not clu~ til;: significant administrali,-e aIld per.;onncl 

rosts n • .'-quired to track liccno;.c renew.1 dales and repon 10 ch sl:lIC 

insUT3Ile<: regulalor about compliane<: with continuing education 

n.''1uin:ments. all of"hich varies from state tQ stale. Nor docs this take imQ 

oonsid"'I1Ition the burden on taqtayers " h'1 alsQ rowr somc of the costs 

aswci.l~d with tt..: duplicalive regul3lory syst~m. 

Agent licensing is just one example of the high price our CCQnomy and 

consumers pay for tile existing rcguJatQry system. 

MoQ;:rntzaliOlt lWy to Cynhll! Ip<Yljllp: cOl]< UoIly llakke, Nallonal U"",""",",cr 

0011"" NI'W$ ~IV"", Augu<l 5, 20 I I. (lloDy Ildkke ",1Vt'd , .. 'he Com",lsslo ... rO('h~ 

N ...... let"')' o.,p,,,',,,,,,,( ofllankl"l! and Inlur .. nre from 2002 (0 ZOOS.) 

'[he moot 1"I:"~nt example ofll'e Slructural challcngu ~reat<:<l bytl'" existing regulalOry 5)'S,.:-111 is 

th~ implementation of the Nonadmitted and Reinsurance Refonn Act '1f2010 (NRRA). passed as 

pan of ,he Dodd-Frank Wall Street Rcfonn and COOSUI11CT Protee!ion Ae! (P.L 111-203). 

D.!signed tQ simplify and streamline the rcgulatiQn and laxation '1f surpl~s lines, the proposal has 

been romplicated b)' the imroduclioll and impkmenlation Qf compeling kgisla,i"e proposals. 

TOOa),. Slates have adopted various proposals. while oil,ers ha,'e igno~d the legislative options 

completely. The result is nol the unifonnity Congress introd<:<l tQ promote. but rallier additional 

layers Qf um,ee<:ssary comple~ity. 

As this cxample dCm'1nslrales. e'"cn if Qne model can be agn:<:<I upon, its implcmentatioo is 

optional and indi"idual SMes will ultimately decide woclher tQ aoop, a model. change it. Qr 

rejce! it Qulright. Similar examples pervade the cnlire insurance regulatory system from new 

prodlle! iru'Qvation and appro\'alto agent licensing and market cQl1duct examinations. The result 

is an anti·competitive. duplicati,'e, and incQI1sistent '"gulatOl)' system that leads to inereased 

costs. stiOed inn()vat;QIl and fewer product chQices f'1r CQl1SUlners. 

, 
57 

Intenmtional Consid erdtions 

America's intemJtional regulatory presence is equally as fragmented as a result of the existing 

state·based structure. 'nlis is panicularly significant when one considers that the U.S. is an 

outlier in the intemational arena whero most countries have integrated financial sen'ice markcts 

thJl fostcr competition Jnd gUJrd against global systemic risks. 

Two examples highlight how the U.S. is hanned by the currcnt system. First, the existing 

struetur<l is thought to discriminate unfairly against foreign insurers in internationally accepted 

trade areas such as markct access. most favored nJti011 treatment, consistency with nationJI 

treatment, and transparency in operation. This, in tum, has rcsulted in some U.S. insurers 

concluding that trude barriers arc being established for our domestic insurers. For example, an 

intcmational insurer wishing to do business in all 50 states must. unlike other jurisdictions with 

celltrulized or hannonized regulation. qualify for and obtain 50 separate liccnses. Oue 2004 study 

estimated the cost of each additional license as S8 673. ~ 

Second. consider a recent meeting of international insurance regulators where the fin.mcial crisis 

was a main topic of discussion. The United States was not rcprc:sented by any single entity or 

person who could adopt and enforce policies, rules. 00- regulations. Rather. American interests 

were represemed by the National Association of Insurance CommissionCf'S (NAIC), with a 

regulatory contingeut from several states and its director, and the recently designated director of 

the FlO. At th is jWlctUro, neitllCT entity is responsible for regulating insurance, nor is it possible 

for the NAIC, a volW1tary membership organization with no enforccment authority, to O\'CTcomc 

the interests of 50 state legislatures and insurance depanment~ to implement II. unifonn in~ura.nce 

regulatory framework that promotes global competition. 

Failed Uforu 10 Promote Unlfoml lnsu ran("f' Rcgulallon 

The insurance indllstf)' has long recognized the need to address the stnlctllrai barriers that 

impede an efficient insurance regulatory s}stem. Abscnt a Federal insuraoce regulator, state 

insnrlUlce regulators hal'e a1temptcd to coordinate regulation through the NAIC. However, state 

panicipation in the NAIC lUld its activities is \'ohmtary, and parochial interests often override 

innovative policy, adding to the eOl11plc~ity of state insurance regulatiOIL 

6 
58 

Th .. Inl..-stal .. Insurance Prod ucl R .. gu lation Commi ... ion (Into'u tal .. 

Com pacl): Fa lling Shorl 

The NAiC h:lS long =ognized the need 10 irnpro>'e the ability ofoomp,mics to 

bring products to market more quickly. In 2004. the NAie created the 

Intcn;Mle Insurance Compact (Comp.>cl). "hieh won,s 10 de ... elop O3tiooal 

produc.:1 S13ndards for a select group of lire insutaI>CC, annu ities. diSllbility 

in""me, and long·tenn eare product.. 

While orten cited by the NAie as an cxample of its ability to improve 

dlicicncy and promote unifonnily, the benefits of the Comp.>ct arc incomplete 

""d limited in terms ofproduci s""pc. Sen"" yc.a .. 3ftcr it.< cl'C.1lion. nine 

S13tes, including New York, Florida, and California, have yet tojoin the 

Comp.>eI. Those nine SUtcs rcprCSetlt nearly 30 pcrecnt of the US population 

and one-third ofthe pn::mium volume for .cloxt insut3ncc product .... tionwide. 

The Comp.>ct experience und~TSCorcs the underlying issue with the CUIT""t 

regulatory system: the e.xisting regul.:!IOfY structure lacks 3 mechanism 10 

implcmCtlt cfTc""t;,.., unifonn policies from S13te 10 S13te. 

www,in'ut:loc<x:ompact.onl 

Despite its best efTons, the NA!C as a "olumary organization composed of sovereign membcrs, 

is structurally incapable of facilitating efficient, consistent regulation across state lines. 

According to tile NAIC Model Laws Regula/iom and Guidelmes, published by tile NAIC, of the 

200 model laws, regulations, and guidelines adoptcd by the orgruliz3tion since its inception. only 

one has been adopled by allSl jurisdictioJlS.6 

Tro .. Refnnn Is Impossible Ulld .. r The Current Lega l Fr:lmeVl"ork 

Simply plLl, no mati", I\Qw much good won.: the states do through Ihc NA!C. it is impossible to 

ovcreome 1I1 e limitations of a system where cach jurisdiction maintai,ts independenl power to 

regulate insurancc as it secs fit. TIle cO'UlIry'S founding itsclf proves this iu fu ll: TIle Articles of 

Confcdenuion did not and simply could not work. TIle states. absent a central regulatory system, 

will always be subjlX'llo basic collective action problcms whicli can never be soh·ed in vOl'Ultary 

fashion, regardless of their skill and intentions. Stmes- in good faith- will always, in the name 

of consumer protection. do Ihings in Iheir own way in key areas. It is the very nalure of 

$Ol'crelgnt y. 

