[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
IMPROVING INSURANCE FOR CONSUMERS--INCREASING UNIFORMITY AND EFFICIENCY
IN INSURANCE REGULATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
FINANCE AND HAZARDOUS MATERIALS
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JULY 20, 2000
__________
Serial No. 106-152
__________
Printed for the use of the Committee on Commerce
U.S. GOVERNMENT PRINTING OFFICE
65-908CC WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Finance and Hazardous Materials
MICHAEL G. OXLEY, Ohio, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana EDOLPHUS TOWNS, New York
Vice Chairman PETER DEUTSCH, Florida
PAUL E. GILLMOR, Ohio BART STUPAK, Michigan
JAMES C. GREENWOOD, Pennsylvania ELIOT L. ENGEL, New York
CHRISTOPHER COX, California DIANA DeGETTE, Colorado
STEVE LARGENT, Oklahoma THOMAS M. BARRETT, Wisconsin
BRIAN P. BILBRAY, California BILL LUTHER, Minnesota
GREG GANSKE, Iowa LOIS CAPPS, California
RICK LAZIO, New York EDWARD J. MARKEY, Massachusetts
JOHN SHIMKUS, Illinois RALPH M. HALL, Texas
HEATHER WILSON, New Mexico FRANK PALLONE, Jr., New Jersey
JOHN B. SHADEGG, Arizona BOBBY L. RUSH, Illinois
VITO FOSSELLA, New York JOHN D. DINGELL, Michigan,
ROY BLUNT, Missouri (Ex Officio)
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Breslin, Hon. Neil, Senator, State of New York............... 30
Nichols, Hon. George, Commissioner, Kentucky Department of
Insurance.................................................. 10
Williams, Julie L., First Senior Deputy Comptroller and Chief
Counsel, Office of the Comptroller of the Currency......... 23
(iii)
IMPROVING INSURANCE FOR CONSUMERS--INCREASING UNIFORMITY AND EFFICIENCY
IN INSURANCE REGULATION
----------
THURSDAY, JULY 20, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Finance and Hazardous Materials,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:51 a.m. in
room 2123, Rayburn House Office Building, Hon. Michael G. Oxley
(chairman) presiding.
Members present: Representatives Oxley, Gillmor, Ganske,
Shimkus, Towns, Barrett, Luther, and Dingell (ex officio).
Staff present: Robert Gordon, majority counsel; Yong Choe,
legislative clerk; and Bruce Gwinn, majority counsel.
Mr. Oxley. The subcommittee will come to order and the
Chair would recognize himself for an opening statement.
Today's hearing is on Improving Insurance for Consumers--
Increasing Uniformity and Efficiency in Insurance Regulation.
We are fortunate to have before us today three distinguished
witnesses: George Nichols, Kentucky Insurance Commissioner and
President of the National Association of Insurance
Commissioners; Julie Williams, First Senior Deputy Comptroller
and Chief Counsel of the Office of the Comptroller of the
Currency; and the Honorable Neil Breslin, State Senator for New
York, on behalf of the National Conference of Insurance
Legislators.
This committee has a long history of scrutinizing State
insurance regulation. Last term, as a part of the financial
modernization legislation, this Congress enacted a provision
called NARAB, the National Association of Registered Agents and
Brokers. Under our current system of State regulation, a broker
trying to sell insurance for a shipment of goods being
transported from Ohio to New York has to be licensed in every
State the vehicle passes through, with each State not only
imposing licensing fees, but also separate continuing education
requirements, registration requirements, and other potential
barriers such as fingerprinting requirements.
Since an insurance license is required for each line of
insurance sold, trying to meet each State requirement can be
extremely burdensome. NARAB would require a majority of the
States within 3 years to have uniform or reciprocal agent
licensing laws. If the States do not reach this goal, then a
self-regulating organization would be established to set
uniform national criteria for agent licensing.
NARAB was a critical first step toward uniformity in
insurance regulation, to bring lower prices and more
availability for consumers. Now we need to take the next step,
to establish more uniformity for insurance underwriting.
Under our current system of regulation, an insurer wanting
to provide a new product to consumers nationwide has to get the
product approved by 50 different State insurance commissioners.
This is a process that can take years. In addition to product
approval delays, insurers must undertake extensive rate filings
and policy form approvals which not only cause additional
delay, but often result in significantly reduced willingness by
insurers to provide coverage, leaving consumers in some areas
with few or no insurance companies willing to insure their
risks.
Our committee has received a proposal from one banking
insurance association to create an optional Federal charter for
insurers, based on the 140-year-old dual banking system. This
approach is not my first preference. But in the absence of
significant uniformity reforms at the State level, it is
something I believe Congress may consider in the future.
We have also received a statement of intent from the NAIC
signed by all the insurance commissioners regarding their
commitments to achieving uniformity. They have demonstrated now
that they can talk the talk; if they can also walk the walk,
then insurance consumers and producers can fully benefit from
uniformity without the need for a new Federal system.
There are several other approaches to achieving uniformity
which this committee will be considering. State Senator Breslin
will discuss the possibility of interstate compacts. Various
trade associations have suggested an approach similar to NARAB,
giving the States a certain period of time to achieve a level
of uniformity, with certain Federal uniform standards
established after that time if the States fail in their effort.
I am going to convene a second hearing in early September,
after the NAIC completes a series of task force meetings, to
assess what progress has been made and whether there is a
sufficient continuing commitment to uniformity. I hope that the
NAIC working groups will not only be able to come up with
specific proposals for achieving their goals, but to attach
specific timeframes to implement those proposals in the 50
States.
I have asked President Nichols to join us today to talk
about the NAIC's commitment to uniformity and what he thinks
his organization will be able to accomplish during his tenure.
I applaud the strong leadership he has shown to date, and look
forward to working with him, the NAIC, and the States, on any
Congressional reforms that are needed to facilitate and
strengthen the State-based system. New York State Senator Neil
Breslin will provide us with an additional State perspective,
and hopefully enlighten us as to what reforms and support
Congress can reasonably expect from the State legislatures.
I appreciate that Julie Williams, First Senior Deputy
Comptroller and Chief Counsel of the Office of the Comptroller
of the Currency, has agreed to join us to provide us with her
expertise on the optional Federal chartering system that
governs the dual banking system. Hopefully we can draw some
insight into the advantages and disadvantages of this system
from her experience. Ms. Williams will also give us an update
on how the OCC is proceeding in its communication with the
insurance regulators in developing bank insurance consumer
protections as required by the Gramm-Leach-Bliley Act.
While I have asked Ms. Williams here to testify on her
experience with the dual banking system and the OCC's ongoing
coordination efforts with the NAIC, I would like to take this
opportunity to express my grave concerns about the OCC's
consideration of preempting State consumer protection laws.
Many of these laws fall squarely within the consumer
protections that Congress specifically safe-harbored in the
Gramm-Leach-Bliley Act last year. Others are clearly the result
of a past consensus among the affected parties with the strong
support of the State legislatures.
I am not convinced that any of the State laws in question
significantly interfere with the authorized powers of banks per
se, although I am concerned about how they might be implemented
over time. Congress pushed financial services reform through in
part as a response to some questionable legal reinterpretations
of the National Bank Act by past comptrollers.
I would hope that instead of embarking on another collision
course with Congress, the OCC will work with the insurance
regulators to develop an appropriate range of standards
governing bank insurance activities. I think that the OCC has
done an excellent job so far of working with the insurance
regulators on other areas of the Gramm-Leach-Bliley Act, and I
hope that this communication and cooperation could extend to
consideration of the West Virginia and Massachusetts petitions.
I again thank Ms. Williams for agreeing to provide us with
her insight on the dual banking regulatory system, and
President Nichols and Senator Breslin for joining us today to
talk about improving the efficiency of insurance regulation for
all consumers.
That ends the statement of the Chair and I now recognize
the ranking member, the gentleman from New York, Mr. Towns.
Mr. Towns. Let me thank you first, Mr. Chairman, for
holding this important hearing. It is about time we put the
interests of consumers first. It is also about time we
recognize that the consumer is the one who suffers the most
when regulations break down.
That National Association of Insurance Commissioners
estimates that the average family may easily spend $3,000 each
year for auto, home, life, and health insurance coverage. That
family's only contact with the insurance company, however, may
be the premium it pays periodically. Consumers have no way of
knowing whether the insurance companies invest their premium
dollars wisely or whether they are rogues, thieves, crooks.
Consumers cannot hold companies accountable. Instead, they have
to rely on regulators to perform this essential task to protect
them.
We are here to find out whether regulators are, in fact,
doing their job. If they are not doing their job, it is our job
to find out why they are not doing their job. I don't think we
will be successful in one hearing in terms of completing the
assessment today, but as with any undertaking, a journey of a
thousand miles starts with a single step.
Mr. Chairman, I look forward to hearing from the witnesses
today and to working with you and the members of this committee
on this very important matter to make certain that the
consumers are protected, that the obligation that is our
responsibility--and I am certain you agree with me that we will
carry it out.
Mr. Oxley. I thank the gentleman.
Are there further opening statements?
The gentleman from Illinois?
Mr. Shimkus. Just briefly, Mr. Chairman.
This is my first term on this subcommittee and one of the
things I have learned is that it doesn't take you long to jump
in the middle of issues. It didn't take long for Financial
Services Modernization to get passed on the floor and here we
are talking about insurance in the national scope, and probably
appropriately so, as we start debating a lot of the different
issues.
I have a good friend, Nat Shapo, who is the insurance
commissioner from Illinois--who you have met with during the
Financial Services Modernization debate. I just want to
highlight the importance of what work is done by the State
commissioners and the issue in Illinois and in my district. I
would like to submit for the record two small articles from the
State Journal-Register about a 21-year-old constituent of mine
who was diagnosed with testicular cancer.
Like Lance Armstrong, the Tour de France winner--who is
actually pedalling right now, I am sure--trying to recapture
that, Travis Hopkins of Girard, Illinois is still fighting for
his life. The insurance company wasn't going to pay for his
treatment. He didn't have Lance Armstrong's endorsements and
his ability to fight.
But it was Nat Shapo, the Illinois State Insurance
Commissioner, who went to bat for him. Working with the
company, he was able to get treatment for a constituent of
mine. While it is still a tough battle, at least he is in the
ring now trying to fight cancer.