6 It c:onJd be argued that the n\lIJl bcr is hlghot ~ ona ~ially .<Unil ..... .'1Iandard, \~hil" arguably true. and 

"",uing aside the deftnitioml problems of ... hal consIil.U1eS "substantially similar," the diff=nccs in the adoptions 

invariably me .... 1hat insurer> need to implement d,fferent pr=dure .. form .. tnlining andOlher accommodauo", to 

tho S(a", Yari .. ~ thereby m;rum'l'ns any I,m;k<ig:o;"';n un ,formity, 

1 
59 

NAIC Icaders, eVen in public SI:I!CIllCl1ts describing Ihe stales' efforts loward IIllifonnity. hal'e 

necessarily recognized Ihese IInchang~able limitations. 2011 NAIC President Snsan VQSs 

testified thai, "Some statcs halle different opinions on how they want 10 protect their consumers, 

whal products Ihey "'ant 10 be allowed in their slates, and that is always going 10 be a challenge 

for uS as stale regulators ... We try and work through those [concerns[ as best we can on a state 

by state basis.,,7 hlcoming 20 12 NAIC Presidenl Kevin McCarty recently said that the NAIC has 

"centralized and slandardized the regulatory syslem as much as possible."s The caveat "as 1IIIIch 

as possible" explicitly recognizes the inheTCllt limitalions of a state bascd system. '111e stales are, 

and will always be, natllrally cabined by the severe limits orvolunt3\)' collective action_ 

Justice Black's majority opinion in the SOUlheastern UnderwritCT'S case. unassailable for its legal 

conclusions if not its practical import, nicely describes and analyzes the case for Federal 

regulation of intel'S tate commerce: 

• "This business is not separaled into 48 distincttcrritorial compartments which function in 

isolation from e'lch OilIer. hnerreiationship, interdcpcndenc.:, and integration of activilies 

ill all Ihe states iu which Ihey operate are pmctical aspecL~ of the insumnce companies' 

methods of doing business. 

• ''The decisions which Ihat company makes at its home office ... concern people living far 

beyond the boundaries of that state. 

• "The power confided to Congress by the COnUllerce Clause is declared in the F~d~ralist 

to be for the pU'llO$e of securing the 'maint""ance of haTlllony and proper iutercourse 

among the states .... 

Without a mechanism in place to bring national order to the Syslem, it is a);iQmatic thai the 

problems described in this section, and Ihe total disconnect of the regulatory system from the 

nationalfglobal business Ihat it oversees, will only grow. 

What, thell. arc the op1ions for those who believe that the status quo is IUl:lCcepiable? 

Duly a congressionally·mandated solution could effectively address the collective action 

problems described herein. We do not bc1iew that the stal~'S can reach such a result on their o"n, 

A refusal to voluntarily relinquish control is the intractable problem underlying the current 

system'S ills. 

1 InslJrallCfl OIvrsight: Policy Implications for U.s' C""-llIIWn. BusiMSS~S. and Jobs. Hearil"G be("", the House 

Subcommilk~ on ! ... ur1I""" Houoi"l> and Commlll1 ny Opport..,ity. 112" C~$$ (2011) (\CstImOllY (Irs"",," 

V=). 

S Holm. Erik. "Fed I""""""", Office ooIds meoling. deadhn. near," Wall Str«l JoumaI, Money Walch, 

btU, flwww mar!selWilK b,romfw xyffOO·ln<uljlocc=pftke- IIo ldrm!,'St!o¥'.dCildllpe·pe;![:20 11· 12·05 

D:<:.mber S, 2011 

8 
60 

While we do nOI at Ihis stage of the proc.:ss oITer a fully fonnoo aiti:1l1atiw, we do oITcr one 

important observation, respectfully madc: Congress should nOI aUlomalically mid rcllexivcly 

tum to the NAIC---Qficn looked to as a potcntial national rcgulatory, qllilSi·regulatory body or 

standard seller (such as in the recent Patient Protectioo alld Affordable Can: Act (P.L 111·148), 

othcr Fedcral legislation, or through natiooal stmldards)-as the implementer of national 

solutions, al least not as thc NAIC is cnrrent ly constituted. 

TI,C NAIC has a rich and productive history of scrvi~ to its members and thus indirectly to the 

citizens whom those members scrye-one which we, as fomler active membcrs, treasure and 

celebrate ralhcr than impugn. I3uI. unlike its component mcmbers and tile departments which 

they head- the NAIC is not a public body, and ilS responsibilities mid accountabilities are 

murky. It is a private OOTporalion, not subject to open records or open meeting laws, a status 

which it fiercely guards. Its Policy Statement on Opcn Meetings is, as a practical mailer. 

iTTelevallt- any meeting Call be closed purely by the chair's discrctioo. arKI hundn..--ds of hours of 

its most important meetings (commissioners' conferences. TOmldtables, executil'e cOl1lminee and 

lQne ~'\rcal.S) arc alway!; closed. Its $70 million annual budget is not subject to public ovcrsight. 

TI,es<: seminal attributes are questioncd by industry membcrs and consumer adVocates, especially 

whm thc NAIC stcps imo roles Ihat make its aClions more binding- which is precisely Whal will 

be required in any sollllion designed 10 make the regulatory system less parochial. 

TIle NAIC is cOllllllonly used as shorthand in Washington, D.C. for the states, and it may wel1 

provide an allractive mechanism with institutional knowledge and tools to impose necessary 

order by compulsion to the chaotic statc systcm.9 We feel, howe\'er, that it cannOI and should 

not be properly cmpowercd via fi,rthcr codification at the Federal Icvel without a corresponding 

review and con~idcTaliOI1 of whelher it> $lall1$ ""' a non-gQ"ernmenl,,], pTivale eorpoTaliOn i. 

eonlmcnsurate wilh such a gram, and if not, what sort of changes might 00 necessary before it 

can be. 

Subsfan th 'e Issul'S: J-'ederal Poll <"y ClIOl<"l'S And Mlsplared "larkel Regulations 

&yond the structural impediments created by the existing regulatory system, the current 

regulatory scocme also creates significant substantive policy challenges that distort the very 

purpose of insurance: to spread mid manage risk. 

Any regulatory syslem, to be successful. 11IU5t be tcthered 10 the nature and purpose of the 

product itself. As the Supreme Court has recognized, "the legislative history of the McCarranFerguson Act strongly suggests that Congress understood the business of insuraoce to be the 

urnlenvriting and spreading of risk.,,10 Specifically: "[O[nc of the early House reports stated: 

'TI,e theory of insurancc is the distribution of risk according to hazard, experience. and the laws 

of a"erages"1I Thus, "The companies ha"C becn said to be the mere machinery by which the 

• The NAlCs accreditation sy.ttrn ror solvency regulation m. be"n generally well re«ived 300 .ffe<:uve I. Group Lifo ,'. Ray,,1 Drug. 440 U S. 2QS (1979). 

II ld. 

9 
61 

;l1cv;table losses ... an: distributed." uud their "cOic;cncy. therefore. :lI)d ol\'cn~y, arc of great 

cOlleen! .• 11 

Ilowcver, much of thc market regulaliol1today- including pricc controls intrnded to artificially 

compress rates and risk classification restrictions based on social or other judgments (beyond 

prohibitions on classification according to race, religion, or national origin)--distort the purpose 

ofinsurancc by se'·crely restricting ins ureni' risk allocation practices. 

Price Controls Are Coullterproductin In The !'Ilod{'rn !'Ilarliefpl;l{'e 

Perhaps the ocst e-xample of the unintended conscqueoces that result from misplaced market 

regulations are state price controls. Originally developed as a tool for state regulators to maintain 

adequate ratcs and cn "r~ company solvcncy. rat e regulations more reccntly havc oc(."n 

transfonncd into a paro<:hial mechanism for supprcssing ratcs. 

Lessons Learned: The New lersey AulO Experience 

For decades, New Jcrsc:y had one of the most exptnsi'·e and lcasl com]ICliti'o'e 

auto in,ur:",c" rruattcl!i in lhe Uniloo StatC$. The response oflawlll.1kers for 

ycars Nod been to pass ralC restriClions. including a mandalOl)' 15 )X"l"I:enl rail' 

rollhack. and to require insurers 10 provide cowngc 10 all but thc vcry worsl 

dri,·ers. 

This m.3ttel inte .... cnlion ","ulted in rates Ihal did not relkct the risks insun:-rs 

were undertaking. In facl, between 1992 and 2002. more than 40 insurers left 

Ihe auto mattel as a TC/lult of the SlaIC·S regulalory en,·ironment and the high 

cost of doing business. The result was an 3v3il.lbility crisis in which cvCI1 the 

best drivers were unable 10 fmd coverage. Ironically, the ycars of rate 

regulations <bigned to benefil policyholders ullimalely hurl com;umers by 

driving insurers Oul of the markel.limiling prodUCI choices. aud innating costs. 

In 2003, New Jersey " .... cled 3 number of reform. designed to reduce the 

regulatory burden on insurers. attract insurance providers. and increase 

competilion. The n:forms not only restored compeliti,·c balance: and provided 

consumers with new cllQices. but also ""ad to a significant declinc in premiums. 

In fact. New Je ... ey drivers benefited from mOTe tNon $86.6 million in rale 

reductions and refunds resulting from competition. By 2006, 20 compan ies had 

r<:turnoo to!\'cw Jersey and 75 percenl oflhe slalc·s drivers were paying less for 

aulO in surance. 

Experience demonstrales tNoI competitive markels. nOI governmenl price 

controls. pro,ide consumers with more and be1tcr choices. 

··In the Driver·, Scat, A report on the sbtus of auto msuranec reform in New 

Jersey:· New Jersey Departmenl of Banking and Insurance. 

ww" .<ule.nj.u. dnhi rre"relca.~f).tOIOOrgmrt.pdf 

"GormanAilianu" l.e"'~233 u.s. 389(1914). 

10 
62 

Rather than pemlining private markets to function and allow insurers to compete, rute 

regulations often chase private capital out of the market and prevent consumers from realizing 

the benefits of competition. State price controls are fatally flawed at lhe outset because, as the 

Supreme Court recognized, "hazard, experience, and the laws of averages ... are not within the 

control of insuring companies in the sense that the producer or m;umfacturcr may control cost 

factors.,,1J 

At the mOSl basic lewl, state-based rate policies discourag~ companiC1S from lowering ratt'S out 

of concem that rate restrictions will prevent companies from charging adequate ratC1S in the 

future. [n extreme cases, significant price controls can result in a full blown market meltdown 

such as in the New Jersey alilO market in the 1990s. Across the spectnull, when states misapply 

the tool of r.lIe regulation against its original purposes of rate adequacy ;uK! promoting solvency 

in, and instead use it to 3nificially suppress premiums, their allempt to bend the most simple 

laws of economics ultimately leads to higher prices and fewer consumer options. t4 C011\"crscly. 

more rute freedom correlates to higher lewIs of competition in which insurers compete to 

provide C011SUm~'TS with the best products at the best prices. ll 

Controls Which hnPf"d t'" Risk Oassilkation Are hlt'"fficient And Int'"ffccth't'" 

Price controls arc not the only example ofrcgulatOTY praetices that interfere with the very nalure 

of the product. State regulations frequently graft social restrictions on the evahmtion and 

classification of risk, extending protected classes far beyond unacceptable groupings based on 

race, national origin, or religion. 

u Group Ufe~. Royal Dnig. 440 US. 205 (1979) . 

.. The size of residual i!1Sllfal1Ce m:..-kcu is one indicalOf that <kmOllStrates the c>;!rnt !o whi(h current lUte mO/tet 

regulmion; diSl.O<l open and cornpcmi,'e marke\S. In !host ar"". where .tlle price controls prevrnl insurance 

companies from charging adequate rates, insll"en tend to avoid wriling policies becausc: the imur.,.- cannot 

profitably ,, ju, the lisks, A. more <::QrI$umers find them$tke$ unable 10 pt.I"chasc insurance in the optn markt~ 

they are forced 10 lely on 9 growmg residual market. Corwerscly, os regulators trusl the compctil.,ve market 10 

properly prices rlSh, illSl.U1lnCe becomos more widely available and the rosidual markel dcclinu. 

~ was the ca.", In South Csrolina, where in t998. the re.ulual markel for aulo insumnce OCCoo.rnN for 26 pc=nt 

of all aulo insurance pr.""ums in the state-the hisheSi perCmIlIge In the mtion that year. However, after the 

implementation cf a cornpetiti"e markct·based approoch to pricing. the percentage of auto il\Sl.a1lllCe in South 

Care1irta'$ residual markct drcpped to 8.6 percen, in 1999. B)' 2008. ScWt Carelin", residual aulO market "'" 

vlrlWlUyehminated. 

" Scott Homnglorl, lnsumnce ~egul"tion in the PWhc Interest. AEI_8rookings, 2())). 

II 
63 

Wht"n Rf1ullItlon In tht" Name ofConsumn ProtN'tion 

Re.ltIlts in COUllumn Ha nu 

In an effort to e;<cre'se O\U'S'ght (If the 'nsurance indlL'ltry's risk ev.llL1t'QII responsib.lit'el;. the 

Louisiana SUte LegislatufC enacted legisl.tion th.:!t constrains the 'ndustry's ability to aSSess ils 

O"'n risk. In 1992. tbe Louisian. Sute Legislature enacted a '"throe-year rule" designed to 

prolect consumers by mandating the renewal of homeowners' insurance policies and 

prohibiting the increase (If deductible policies after three years, with the exception (If se\"Cf31 

\'eI)' sr>ecific cin:umsl/lnces. 

The unintended consequences of tbe legislaturc's a\lempt at consumer protection resulted in 

indlL'llr~' adjlL'ltmenls that changed how insurance companies condUl:t thcir blL'lincss. For 

examplc. wmc companies formed IICW entities that began issuing neW policies. While this 

allowed Ihe new enlity 1(1 refuse 10 renew a policy because il was n(ll """"trained by the throe 

year provision. companies remain saddled with their old book ofblL'lincss. and policies issued 

by the new comp.:>ny were ooly free from this restriction for jlL'lt three years. In effect. insurers 

arc being subject to .!herS<: selection and this drives up the ",tts of camas th3t ""\1; these 

olderri!b. 

Other companies instituted 3 "ariable percentage deductible on new policiC! as a mechanism to 

compensate for the constraints imposed by the legislation, This approach all()\\"S Ihem to 3\'oid 

O\'cre.xpo:surc to the risks assoc;.ned "ith thcir older polieics th31 were crc.ned when the 

legis btUN imposed the nomen"wa ] provisions. This has resulted in IKnnCCn"n"", having 10 pay 

a hurricane deductible based on a pcrcCflUge of Ihe value of the hQI"IIC. 

Aftcr Uumcane Katrina. many insurers began increasing their percentage dedUl:tibtc!, in some 

cases, up to as much as 5"oofthe value of the property. In 2008, after Hurricane Gusuv, many 

residents in noo-coo,lal Louisiana Were faced with hurri<:3oc dcductibles for the flTsttime. 

While in1endtd to protect the consumCT. the thr« year rule ulLim.nelr n:quires insurance 

companies 10 reocw all policies withoul adequately assessing the risks. ;\s a result insurtrS 

mIL'll renew older. less dcsinble policies. which al the end of the day, limits thcir capacity t(l 

take on new policies, 

The unintended consequ~"cc of the legislature's allempt to protect ronsumers has been 

to Impt"dc the InsuranU' Industry's ability to matcb price to risk, ulttmately driving up 

costs to consumers and UmitlllR competition. 

Whether it be actl~1rial rcview bascd on credit-based insllTance scoring, claims history, or othcr 

s!'1tistically rc1c"alll factors, the frcqncnl negative responses of rcgnlators to practiccs that are 

cOllsistent with the fundamcntal purposes (If inslU"allCe only IIIIp<:dc the inll(lVati oll that will allow 

insurers to keep up with thc risks posed by their customers, 

As dcscribed hC1"c;u, product CQIItrols which are designed to prevcllt risk-based undcrwriting and 

rating reduce accuracy and cflieiency of risk classification- Ihe central purpose of insurancc. 

This distorts the market in unintended ways-haJTning rather than helping consulllcrs. 

12 
64 

Mi5pla .... d 1\ lark .. 1 Regula li{),,: T he C{)" 5<''1u''''''e! of a Federal ""'icy Ch<liC1' 

II is imponam 10 recognize thai boil! the substamive challenges crealed by Slale regulation and 

the slruclUral challenges facing Ihe existing regulatory S)"SICIl! arc also practical consequCllces of 

the McCalTan.Ferguson Act. Specifically, McCarr:lI1·Ferguson's limited antilrust e~emption for 

the business of insurance l6 was intended to be, and remains, a Federal policy favoring, 

incenlivizing. and practically directing Ihe enactment of Slate price conlrob. 11 

However, it is crilical to nndcrsland Ihal Ihe pri~ controls which resulted from / .... cCalTan. 