My point is that as we examine what States are doing to
achieve uniformity in insurance regulation and what Congress
and State legislators need to do to help realize this goal, we
need to be sensitive to the State governing bodies that assist
citizens, like Travis Hopkins, on a daily basis.
As we juggle these issues, I will be looking at protecting
the consumers and the consumer products, making sure there is
safety and soundness, and also making sure that our citizens
are being served.
With that, Mr. Chairman, I yield back my time.
[The prepared statement of Hon. John Shimkus and referenced
articles follow:]
Prepared Statement of Hon. John Shimkus, a Representative in Congress
from the State of Illinois
Thank you, Mr. Chairman, for holding this hearing today to discuss
the issues of improving insurance for consumers and increasing
uniformity and efficiency in insurance regulation.
I would like to welcome and thank the distinguished panel for
taking their time to be here this morning and for sharing their
perspective with us.
This issue is important to me. Not long ago, there were two
articles in the State Journal-Register about a 21-year-old constituent
of mine who, like the Tour de France winner Lance Armstrong, is
fighting testicular cancer. Armstrong beat the disease before going on
to win cycling's biggest race this summer. Travis Hopkins of Girard,
Illinois, is still fighting for his life.
Unfortunately, Travis does not have Armstrong's considerable
endorsements to fall back on to pay for the treatment he needs.
Travis's insurance company also refused to pay for his treatments.
Recently, I talked to Nathaniel Shapo, head of the Illinois
Department of Insurance and a good friend of mine. He found that there
was a complaint file on the insurance company and decided to call the
CEO himself. This resulted in the insurance company deciding to pay for
Travis's $200,000 treatment.
My point is that, as we examine what the States are doing to
achieve uniformity in insurance regulation and what Congress and State
legislators need to do to help realize this goal, we need to be
sensitive to these state governing bodies that assist citizens like
Travis Hopkins on a daily basis.
I ask that I can submit the two newspaper articles for the record.
Thank you, Mr. Chairman for yielding me time and again for holding this
hearing. I yield back the balance of my time.
______
[Copyright 1999, The State Journal-Register]
When Insurance Rejects Treatment
By Tony Cappasso, Staff Writer
Thomas Travis Hopkins is an ordinary guy.
He doesn't race bicycles, the way Tour de France winner Lance
Armstrong does.
But Hopkins, a 21-year-old Girard resident, and Armstrong do have
something in common--they both got testicular cancer. Armstrong beat
the disease before going on to win cycling's biggest race this summer.
Hopkins is still fighting for his life.
And just when he needs it the most, Hopkins' health insurance
company is denying coverage for the only treatment that has a shot at
curing him.
Called stem cell transplant, it's credited by Armstrong's doctors
with saving his life, at a cost of around $200,000. Those same doctors
are treating Travis Hopkins.
But Travis Hopkins doesn't have Armstrong's considerable
endorsements to fall back on in order to pay for the treatment at
Indiana University Hospital in Indianapolis.
Hopkins' insurance company, Fortis Health, has told him in no
uncertain terms that it is not paying for a stem cell transplant to
treat his testicular cancer. It told Indiana University Hospital, as
well, according to copies of letters obtained from Hopkins' mother,
Kathy.
``The diagnosis of germ cell tumor is not an approved diagnosis for
an autologous peripheral stem cell transplant according to Mr. Hopkins'
policy,'' the company informed the hospital on July 28. ``No benefits
are available for the transplant and related charges.''
Company spokeswoman Cathy Quirk declined to comment.
``Since this involves patient confidentiality, we can't comment on
the case,'' Quirk said.
Hopkins' nightmare began earlier this year, when he awoke one
morning in pain, feeling too weak even to get out of bed.
Hopkins' adult life had barely begun. He had a job, installing
cable for Greene County Cable, and had moved into his own apartment. He
was never sick. But the pain and weakness convinced him something was
wrong. He went to his doctor in Auburn.
``He examined me and sent me immediately to Memorial in
Springfield,'' said Hopkins.
There, doctors took X-rays, performed lab tests. The test results
were ominous. Something was growing in Hopkins' right testicle, the
doctors told him, and it had to come out. No one said the word
``cancer,'' but it was on everyone's mind.
Hopkins was worried but not especially scared.
``I figured they'll take it out and in a couple of weeks I'll go
back to work,'' he said.
It didn't work out that way.
The following week, Hopkins and his parents got hit with both
barrels of bad news. The growth in his testicle was cancer, in medical
jargon choriocarcinoma, stage three.
At first, the reality didn't sink in, said Hopkins.
``I asked, `What do we do?' '' Hopkins said. ``I didn't ask, `What
are my chances?' ''
More tests and X-rays followed, yielding more bad news.
Hopkins' cancer specialist, Dr. Mary Bretscher of Springfield
Clinic, spotted something on a chest X-ray. The cancer had spread.
Lab tests had revealed that Hopkins' cancer was growing fast. The
doctors figured they'd gotten all of it out of his testicle and nearby
tissue. They had to get it out of his chest. That meant more surgery.
First, though, he needed chemotherapy to shrink the tumor.
Bretscher put him on chemo for 12 weeks.
``It was just like a big roller coaster ride,'' recalled Hopkins.
``One day I'd be up, the next day I'd be down.''