Ferguson w<:re price floors scrvillg as a proxy for solvency regulaliOIl. by disablillg compelition. 

al'oiding rating wars, and ensuring price adequacy. As Senator Ferguson explained, "we cannot 

have open competition ill fi .~i ng rales on insurance. Jfwe do. we shan have chaos. 'Inere will be 

failures, and failures alwa}"S follow 10sses.

NII 

The elllire ralionale for rale ...:gulalioll ...:~\s 011 Ihe premise thal lhe markel is liOn· competitive. 

"hich wa~ Ihe .. ase ill the first half of the 20'h century. As the 8l1p...:me Court explained : ""We 

may ventnre to observe thai Ihe price ofinsllrancc is not fixed 01'~'T the counlers of the companies 

by what Adam Smilh calls the higglillg of thc martel, but ... has led 10 Ihe assertion Ihal Ihe 

business of insurance is of monopolistic character. NI9 Lack of ruinous competition was desi...:d 

by Ihe anthors ofMcCarran·Ferguson in 19.\5. 

Today, thc insurance market has been transfonned. Solvency is regulated by sophisticalcd 

financial tools, not by disabling price competition. And ont~ market side, consumer.; acti\'dy 

shop for price, and the most mthless regulator of ll -(:oll1petition-dri\,~>g prices down whe...: 

nOl prevented from doing so by misplaced regulation. 

Under McCarrIDI_Ferguson the states also impose other restrictions on risk-based classification, 

grafting social j udgments into unfair discrimination laws, interfering with the basic rule thai, 

other than the consensus protected classes of race, n~tional origin, and religion, actuarinlly sound 

risk factors are C<;[uitable. 

The IrOOilioTl<11 rule is simple: ~[nc imcl1ded result of Ihe [underwriting and fming] process is 

that persons of substantially the same risk will be grouped togelher. paying the same premiums. 

16 Su 15 US.c. 1012(b). declaring tml!he Sherman, Clayron, and FTC Acts arc · appllcabte 10 !he bu<iness or 

insw=. only "10 !he .Xle", thai. .""h business is not r<gul8led by SWe 18,.. " 

17 S« Sp<n<Xr L. KImball .nd Ronald N Boyce. n..- Ad.?qullC)' of $10'" '''''''roIft:< RUle Regulation: 1he 

McCarrwt·Fe'Xusan Act in Historical Perspecrrvo, 56 Mich. L. Rev . 545. s-66 (1957.58) (·Tho hlSlOIical 

<:OntnbuhOl1 o[tho McQ1rran Act occm. to be !he f(lmlul8lion of a federal pubhc pohcy thai. ..... 1 regut.toon of 

II'ISIIIWJce rale making aim. sta~ IcvellS preferable." ): John S Hanson <I ~ ManilOring Competilian: II Aleans 

of Reguloting IlH Prope<,/!; and [jaMi/)' l ...... ronN Bus;ne:u 22Q.221 (NAle 19N) ("Under 1hc condnions 

«tabli$hed by S..;. 2(b) of the MoCanaro Act. both tho SIa~$ ar>:llho ~Ir)' had a communllY of ;ot .. e$! 10 

move expo"'li","",l)" 10 develap otaIe [""e] regulatioo. .). 

1191 Coni- Roc. 1481 (1945). 

"Otrm""Alb"""" ,. u ... ;. 233 US. 389(1914). 

13 
65 

aoo will not be subsidizing insureds who present a significantly grealcr hazard. "10 Bul by 

combining stale sovereignly with a public policy cncouraging eSlreme control over the insurance 

product. McCafTan Ferguson has cnded up lagging behind the markct, which has transfonned 

from collusive to competitive since 1945. 

Insurance regulation under McCarTan-Ferguson threatens 10 tum insurance companies into 

something that they are not-vesscls of social policy rather than "the mere machinery by which 

the inevitable losses ... are distributed .• 11 Actuarially based risk ciassification-llnd potClnially 

canier solvency- suffers as a result. Thus, a full understanding of all of the ramifications of the 

policy choic.!s in McCarran-Ferguson- not just the primacy of st:lIe regulalion, but Ihe codified 

preference for a particular kind of regulation (severt: controls over Ihe product which are 

fundamClltall y mismmched to the market 66 years latcr)-soould represent the starting point of a 

statutorily mandated sludy on how 10 modernize and improve Ihe system of rcgulation 

J>rinci pll."$ for Insurance Refom' 

As Ihis report d"1ails, thc esisting insurance r"gulalory syslem is Ihe product of an OUj(bted 

Federal policy choice_ a choice thai (:Tcated both structural and substantive chaUcngesthat limit 

competition. slifle innovation, and ullimalely pr~I'ent consumers from realizing the full benefits 

of this powerful economic drivcr. Just as Congn.-ss crealed Ihc present system in response to the 

challen ges of Ihe time, Congress has the authority and dUly 10 modemi ze the regulatory system 

10 meet the challenges of the 21 " cenlury global economy. 

Al]\,I would be remiss if, aft..,. de scribing why the existing insurance rcgulatory system is 

inciTeClivc, it did nOl providc its vision of a framew<.>rl:. for a robust insurance sector. As history 

has shown much of the illSUral1<:e regulatory debate to date (which has foc nsed on whether 

federal or stale agencies should regulate) has nOl bc;:n productive. AIM Cllcourages the 

Commillee to consider Ihese fundameuta] principles in assessing and devdoping a modem 

insurance regulalory regime: 

EfTffti .... Regulation Should Emphash:e Sound Risk ;\Ian agcmffit, Sol .... l1cy, and Hnancial 

Stability 

The primary objective of insurance regulation is to ensure solvency. Effective solvency 

regulation protects consumers and insurer.; by assuring thai con'panies are able to pay their 

claims and provides the confidence to individuals. businesses. and communilies to invesl. crcale 

wealth, and promotc economic grOlltll. 

EfT« li" e Rcgulation Shou ld Protect the COlls umt'r 

Insurance regulation should ensure COIIsumC1"S are Ireated fairl y in all insuranC<ltra'L,aclions. In 

addilion to emphasizing insurer solvency, which is the ultimate consumer prolection, robust 

'" Li!./ru. AWn afM=hwt/1$ ' . Commis$i(mtro!I", .. 403 />.1".". 410{l988) 

II GmnanAlliance". Le"'$233 US. 389(1914). 

14 
66 

consumcr protection re<luircs the cffectivc ol'ersigln of illSurcrs' sin~'Ss practices including 

marketing, underwriting, and claims payments to CTlSUrc complianC1! with consumer protcction 

laws_ 

EfTw fi w Rl'gnl<lfion Should ro ~ Ctlmpetith-e M<lr et ~ 

Competitive markets provide consumers with a broader array of products and s~TYiccs. 

Insurancc rcgnlruion should promote competition fo encourage market dri"Cll premium rates, to 

aecommodatc ilmo,·ation. and the de livery of neW products_ Prices ";01110t be escessi,'e in a 

CQlnpctitive market. lllis include'S the elimill ation of unnecessary baniers to market entry and 

exil. ~Iarket exit restrictions an: every bit as much of a barrier to entry as direct C~ lt ry 

restrictions. 

J<;fTecti ... , Regulation Should Ik Unifo" n 

Insurance compauies should be subjcct to nruioual1y cousistent niles aud 101ifonn standards 

govemiug policy fomlS and rate adequacy, icc~l~ing. market colKluct, and soll'ency (I,·e,."ight in 

order '0 maintain strong competilive markets and thc emcient dc1ivcry of products to consumers. 

N'ltional standards cannot be established as a floor. allowing states to enact varying standards. 

Also, regulation should be administered emdently and uniformly consiste11l with applicable 

laws _ 

EfTw fi w Rl'gnl,.fion Should Rl'rogni1.e fh l' Infl'nlatimml Natu rt' of fhl' Ma rkl'tplm:e 

IIISU nllll:e n:gulaliolls "HlSt ensure a oolllpcliti,-c posi' ion for the Unitc-u States ill the 

intenlational marketplace. They must encourag" foreign in\''''ltmenL while ellSuring domestic 

companies arc able to compete abroad. so that consmners can benefit from more and affordable 

produet choices. 

J<;fTecti,·" R"gula tion Should I'romote "roduet Inno,·ation 

Insurance regulation should facilitat e innovation by encouraging ;ns"r~'T1i 10 dewlop and 

introducc ncw products thm meet the evoh·ing needs of consumers. 

J<;fTecti,·" R"gula tion Should b .. T rans!"l,-,,"t 

Transparency is crit;calto a conlpetitive markel, Insurance ~gulru ons should be devclop<...-:l in 

an open environment and made easily available to the public_ Regul atory objccti\"~s should be 

clearly defined and dlcctively communicated to all stakeholders. In addition, proposed 

regulations should be giwn sufficient time for interested partie'S to COOllllCnt and those conlments 

should rec";,'e sufIicicnt justification for their adoption or rejection. 

II 
67 

J.:lTocti..., Regulation Should I'ro,"ide J.:xdu$;" e I'rud ential Rrgull,tion 

Insurance providers should be subject to the exclusive domain of one regulatory body or system. 

Insurance modernization should seek to eliminate duplicative or redundant regulatioll by 

multiple regulatory bodies" As a r~'$ult of the Dodd-Frank Act, this is becoming an increasing 

problem with the emergence of enhanced Federal regulation in addition to state regulation of 

illsurers and insurance holding companies. 

EITf<" th'e Rtgula tlon Should lit Tllrgttrd m,d Proportional 10 the Ptl"("e;'"ed Problem Or 

Risk 

Effective insurance regul ation should balance the costs and benefits to consumers and bllSinesses 

of any regulatory action, As such, effective regul ation should be nalTowly focused on the 

perceived problem or risk and should be designed to minimize unintended consequences that 

could result from implementation, 

J.:lTocli ... , R~gul li n Should Ue Applied Uninl"5ally To All L1 ncs of Insumnee 

Insurance mod<:n,ization should apply to all lines of life, property/casualty i"surance, and 

reinsurance aoo should accommodate all corporale forms (i.e., stock, mutual. risk-exchange, and 

fraternal companies). This would avoid additional operational costs and inefficiencies for multiline i"surers, and provide thai all i"snrru,ce consumers have access to a broad alTaY of producl 

choices at appropriate prices. 

Thank )'on fOT holding this important hear;"g and Ihe opportu"it)' to commenl. Ail.l looks 

forward 10 worki"g with the Cornrnince to infom' its efforts 10 modernize Ihe insnrance 

regulatory system 10 oclter, scn'e CQllsumers, increase competition, and drive economic 

;m'<!Slrnenl. 

16 
68 

e

·· .... ···· 

{ IRI ': . . '. , '. " ... 

I INSUREDREl1REMENTIHSTITlITE J 

Senate Committee on Banking, House, and Urban Affairs 

Subcommittee on Securities, Insurance, and Investment 

Hearing on UStreamlining Regulation, Improving Consumer Protection and 

Increasing Competition in Insurance MarketsU 

Testimonv of Catherine Weatherford 

President and CEO, Insured Retirement Institute 

March 19, 2013 
69 

INTROOUCTION AND SUMMARY OFTESTIMOHEY 

Chairm~n Tester, Ranking Member Johanns and Membersof the Sulx:ommittee, my namt is 

Cathy Weattltrford and I am President and CEO 01 tht Insured Retirement Institute (IRI). I am pleased 

to provide our perspective on ttlt National Associa tion of Registered Agents and Broke r5 Reform Act of 

20ll (NAMB II). I commend Chairman Tester, Ranking Member Johanns, and Co·Sponsors for 

introducing Ihis important piece of legislation and holding this tltaring, and I appreciate the opportunity 

to provide this testimony to the Subcommittee. 

IRI is the only national trade association that represents theentire supply chain for the insured 

retirement strattgies industry. Wt have Over SOO member companies, including major insurance 

companies like TIAA-CREF, Prudenlialand Met Life, banks like Wells Fargo and JPMorgan Chase, brokerdeale<. like Morgan Stanley, Merrill tynch, lPl Financial, Raymond James and Edward Jones, and asset 

management companies like Alliance8ernstein, Black Rock, and PIMCO. Our member companies 

represent more than 97% of annuity assets, and indude the top 15 distributors ranked by assets under 

management. Our members ~r t represented by mOre than 150,000 registered Ii",""cial advisors who 

serve clients in multiple states and communities aeroS'> the country, and therefore, IRI brings a 

perspective from Main Street America to the Congress today. 

During my tenure as CEO of the National Association of Insura nce Commissioners prior to 

be<:oming President and CEOol tht Insured Retirement Institute, we first developed the NAIC Producer 

Oalabase (POB) and ultim~tely the National Insurance Producer Registry (NIPR), which nOw processes 

resident and non e~nt licenses and company appointments nationally and facilitates slate 

compliance with tht NAMB prOVisions contained in the Gramm Leach Bliley Act ("GlBA"). As a result, I 
70 

T .... timOfly of c.theri"" Wea therfo<d March 19, 2013 

~r>OW firSI h~"" Ihe curr ntch~lIeng .... of the mulli·st~Ie insur~nce ",oduce. licensingsyslem. My 

testimony loday will addr ..... Ihrl!<!! (3) key points: 

1. AmeriurlS lod~y face unpre<:edenteoj re tirement income challenges as few COnSumerS ~r e 

cove reoj by traditional pension plans and most are likely to live longer than prior 

generatiOfls. In.ured retirement lifelime income products pl~y a vital and unique role in 

helping cOflsumers protecl .. gainst t he risk of outliving Iheir ssets; 

2. Cuffenl 'egulalory requirements are viewed a s" map, impediment 10 finan.cialadvio;o,s' 

ability to sell lifetime income products to a COnSUmer populatiOflIoo~ing lor gu.ranteed 

lifelime income during .elirement; and 

3. A fi •• t st"" to e ..... the regulatory burdens i. legislation to create the NatiOflal Associationo! 

Regi.tered Agl:flts and Brokers (NARAB II), whkh will benefit consume., . nd financi.1 

~dvio;o .. by crea ting an eHident and cost·effective one-.Iop, n. ion 1 insur.n.ce licensing 

proc .... s. 

Ame ric.l'. ti~m nt In.come Crisi., and the Rol e o l ln.ure-d Retireme nt Products 

The shift from defined be""fi t to defined contribution plans, longer life span., and the . i.ing 

costs of health ure a re among the ch.lleng .... that will put .igni/iunt savings . nd retirement income 

burdens on the .houlders of individual consumers, in partkul •• middle-in.come AmeriClins. According 10 

the Employee Benefits Research Institute '. 2011 Retirement Confidence Survey, nearly hal! of the 

Boorne .... ove< 35 million Ame rkarlS, ar e -al risk" for inadequale retireme nt income, not having 

suHicie nt guarant~ life time income. According to the Mortalitv Table from Socie ty of Actuaries. " 6S-

)'1!ar-old ma le h •• a 30 percent chance of living to 90. a 6S-yea.""ld fema le ha. a 42 percent chance. A 

couple age 6S, has a 60 percent chance olone or both being .I~ at 90. These re.liti .... underscore the 

c. itic.1 import. nee of a regulatory e nvironment that provide« consumers access to products that meet 

, 
71 

Testimony of C~ther;"" We~therford JCh 19. 2013 

the ir ""ed to prote<:t against the risk o f outliving their assets. also kt>Own as longevity risk. InSurance 

companies. distribution partne ... ~nd fin~nc;i~1 ~dvisots who work with clients in multiple st~tes ~'ros. 

the country ~r e the only providers o f guaranteed life time income produ<:ts. 

legis!;,tive and Regulatory Obstacle. to Con.umer Acce •• to lifetime Income Products 

The regulatory environments in which insurers. distribution firms and financial advisorsoperate 

have a significa nt impact on the indus"Vs ability to meet the need. of America n citizens. Based on the 

results of IRI·. study releaoed this week regarding an"",ities and the , egulatory environment. it i.clear 

that financial adltiso<'l view nate and fede ral regulation •• s a majo< impedime nt to 1m. sale of annuit;"'. 