Hopkins' employers tried to help. When chemo left him too weak for
his usual cable installation job, they found office work for him to do.
Eventually, though, the combined effects of cancer and chemo left
him too weak even for that. Unable to work, out of money, Hopkins gave
up his apartment and moved back into his parents' Girard home.
In late June, surgeons opened his chest and tried to remove the
cancer. Tendrils of choriocarcinoma had spread into his left lung,
coiled around his aorta and sent tentacles up into his shoulder and
neck.
Despite surgery and chemo, Hopkins' cancer was not responding to
treatment the way his doctors had hoped. But they still had one trick
up their sleeves. Bretscher picked up the phone and called a colleague
at Indiana University Hospital.
Dr. Lawrence Einhorn, distinguished professor of medicine at
Indiana University School of Medicine, is one of the world's
authorities on treatment of testicular cancer. He treated Armstrong
with high-dose chemo followed by stem cell transplant. According to
Hopkins, Einhorn told him he needs the same treatment. But the Hopkins
family still has to come up with some way to pay for it.
Fortis' decision left Travis Hopkins and his parents in a bind.
There's no way they or he can pony up tens or even hundreds of
thousands of dollars for stem cell transplant therapy.
For now, doctors are treating Hopkins with chemotherapy. Each
treatment kills cancer cells, but also knocks out his immune system for
a week or so. Hopkins spent most of last week in Memorial Medical
Center, recovering from an infection picked up after his last round of
chemo.
Indiana University Hospital is considering a request that Hopkins
be treated as a charity patient, said Kathy Hopkins. And the church the
Hopkins family attends, First Christian in Girard, is raising funds on
Travis' behalf.
It's a wonderful gesture and appreciated deeply, she said, but she
resents the need for appeals to charity. Her son bought health
insurance against just such an event. Now, when he needs it, the
company has begged off.
``Fortis specifically targeted young adults in their advertising
pitches,'' she claims.
Travis Hopkins' friends and neighbors are raising money to help him
pay for cancer treatment. They've started a benefit account at the
Girard branch of the First National Bank of Raymond. Donations may be
mailed to The Benefit Account, First National Bank of Raymond, P.O. Box
78, Girard, 111. 62640. First National Bank of Raymond branches in
Virden, Morrisonville, Pawnee and Raymond will also accept donations to
the benefit account.
______
[Copyright 1999, The State Journal-Register]
Girard Man to Receive Cancer Treatment
insurer decides to cover procedure after flood of negative calls
By Tony Cappasso, Staff Writer
Travis Hopkins is in Indiana University Hospital in Indianapolis
preparing for a stem cell transplant.
Fortis Health, Hopkins' health insurance company, changed its
corporate mind last week about paying for the procedure.
How this turn of events came about is an object lesson on the
influence wielded by politicians and bureaucrats, when they choose to
exercise it.
Hopkins, 21, is a Girard resident. His plight was detailed in a
State Journal-Register article last Sunday, which triggered an
avalanche of telephone calls. Eventually, those calls made it into the
office of Fortis chief executive officer Ben Cutler, who ultimately
worked out the policy change.
Hopkins learned of the company's decision on Thursday, according to
his mother, Kathy Hopkins.
``Mr. Cutler called me and told me the company was going to change
the (insurance) contract,'' she said.
By all accounts, state Rep. Gwenn Klingler, R-Springfield, got
things rolling after reading the account of Hopkins' troubles in The
State Journal-Register. Klingler was traveling Friday and couldn't be
reached for comment. But state Sen. Vince Demuzio, D-Carlinville,
confirmed that she was on the phone to him early.
``She was very concerned about it,'' said Demuzio.
Demuzio agreed to contact U.S. Sen. Dick Durbin, D-Illinois, to see
if there were any federal options for the youngster. Klingler,
meanwhile, pursued the matter with the Illinois Department of
Insurance.
On Monday, Klingler made the extent of her concern clear to
Nathaniel Shapo, head of the Illinois Department of Insurance.
``I checked with our staff and found we had a (complaint) file open
on the case,'' Shapo said.
After familiarizing himself with the facts, Shapo told his claims
workers to pick up the pace in their negotiations with Fortis. On
Wednesday, Shapo called Fortis CEO Cutler himself.
``He said this was a very difficult case, a very tough situation,''
recalled Shapo.
Cutler did not return repeated phone calls Friday requesting
comment.
Shapo said Cutler emphasized that the company was within its legal
rights in refusing to pay for stem cell transfer for Hopkins'
testicular cancer.
``He said they did have `specific contractual language,' '' Shapo
said.
The insurance policy spells out the types of illnesses for which
Fortis will pay for treatment, and testicular cancer is not one of
them, Cutler told Shapo.
But insurance executives don't take lightly phone calls from the
head of the agency that regulates their business. Cutler said he'd
review the denial and get back to Shapo.
In the meantime, Shapo fielded a phone call from U.S. Rep. John
Shimkus, R-Collinsville, an old friend of Shapo's, who also agreed to
push Fortis.
By Thursday, Cutler had worked out a compromise. The insurance
company's contract with employees of Greene County Cable was changed to
cover stem cell transplant as a treatment for testicular cancer.