Complying with mand~t d requirements .train. time and resources, and ""g~tively affects con.um .... • 

e><per >ences by disru pting and elonga ting the sales process. State insurance licensing regulations ar e 

particularly burdensome. The IRI research found that most financial advisors, S3 percent, are licensed 

in multiple .tates, and the redundant processes are viewed a. a burden to financial advisors. According 

to IRl"s findings, the avera ge finandal advisor spend. ""arly 22 hours per year to complete state 

insurance conti nuing eduu tion requirements ~nd licensins renewals to sell annuities--compared to 

spending just under 16 hours to complete federal con tinuing eduution requirements and licensing 

renewals to sell all other types of investment products. tn addition, seven in 10 broke r-dealers believe 

that Slale insurance licensing un be ambiguous 0< poorly defined, and e ight in 10 broke r-de al",s 

believe that state insurance egul~lions are duplicative. St!e Attachme nt for the fulllRI Report titled, 

"Sroke ,jOeale rs. Financial Advisors and Oie nts: Annuities and 11>e Regulatory Environme nt.· 

NARAB II Would Be",,/it Consumers and FifYndal Advisors 

NARAB II would establish a o",,·.toP. nationallia:nsing ciea.inghouse for financial professionals 

and distribution firm' operating in multiple states. ~ would enable financial profes,ionals who have 

passed background check. in their home .tate to apply for NARAB membership. allowing them to 

, 
72 

Testimony of Catherine Wea therford M~rch 19, 2013 

eond",,! bu.ines. in other juris.dktion. and by.,. .. the burde n of duplic.ativc . tote lice n.ing 

r~uir nts a.:lM' multiple ",ates. Thi,eommon-",n<e legislation will promote the e fficient and costeffective Ikensing of hundreds of th .... ""nds of financial adlli", .. aerMS the country through an 

improved and .treamlined licensing Pfocess, while maintaining important consume r protection. and 

retaining authority lor the .tates to regulate the marketplace . 

• 
73 

TMtimony 01 Catherine Weathe.lo.d Ma.ch 19, 2013 

TBTIMONY OF CATHERINE WEAntERFORO 

Introduction ~nd B~ck&round 

A. you m~y know, I have mo.e than 30 vea.sof "'gulato.y e,p.,,",nce, induding"...e. half of 

that time as an elecled Insmance Commissioner ar.d Insufance !)epaflmenl staH Iof the Sta teof 

Oklahoma. P.io. to joining IRI, I served~. CfOol the N~tional As.ociation 01 Insurance Commi.sione,s 

fu.thest ""tent possible, insu.ance .egulatory p.ocesses to help agents and financial a<lvi",rs ~r.d to 

inc.ea se consumer acee .. to p.oducts they need. A. a pa.tof that effo.t, du.ingmy tenure at the NAIC, 

we first deve loped the NA IC P.oduce. Oatawoe (1'08) and ultimately Ihe NaHonallnsu rance Producer 

Regi.try (NIPR), which nowp.ocesses 'Mident ~nd non-• .,.ident licensing and company ~ppointments 

nationally and facil itatesSlale compliance with the NAMB proviSOons contained in the Gramm Leach 

Rlil",! Ad (<<"I RA ) A, a ""<111, I knnw fi"th.nd tho! ~"m.nl ~h.lI .. nB'" nl mulli _,bl .. in""."" .. 

producer licensing. 

IRI exists to ~i orously promote consume. confidence in the ~alue and ~iability ofinsu.ed 

retiremenl st.ategies, bringing logelhe. Ihe intef"'ts 01 the indust.y, financial.dviso.s a nd COnSume.S 

under one umb.ella. Our mi"ion is to: e nmurage indunry adhe.e nce to highMt e thical p.indpl.,.; 

promote a better unde.slanding ol the Insured re tiremenl value prol'O"ition; develop and promote besl 

pnctice standa.ds to imp."...e ~a lue delive.y; and advocate befo.e public policy make •• on critical i.su.,. 

aHeeting insu.ed . etir e"",nt strategie s and the consume rs that . e ly on oor members' guarantees. IRI is 

the only national trade associ~tion that .epresents the enti", supplych"in for the insu.ed retirement 

suategies industry. We have over 500member companies, Including majo< insu.ance companie< like 

TIAA.(RH, Prudential and Me llife, wnk$like Wells Fargo and JPMorgan Chase, broker-dealers like 

Morgan Stanley, IIoI<!ffililynch, lPL Financial, Raymond b"",sand Edwa.d jon.,._ and as ... t manageme nl 

, 
74 

T eslimony of Catherine We atherlotd March 19, 2013 

companies like AllianceBernste in, BlackRock and PIMCO. Our member companies represent more than 

97% of annuity a ssets, a nd include the top 15 distributor. <anked by assets under ~na eme t. We 

ha ve more tha n 1509(X) registe red fina ncia l advisors across the country, and the refore, we bdng a 

~rspecl;" e from Main 5"...,1 Ame rica 10 the Congresslodav. 

After my m'ny t onve..salions with lhese financial ;tdviso .. , I have developed a deep ""I of 

appreciation for the long·standing re l.tionships advi<Ots ha"" with their cI~n" and friends- I.sting ten. 

twenty or ""en forty yea ... Our financial advisors consider that relationship 10 be a sacred Ir ... t .nd.s 

such, they u e intenselv committed to helping their cI nl.'i re ach their retirement income objectives, 

which involves a serie s of Ihe most significant fin.rn:i.1 decisions a ~,son e ve, mak es ove, a ""'V long 

lifetime. As a result, these financial.dvisors want to wntinue providing ser;loes to the i. clients in the 

mOSI eHide nt manne r possible when they move 10 a new "ale. 

America', Retirementlncome Crisl, a nd the Role of Insured Retirement Products 

Seventy·nine million Baby 8oome .. today faC! immediate and unprecedented retirement 

income cll.llenges- challe nges tll.t simplV did not ex .. t in e.rlier gener.tion •. Individuals .re living 

longer than those of earlier senera tions. Ou, researcll has shown th.t, between 20lXJ and 2010, tile 

number of 6Q.64 year ok! American. h .. increased by more th.n 500%, from 10.5 million to more than 

16.2 million. According to the Morlality Tables from Socie ty of Actua,ies, a 65 ~ar"'ld male lIa. a 30 

~rcent chance of I;"ing to 90, a 6S·Y" •• ..,ld fem . ... h.s. 42 percentcllance. Acouple age 65, h •• a 60 

~,cent chance of one or both being ali"" a t 90. Given ~ople .re living longe r. savings must last 

througll re tirements th.t can.pan 20-30vea .. or more, 

A. tile population in the United States ages and more Boomers retire or ap-p,o;,cll retireme nt, 

conce ,ns a boul fina ncial prepa ,edness "'main lIigll, a r.c:ording to industry ,eports. The combination of 

6 
75 

T~timonv 01 Catherine Weathe rford March 19, 2013 

longer life spans and a declining birth rate mean the ratio olworkers to retire~will continue to decline, 

increasing pr~sur on public and private "",Mions sy<lems, and he alth car e sy<lems. 

According to the Empl"'f"'" Benefits Research Institute's 2011 Retirement Confidence Suflfey, 

nearly half of the Boomers, ~r 35 million Arnericans, are "al risk" lor inadequale retirement income, 

not havingsuffident guaranteed lifetime income. Just . s concerning, nearly half (45%) of Generation X 

(age. 36·45) a re "a t risk" fo< inadequa te retirement income. 

Compared to prior genera tions, Boome r!; and Generation Xe .. bear mOre of the risk and 

r~pon.ibility lor retirement savings and income gen .... ation. Traditional defined benefit (DB) "",nsion 

plans in the private sector are increasingly being IrOlen or terminated; virtually aU replacement and ""w 

plans are defined <:<>ntribution (OC) plans, such as 401k plans. Historically low "",rsona lsavings rates, 

coupled with gene ral insuffic~ncy of DC plan savings, mean many ti re~ will have to consider 

alternative source, of retirement income, such as working in retirement and tapping into home equity. 

The shift from DB to OC plans has shifted much of th e burden for retirementsec ... ity from 

employers to individuals. Employees have to make decisions abou t whether to participa te in a OC plan, 

how much to salle, and how to inve". At retirement, participants have to figure OtIt how to make the ir 

n~t egg last for life - while managing the risks that go along with that 

Annuities are the only financial instruments ava ilable toda y, other than Sodal Security and 

"",nsions, that guarantee a lifetime stream of income during retir ement. With the pro"",r use of annuity 

p<oducts and other retirement savings vehicles, re tirees Un be assured they willoot outlive their assets 

and benefit significantly by having the ability to Increase the ir current income. 

Consumers therelore ""ed to access to these p<oducts through financial adviSOr!; who must be 

licensed in every ".Ie where their clients reside. However, redundant and burdensome regulations 

, 
76 

Testimony 01 Catherine Weatherlofd March 19. 2013 

im~ financial advisors' willingness and ability to sell these products. the reby de<:reasing consumer 

access to the ... need<!d ptoducts. 

leilslal!Y~ and R~ulatory QbsU(~s to Consum~r Access to Ufetl ~ tnc:9me Products 

Regulaloryobst.cies continue to inhibit Americ.ons· a ccess 10 much needed linanc:ial advice a nd 

li,,"time income products. IRI', research show< that working with a ~n.nc:ial advisor greatly incr ea"", 

re tirement confidence. Among Ilaby Boomers who consulted with a ~nanc:ial advisor. 42.8% afe 

e.lfemely or very conlide nt. compared with 32.3% 01 those whodid nol. Among individuals in 

Ge ne<ation)( who consulted a Iinancial .dvisor. 47.6% .re e.tre_ly Or very con~dent compafe d with 

28.9% o f those who did I>Ot. 

IRt rece ntly conducted .. research study ... part of an initiative to identify re gulatory barriers that 

Impede financia l ptofessiona ls' ability a nd willingness to ... 11 lifetime income products. This sludy. 

re leased ttlis week. found that Iinanda l profes.ional. - g3% 01 whom are licensed in multiple .tates -

view the state Insurance licensing proc .... as a regulatory obstacle that may impede the ... Ie of 

retirement Income products. 

Nearlv hall of lhe ~nancial prof .... ional.we .urveyed indic.oled thatlhey would like tosell more 

annuiti .... but do not beause of time requirements and resource constra ints. Approximately 80% of 

these advisor. beli ..... e it takes considerable more time to ... 11 a nnuities compared toother investment 

prodUCts. On average. advisors with insura .-.ce Iil:enses in multiple st.t ... already spend mOre than 20 

hour. per year renewing and maint.ining the" Il<;en ..... and almost 35 hours comple ting required 

productlfaining. 

The burden. associaled with multi-.tate licensing are wid"'p'ead. Nearly 85% 01 all adviSOl"s are 

liI;e nsed in two to ten .tates. furthermore. 3O% 0 f a dvisors in ~rm. with 10 to 499 adviSOl"S. and 47% of 

, 
77 

T esllmony of C~therine We~lherfo<d M~rch 19, 2013 

~dvlsors In firm. with SOD Or more ~dvisors, are jl~ sed in 21 or more .tlles. II .hould ~Om ~. no 

surpri ... Ihat eight in 10 financial prolenional ... y .tate Insurance regulation. are duplicative. See 

Attl~hment for the fuiliRI Report titled, Brol<er/Oe~len;, finan·dal Advison;~nd Olents: Annuities ~nd 

The Regulatory Environment. " 

Benefits of NARAB II forConsumen; ~nd Fln.;onci,,1 Advisors 

AS a first step toward e.sing these impedi~nts, we believe Congres. should enact NARAB II, 

whi~h would create the National Association of Registered Agents and Broke rs (NARAB), a one ·stop 

n~tlon~llicensing clearinghou ... for finandal p,ofessiOflalsoper~ting In multiple states. TIme .pent on 

redundant licensing requirements is time not spent servldng clients and focusing on their needs. This 

biparti .. n, common· ... n ... legislation would e a ... these unnec:es .. ry burdens by promoting the e fficienl 

and cost..,tfectl"" Ike nsing of hundreds of thou .. nds of Hna""ial adviso,. across the country, while 

malntalninB Important cOnsume r protections. IRI urges ConlVes. to .upport and advance this legislation 

to establish a streamlined licensing p<ocess, while retaining states' iluthority to regulate the 

marke tplace. 

By way 01 background, the Gramm·Leach·Bliley Act, also known as the Financial Services 

Modernization Act of 1999 (GLBA), cOfltain. provi.ion. fequirin g stlte insurance regulator. to meet 

federal statutory requirements af',""ling insurance agent licensing, and provides for eslablishinga new 

organization na~d Ihe National Anociation 01 ~gi.tered Agents and Broke,. (NARAB) if the .Iale. fail 

to achie".e the goals ... t forth in the Act. The Act provided 1W00ptions for the States to avoid creation 

of a new NAMB organizalion: (1) recognize and accept the licen.ing p<ocedures of othe r slates on a 

r,""iprocal ba.is so agents will not be required to meet different standard. in each 'I~te, Or (2) adopt 

uniform laws and regulations regarding non· resident agent licensing. In August 2002, the NAIC 

, 
78 

Testimony 01 Catherine We.therlord March 19, 2013 

determined that it had met the non-resident produ<er licensing reciprocity requirement and, as a result, 

NARABwas never cre.ted. 

The NAIC has e.pended an e nOfmous amount 01 time, 'esources and e llorton the issue 01 agent 

licen,ing and has made progress in many arus and with many states with regard 10 re ciprocity and 

unilormity in agenllicensing. Howeve', be<ause 01 conlinuing chal!enges and sttu<lUralb,a"iers allhe 

stale level, p;lssing NARAB II is the only way 10 achieve the gMI 01 a one .. lop. ""tiona llicensing.yslem 

thai bolh Ihe indu.try and regulalOfs have envisioned and want 

All stakeholders, including stale regulalors, have .greed Ihal unilormity and efficiency, nol 

r<ecip<ocity, were lhe ultimale goal 01 the <ilBA'. NAM8 provisions. Despite commendable locus and 

good faith ellotts, neithe, the goal 01 r,""iprodty nor unilotmity h .. ~n ,e ached. Some ollhe 

r<ecip<ocity and uniformity barrie r. include: additional ~ngerprinting requirements; surplus lines bond 

requirements; certain appointment ,eQui,ements 10, agents and business entity (agencies); duplicative 

document 'equirements; underlying lile license requirements prio< 10 lhe issuance of a variable life 

license; duplicative age veri~~ tion ., inoonsistent terms of licensure lot residents and non -residents; 

and Itustacoount requirements, allol ""'ieh Ihe NAICacl<no.Medges as being inoonSistent wilh the GlBA 

r,""ip<ocity requirements. 

In addition to these conce rns, while seemingly minor when viewed alone, operational 

inefficiencies in multiple states compound to crea le verysignificanl burdens on licensees, as wella. 

delays Ihal pullicensees in the position of nOI being able to write new business lor their clients. A 

signifICant number 01 stales are simply underslaffed bec.iuse of budget conslraints or have diHicul1 

licensing .equirements Ihat substanlially delay the initial and ,enew.ollieensins process. Corporale 

license affilialionsstill vary sreally amons the "ates thaI require them. Manual p;lper processes. which 

require p;lper applications and checks and ulilile pilper renewal nOlifocaticms, versuS online proces=, 
79 

Testimony of C~therine We~therford M~rch 19, 2013 

greatlv slow< and complicates the licensing process, especiallv fo, national b,oker-Male" and bank« 

that manage this pro",s, in all SO stales. 

NAMB II would amend the GL8A and establish NARA8 to se~ as a clearinghouse for financial 

advisors who wish to do insurance bltSiness in multiple states. The bill prese",,,,, the consume, 

protection and enforcement pow ..... of stat"" while simplifyingmultistate li",",ing for produ ...... s. While 

we support continued work by the NAIC~nd the .tat"" to re~ch this goal, we see little hope of 

ove,coming structu,al barriers in the states, d""pite mo, ethan 10 years of valiant e fforts. As. a ,,,,,ult, 

we bel;"~ adoption of NAMB II by the Cong,ess is neo:essary to expc<iite and aSSure the goa l of an 

e fficien t national insurance licen.ing system. 

ConclltSlon 

Thank you again fo, the oppo<tunity to p,,,,,1de this testimony. I hope you will find it u<elul. IRI 

would wekome the opportunity to work with Congr"", and the Administration in the future a, you 

consicier additionallegi.lati ..... and ,egulatory chang"" to enhance ,egulatory e fficiencies and to help all 

Amerian. attain ,etirement financial <ecurity. 