Cutler himself called Kathy Hopkins late Thursday to let her know
of the decision. He also called Indiana University Hospital to start
the wheels rolling for Travis Hopkins' therapy. By nightfall, the
Hopkinses were driving to Indianapolis.
Shapo praised Cutler for his handling of the affair.
``He was very responsive and very cooperative,'' said Shapo.
Starting next week, Travis Hopkins will get a round of high-dose
chemotherapy, followed by an IV packed with his own stem cells, to help
his immune system recover, said Indiana University Hospital transplant
nurse Alison Morgan.
A week later, he'll get another round of high-dose chemo, then more
stem cells, she said. After that, it's a waiting game to see if the
treatment succeeded in killing off the cancer cells.
Based on past cases, Hopkins has a 60 percent chance of being cured
of the illness, she said.
Mr. Oxley. The gentleman yields back.
The gentleman from Minnesota?
Mr. Luther. Thank you very much, Mr. Chairman. I will be
very brief.
I am glad that this committee is deliberating on this
particular issue and looking at how we can improve the current
regulatory framework that is, of course--as we all know--based
on State oversight.
As my colleagues have already mentioned, I think it is
important that the hearing not lead to a wholesale erosion of
strong consumer protection measures at the State level that
have been enacted there on behalf of citizens. In particular,
my State of Minnesota has some of the best pro-consumer
legislation in the entire country. I, of course, would not want
to see those laws jeopardized by any action here in Washington.
I am particularly concerned by the recent OCC final privacy
rule that exempts national banks from complying with
Minnesota's privacy law when Section 505, better known as the
Sarbanes Amendment of the Financial Services Modernization Act,
specifically allows States to enact stricter privacy laws that
apply to financial institutions. I will be interested to hear
how the OCC can justify its rule, given Section 505 of that
Act.
Beyond that, I think we need to be very, very careful when
it comes to taking away the authority of States and giving it
to a Federal entity, unless it is accompanied by very strong
protections on behalf of consumers.
So again, Mr. Chairman, thank you for holding the hearing
and I look forward to the testimony.
Mr. Oxley. The gentleman's time has expired.
Are there further opening statements?
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
Last November, this Congress made history by achieving something
that no Congress in the previous 66 years had been able to accomplish--
agreeing to comprehensive financial services modernization. The Gramm-
Leach-Bliley Act was a critical first step towards uniformity in
insurance regulation. It created a uniform licensing system for
insurance agents and brokers. It established uniform redomestication
provisions for mutual insurance companies. And it ensured a more
uniform level playing field for insurance.
These were important steps to begin modernizing the regulation of
insurance. But they are only first steps.
Now that we have successfully integrated the financial services
marketplace, the floodgates of competition are about to open. Compared
to other financial services providers, insurers have more expensive
capital costs, higher transaction costs, and significantly lower rates
of return on shareholder equity. It can also take insurers ten to
twenty times as long as their competitors to get regulatory approval to
bring new products to market. Under the current regulatory structure,
insurers will have a hard time successfully, competing over the long
haul in crossover markets. This harms the industry and harms consumers.
Particularly troubling is that over the last ten years, many
insurers have suffered very poor returns on their insurance
transactions, relying for their profitability on investment gains from
surplus capital in the booming American economy. With insurers already
30% less profitable than other industries, if the economy slows down
and insurers continue to be handicapped by their regulatory structure,
capital will flow out of the system, resulting in more bankruptcies and
even more industry consolidation.
Iowa Commissioner Terri Vaughan stated on behalf of the National
Association of Insurance Commissioners that ``passage of the Gramm-
Leach-Bliley Act and our increasing interaction with Federal banking
regulators means that State insurance regulators can no longer meet
public expectations with outdated procedures that overly favor
homestate autonomy at the expense of efficient interstate commerce.''
NAIC President George Nichols, who is testifying before us today, has
stated that modernizing the State regulatory system is his top
priority.
I am pleased to see that the State insurance commissioners are now
active leaders in reforming the regulation of insurance. I fully
support their efforts. They have committed to modernizing some of the
Greatest inefficiencies in the system, including rate filings, market
conduct examinations, and speed to market for new consumer products. If
the commissioners achieve their goals, it may be the most significant
set of reforms in the history of the NAIC.
However, I am concerned that if the commissioners goals are not
achieved, pressure will continue to grow for an optional Federal
insurance charter. While I do not at this time favor such an approach,
I believe that the current system stifles innovation and competitive
opportunities that could advantage consumers. One way or another,
insurance regulation will be reformed.
I appreciate the willingness of our distinguished panel of
witnesses to join us today to give us their perspectives on financial
services regulation, as well as to update us on the implementation of
the Gramm-Leach-Bliley Act, and I look forward to continue supporting
their efforts at regulatory coordination and reform.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Mr. Chairman, I want to thank you for holding this hearing on
``Improving Insurance for Consumers.'' Had we given more attention to
consumers in the debate on financial modernization legislation over the
last few years, we might very well have avoided the need for this
hearing altogether. But, despite efforts of this Committee, protecting
consumers was never to become the guiding principle of last year's
financial modernization legislation.
As a result, the problems plaguing insurance regulation today are
fundamentally the same as those that have tormented consumers, the
industry, regulators, and public officials for many years: muddled
lines of regulatory responsibility; the absence of consistent standards
and requirements; inadequate resources and enforcement; and open
conflicts between regulators that, at times, have turned the federal
regulator into nothing more than a ``doorman'' for the banking industry
and have made state regulators despondent and overly cautious in their
protection of consumers.