Attachment: IRI Research Report titled. MBroke,/Oeale.s. Financi.1 AdviSOrs and Clienl$: Annuiti"" and 

The Regu latory Environment M 

n 
80 
81 
82 

[

CONSUMER DEMAND ] 

FOR LIFETIME INCOME 

Consumer demand for lifetime income wntinues to rise. The Insured Retirement Institute's study 

(onductro by Cogent Research in 1012 found that 71% of finaocial advisors reported having a client 

request to purchase an annuity in the past year, and 84% of annuity producers reported having more 

client discussion fOOlsed on retirement income planning. In fact IRI research shows that Boomers who 

own annuities have a higher confideoce 

in retirement expe<lations, with 9 out 

of 10 believing they are doing a good job 

preparing financially for retirement. 

Increasing demand for lifetime income 

stems from the unprecedented retirement 

income challenges fadng consumers today 

including the shift: from defined benefit 

71% of financial advisors reported 

having a client request to purchase 

an annuity in the past year, and 84% 

of annuity producers reported having 

more client discussion focused on 

retirement income planning. 

pension plans to defined contribution plans as well as longer life spans. As recent as 1985, there 

were about 114,0CX) private-sector defined benefit plans in the United States, according the Pension 

Benefit Guaranty Corporation. I n 2012, there were less than 26,0CX) defined benefit plans. At the same, 

Americans continue to live longer. In 2011, a person aged 65 (ould expect to live six years longer 

compared to their cohO/ts in 1940. Research shows that for a 65 year old married couple, there is a 

nearly 60 percent chance one will live to age 90; and still a nearly 30 percent (han(e one spouse will 

iiV{' to age 95. 

As a source of lifetime income, annuities have been identified as a means to address numerous risks 

facing retirees in this new retirement paradigm. Meeting this demand and addressing the retirement 

income challenges in America will require the broker-dealer and financial advisor community to rise 

to the occasion. As a step in reducing barriers to attaining lifetime income, this study is intended to 

identify the legislatiV{' and regulatory obstacles that impede broker-dealers' ability and financial 

advisors'wi lIingness to sell lifetime income products to a consumer population looking fOi guaranteed 

lifetime income. 
83 

[ TIME AND RESOURCE OBSTACLES ] 

46% 

Nearly half of broker-dealers, 46%, say 

they would like to sell more annuities. Yet, 

lime requirements and resourcE' constraints 

appear to be a hurdle toward this outcome. 

83% of broker-dealers and 76% of advisors 

believe that it takes (Ons derab~ more time and 

effort 10sell an annu ity compared toa mutual fund. 

HOURS PER YEAR THE AVERAGE ADVISOR SPENDS ... " 

-- - --

55.5 ~o:~~ ll A~ uit es I 

_ ... in state or federal 

mandated produ(ttraining 

_ ... completing continuing 

edlKation requirements 

and renewing licenses 

I :;; r 
84 

[ STATE REGULATIONS AND LICENSING ] 

tiiittttti 

Eight in 10 broker-dealers belie~ thatstaleinluraoce regulatioos "reduplicative. 

This study shows that 8]% of In finns with sao or more In firms with 10 to 499 advisors. 

advisors ar~ lic~ns~ in two finalKial advtsoi"s, 47% have ] 0% of advisors Mye licenses 

to 10 statfS. licenses in 21 ormor!! states. inl1 ormore stah!s. 

ttifitfttt 

Seven in 10 broker-dealers believe that state irrsurance licen~f)] can be ambiguous or 

poorly defined. In addition. 75% of broker-dealers stated that it is difficult to slay amen! with nate 

maooated annuity training requiremenlS. 
85 

[

REGULATORY BARRIERS 

IMPACTING CONSUMERS ] 

State regulations have been found to have a slightly greater nega!i\'{! impact on financial 

advisors than federal regulations- both of which (reate disruptions to bllSiness and negatively 

affea clients. In fiKt federal/Slate regulations were loom! to be disruptive to the overall annuity sales 

process, Spedfical~, broker-dealer firms stated that regulations make it more difficult to replace or 

exchange one annuity to( aoother, lengthen the turnaround time to complete an annuity sale, and 

delay the speed of bringing fl€W products to market--potential~ affecting <onsumer choice and the 

ability of firms 10 appropriately cater their proouc! offerings to meet cornumers' needs. 

{

Wl6 olbm .. -de.l. firms ~"'Y'd dt~} state regulatioos and 76% dted federal 

regulatklns as having a negatr.re effe<t on 

!heedS!' of conductir;;! annuity sak>s. 

{

Nearly h.Jlf ofbmker.; belieYe trnt regulaticx"6 are } 

toorumbeoolTK'. timerortsumirJg aoo redundant 

{ 

l8% 01 b""'-d", lol'" the} 

rosts of regulations outwe~h the 

benefits for clients ark! advisors. 

{

48% of ;m.isorsstatt>d that new ruSines5 rei€(lilns} 

and denials based on state reg u lalion requirements 

(aused the salt'S process to take longer lhan 

expected and had a fle9atill'! impact 00 the client. 
86 

[

CREATING EFFICIENCIES ] 

BENEFITING CLIENTS 

Americans tooay joKe unprecedented retirement irKOIll€ challenges as fewer consumers are COV€fed 

by traditional pension plallS and are likely to live 1000er than prior ger.erations. As a IOlm:e of lifetime 

income, annu ~ have been identified ~ a means to add ress numerous risks facing retirees in this 

new retirement paradigm. As a resul~ demand for lifetime irKome prodtIC!! has been increasing. 

Broker-dealers have expressed their willingness to iEll more lifetime income products during the next 

year to meet this irn:reasing demand. Yet regulatory obstacles remain. 

Both stale aod led era I regul a ~ons a Ie vie'Ned as a major i m ped i men t 10 the sale of a nn u i ties. Mol rdatl'd 

A first step to ease regulatory burdens: 

passilg Ieg~lation 10 mb~sh till! National 

Association of Registered Agents and 

Brokers-a onHtop, national lkfllsing 

clearinghouse for financial professionals 

operatilg in multiple states. 

requirements are cornidered to main 

time aoo resources to comply. State 

and ft'deral regulations are viewed 

as causing disruptions, negatively 

affecting dient experieoces, and 

elooga~ng the soles process. 

lI€gulatkrrs to maintajn state nsurarKe 

licenses are considered 10 be 

burdensome to finarKial advisOlS as 

the processes are reduooant and most financial advisors are li<ensro in mOl"e than one state. 

An initial mt step to ease rt'9u lalOly burdens woold be including passing It'9i~aOOn to establish the Natklnil 

AssoOatioo of Registered Agents aoo Brokers (NARAB}-a OOMIOp, natiooallic:eming dearifXJoolM! 

for financial professiooals operating in multiple states. Additiooal steps cook! then be taken to eliminate 

reduooant regulatioos. staooardiZl' regulati<:m aoo loons iKlOSS jurisdic\il}ffi, and reform rt'9ulattry 

overs~ht in a w~ that cootinues 10 support comprehensill'! ovmight and does not inadvertently affect 

the V3St m~ority of financial proles~onals woo are acting with the best interests of their dient n mioo. 

Creating these effidendes will enable financial adviwrs to best serve their dients across America as 

they consider retirement income options. 
87 

The Insured Retirement Institute (IRI) is a not-for-profit organization that 

for more than 20 years has been a mainstay of service, commitment and 

collaboration within tile insured retirement ind ustry. Today, IRI is considered 

to be the authoritative source of all things pertaining to annuities, insured 

retirement strategies and retirement planning.IRI proudly leads a national 

consu mer education coalition of nearly twenty organizations and is the only 

association that represents the entire supply chain of insured retirement 

strategies: Our members are the major insurers, asset managers, brokerdealers/distributors, and 150,COO financial professionals. IRI exists to 

vigorously promote consumer confidence in the value and viability of 

insured retirement strateg ies, bringing togetller tile interests of the industry, 

financial advisors and consumers under one umbrella. IRI's mission is to: 

encourage industry adllerence to highest ethical principles; promote better 

understanding of tile insured retirement value proposition; develop and 

promote best practice standards to improve value delivery; and advocate 

before public policymakers on critical issues affe<ting insured retirement 

stratt'9ies and the consumers that rely on their guarantees.