I honestly do not know what it will take to address the fundamental
reforms needed in insurance regulation. We do know, however, that
nothing really changes when we fail to deal with the fundamentals. Last
year's financial modernization legislation has graphically demonstrated
that, and this hearing is proof that is the case. Today, as in so many
hearings before, we are joined by representatives of the Office of the
Comptroller of the Currency (OCC) and of the state insurance
commissioners, and why? Unfortunately, the answer to that question is
simply that nothing has really changed to resolve their relationship in
any positive and affirmative manner.
The OCC says it does not want to regulate insurance. It says
insurance regulation is the responsibility of the states. Yet, the OCC
continues to intervene at the behest of banks who want to prevent the
states from applying tough consumer protections to bank insurance
activities. In fact, the OCC is currently considering a request from
the banks, which if approved, may be used by national banks in the
States of West Virginia and Massachusetts to avoid complying with
insurance consumer protections that must be honored by every other
seller of insurance in those two states.
Banks have also secured protection in the OCC's final rule
implementing the privacy provisions of last year's financial
modernization legislation. In that recently issued rule, the OCC said
that a bank does not have to comply with tougher privacy laws many
states have adopted, if the bank sells insurance directly and not
through a subsidiary. At least 16 states have adopted the National
Association of Insurance Commissioners' (NAIC) model privacy law that
says insurance information cannot be shared with anyone, affiliates or
third parties, unless consumers give their affirmative permission. The
OCC rule, on the other hand, lets insurance companies share information
freely with affiliated entities and even lets them share information
with third parties unless the consumer objects. The OCC rule,
therefore, will deny privacy protections to consumers just because they
buy insurance directly from a bank rather than from non-bank sources.
The OCC may say it does not want to regulate insurance; but make no
mistake about it, it is regulating insurance. There is nothing
``functional'' about this kind of regulatory intervention, and it must
stop in order for real insurance regulators to do the job that needs to
be done.
The situation at the state level is also far from perfect.
Resources committed to insurance regulation vary dramatically from
state to state. And, there is a dangerous lack of coordination among
state insurance regulators and between state insurance regulators and
other financial regulators. These coordination problems are
dramatically revealed by the insurance fraud case of Martin R. Frankel.
In that case, several states knew or should have known a fraud was
being committed but kept this information from other states.
Mr. Chairman, there can be no real doubt that insurance regulation
continues to be in need of fundamental reform. For many of us, that
need has been evident for a long time. However, I hope that as we
embark on yet another attempt to address these problems, Members will
prepare themselves for more than a Sunday afternoon ``stroll-in-the-
park.'' This is truly a dense woods into which few have ventured, and
even fewer have emerged. My advice is: ``Be Prepared'' and ``Follow
Me.''
Mr. Chairman, again, I thank you for holding this hearing, and I
look forward to the testimony of the witnesses.
Mr. Oxley. The Chair now turns to our distinguished panel,
which I have already introduced. Welcome to all of you.
Mr. Nichols, we will begin with you.
STATEMENTS OF HON. GEORGE NICHOLS, COMMISSIONER, KENTUCKY
DEPARTMENT OF INSURANCE; JULIE L. WILLIAMS, FIRST SENIOR DEPUTY
COMPTROLLER AND CHIEF COUNSEL, OFFICE OF THE COMPTROLLER OF THE
CURRENCY; AND HON. NEIL BRESLIN, SENATOR, STATE OF NEW YORK
Mr. Nichols. Thank you, Mr. Chairman. Good morning to the
chairman and the members of the committee. It is a pleasure to
be back before you. I am happy to be before you with a good
message in terms of where insurance commissioners have come
across the country.
Again, my name is George Nichols. I am the commissioner in
the Commonwealth of Kentucky and president of the NAIC. I bring
you greetings on behalf of all the insurance commissioners from
across the country.
I want to take an opportunity to thank the Commerce
Committee and its members for your efforts on H.R. 10 during
the deliberations. You stood up for strong consumer protections
as it related to the business of insurance. It is your work to
preserve functional regulation in the State rule of insurance
commissions that I believe was the impetus and the door-opener
for us to develop our statement of intent and to also assure
compliance with the Gramm-Leach-Bliley Act.
Second, I would like to thank you for holding this hearing.
It gives us an opportunity to come before you and tell our
story about what we have set out on what I consider to be a
very ambitious path to create uniformity and efficiency for
insurance regulation. It also gives us an opportunity to share
with you the achievements to date, in a very, very short period
of time since the passage of the Act.
There are three main points I want to touch on. First of
all, we are currently on track to implement all provisions of
the Gramm-Leach-Bliley Act that related to insurance
regulation. Second, we have taken the bold step to spearhead
national initiatives that go far beyond those minimum
requirements set in the Gramm-Leach-Bliley Act that I want to
share with you.
We believe that they satisfy the larger goals that will
create the appropriate uniformity and efficiency in the system
that we think are necessary that will alleviate any desires to
have insurance regulated at the Federal level. It is an
approach that is based in looking at where it is appropriate
that we have national standards and national approaches to
insurance regulations, but not take away the independent
jurisdiction to address the specific consumer needs for people
in Illinois, people in Ohio, Kentucky, and any other State in
the country.
Third, we think that in these larger goals that we want to
achieve, it will require a partnership, a partnership that is
made up of insurance regulators, of State legislators and
Governors, Federal counterparts, Congress, consumers, and
insurers.
Our No. 1 priority is to protect consumers. We recognize
the financial impact of buying insurance. We understand that
when it is used they feel vulnerable. And we also recognize
that oftentimes in the subjective areas of insurance coverage
it will require good, strong, and balanced regulation to make
sure that consumers are adequately protected.
In 1998, we had over 12,500 individuals across the country
that worked to preserve insurance regulation to protect
consumers. We have spent some $853 million on a yearly basis in
terms of budgets to provide strong regulation for insurance
consumers.
The Gramm-Leach-Bliley Act mandates three primary functions
for us that we were to address. First was to coordinate and
cooperate with Federal regulators. I am happy to announce that
we have been working for a long time in working with the
Federal regulators--our Federal counterparts--and since the
passage of the bill there have been numerous meetings we have
had to attempt to coordinate our efforts. There are areas in
which I think we need to continue to improve in terms of that
coordination. However, I have found a commitment on the part of
all our counterparts at the Federal level to work clearly with
the NAIC and State insurance commissioners across the country.
We have been working closely to develop information sharing
agreements in terms of the OTS, which we already have a formal
agreement that is being signed by the States. We are developing
one with the OCC which I am sure Julie will be mentioning
later. We are working on one with the Federal Reserve and the
OTS. So we believe that we are well on our way to developing
that relationship not only in a formal setting but an informal
setting as well.
Second was to address the issue of privacy rules as it
relates to insurance. As you may know, in 1980 we had a model
act that was passed related to the protection of privacy
information for all insurance. Some 17 States across the
country have now passed a privacy provision related to the 1980
model that goes far beyond any of the protections provided to
any set of consumers related to the Gramm-Leach-Bliley Act.
We have also worked in 1998 to pass a model privacy rule
related to health information. As we had focused on this
initiative since the passage of the bill, we have primarily
focused to develop financial-related privacy rules for
insurance similar to the regulations completed by our Federal
counterparts. We also felt it was important to separate the
issue of health insurance information from financial
information because of the overall impact and private nature of
that information that is being shared.
The third area that we were to focus on was the
establishment of a national licensing system for agents and
brokers to avoid the establishment of NARAB. I am happy to
announce that as of today we have had three States that have
passed a producer model act that addresses the issue of setting
out uniform procedures and reciprocity to comply with the
provisions of the Gramm-Leach-Bliley Act. Kentucky was
fortunate enough to be the first State to produce a producer
model act to comply with those provisions. Three States now
have done so and we have 31 States scheduled to propose the
legislation in their sessions in the upcoming year.
We have also publicly stated--and it is also in my written
testimony--that we believe we should go further than the
minimum standards set in the Gramm-Leach-Bliley Act. Without
full and complete, appropriate rule across the country in all
50 States and the District of Columbia, we think we would be
doing an injustice to the insurance industry. So we are now
working to assure that that is in full compliance across the
country.
Additionally, we have gone much further than you had
requested us to do in the legislation. In my role as president,
my platform was established to modernize insurance regulation.
We developed a statement of intent--which you have a copy of--
and it was passed at our March meeting in Chicago. You will
also note that it is signed individually by each State and the
District of Columbia. Our purpose was to personally and jointly
commit our goals of achieving national uniform standards for
insurance regulation.
We recognize the importance of working with legislators and
Governors in this initiative. We feel that we have been able to
establish the rapport and the support from those bodies in
terms of the initiative we have set forth. I want to share with
you the areas in which we have gone further than the Gramm-
Leach-Bliley Act.
One is speed to market, developing a system whereby we can
review and approve products that will be delivered to consumers
in the most expedient manner possible and done in the most
efficient manner across the country, where appropriate. We
continue to support the commercialized deregulation among the
States, which would reduce many of the regulatory burdens that
employers are having to deal with as it relates to insurance
policies.
Third, the development of a national treatment of insurance
companies whereby we could establish a national licensing
process for companies whereby they would actually deal with a
single regulatory body, whether it be a group of States or some
other entity, that would allow them to get licenses in a much
easier fashion. We have already worked--related to the speed to
market products and the national treatment--on developing
electronic initiatives, one being that form filings could be
filed electronically and the other to be a unified, uniform
application process for licensing of insurance companies. Our
goal is to have all 50 States up on the electronic format and
uniform application for company licenses by the end of the
year.
We also are developing the appropriate tools necessary to
facilitate electronic commerce among insurance companies,
agents, and the consumers, all with the goal to make sure that
the appropriate protections are there for consumers in an
electronic environment.
And last but not least, we have begun to take the necessary
steps to develop what we believe will be an appropriate
mechanism for market conduct. If we are able to achieve
efficiency and uniformity across the country and fail to put in
the appropriate standards and tools necessary to protect
consumers in a market conduct approach--similar to what we have
done with the financial solvency--then we would have failed in
our initiatives.
We have put forth a great number of efforts. During the
debate of H.R. 10, we came to Congress and asked for additional
things, things that we would like for Congress to consider in
assisting the commissioners in carrying out our job. One, as we
move to develop a unified national system for agent licensing,
we would like to have access to the National Criminal
Information Data base. If we are to protect consumers related
to agents, it is important that we have access to the
information that will allow us to determine if we have bad
apples--criminals or others--who have taken actions that would
not be in the best interest of consumers.
Second, we would like to see the granting of Federal
immunity and liability for the NAIC and the State insurance
departments as we relate to transferring information with our
Federal regulators. There is a likelihood that the current laws
are broad enough to protect those relationships between Federal
regulators and State insurance commissioners. However, the
national data bases that we have created and we at the State
departments depend on, is established at the NAIC level. In
order for us to continue to do that job, we believe that the
NAIC should have the same protections as we do as we work with
our Federal counterparts.
In conclusion, I want to share with you that I firmly
believe that we have worked very hard to achieve the objectives
and the overall goals of the Gramm-Leach-Bliley Act and we have
shown our commitment to the insurance world to go further than
the what the Gramm-Leach-Bliley Act established for us. The
insurance commissioners--all 50 of them and the District of
Columbia--are very focused, very committed, and have shown
their commitment in how we have coordinated our efforts in
making sure that we meet the minimum requirements.
We are prepared in our September meeting to outline not
only our overall goals but the time lines and milestones to
achieve those. One of the things I think is important to note
is that in this new era in which we are committed to improving
the uniformity and efficiency of insurance regulation, we have
committed that every option will be considered as we move
forward. And in those options, it includes laws being passed by
the States individually, an interstate compact, and lo and
behold we even considered coming to Congress and asking for
assistance if that is what we felt was necessary to make sure
that we could maintain insurance regulation closest to the
consumer at the State level, but assure the appropriate
uniformity across the country.
Thank you, sir, for allowing me to be here this morning.
[The prepared statement of Hon. George Nichols follows:]
Prepared Statement of Hon. George Nichols, Commissioner, Kentucky
Department of Insurance on Behalf of the National Association of
Insurance Commissioners
Introduction
My name is George Nichols. I am the Commissioner of Insurance in
Kentucky, and this year, I am serving as President of the National
Association of Insurance Commissioners (NAIC). This is a particularly
challenging time as we work to improve State insurance supervision to
better meet the demands of consumers and a global insurance industry.
Let me start by thanking the Commerce Committee and its Members for
the important work you did in preserving the role of State insurance
supervision during Congressional consideration of HR 10. Although HR 10
was originally intended to modernize Federal banking and securities
laws, its negative side impact on State laws governing the solvency and
market conduct of insurance providers could have been devastating. Your
insistence that HR 10 be amended to fully protect insurance consumers
was a critical step in opening the door for State regulators to meet
and exceed the financial modernization goals of the Gramm-Leach-Bliley
Act (GLBA).
Today, I would like to make three points regarding the response of
State insurance regulators to financial modernization and the Gramm-
Leach-Bliley Act--
First, the NAIC and State insurance regulators are currently
on track to implement all provisions of GLBA as intended by
Congress.
Second, the NAIC is spearheading a bold set of national
initiatives that will move State insurance regulation far
beyond the minimum requirements of GLBA in order to satisfy
larger goals of regulatory uniformity and efficiency.
Third, meeting the requirements of GLBA and the larger goals
of regulatory uniformity will demand prompt action by several
interested groups in addition to State insurance regulators,
including State legislators and governors, Congress, and
insurance industry participants.
Protecting Consumers is the First Priority of State Insurance
Regulation
Paying for insurance products is one of the largest consumer
expenditures of any kind for most Americans. Figures compiled by the
NAIC show that an average family can easily spend a combined total of
$3,000 each year for auto, home, life, and health insurance coverage.
This substantial expenditure--often required by law or business
practice--is typically much higher for families with several members,
more than one car, or additional property to insure. Consumers clearly
have an enormous financial and emotional stake in making sure that the
promises made by insurance providers are kept.
Protecting American insurance consumers in a world of hybrid
institutions and products must start with a basic understanding that
insurance is a different business than banking and securities.
Insurance is a commercial product based upon subjective coverage
decisions, subjective product pricing, subjective claims
determinations, and subjective figuring of claims payment amounts. All
of these business subjectives add up to one big certainty--Insurance
products can generate a high level of consumer backlash and customer
dissatisfaction that requires a high level of regulatory resources and
responsiveness.
As regulators of insurance, State governments are responsible for
making sure the expectations of American consumers--including those who
are elderly or low-income--are met regarding financial safety and fair
treatment by insurance providers. State insurance commissioners are the
public officials who are appointed or elected to perform this consumer
protection function. Nationwide in 1998, we employed 12,500 regulatory
personnel and spent $853 million to be the watchful eyes and helping
hands on consumer insurance problems. State insurance departments
presently handle approximately four million consumer complaints and
inquiries each year.
The States also maintain a system of financial guarantee funds that
cover personal losses of consumers in the event of an insurer
insolvency. The costs of this financial guarantee system are borne
entirely at the State level, with no assistance from the Federal
government.
State Insurance Regulators Are Strongly Committed to Implementing GLBA
The Gramm-Leach-Bliley Act establishes a new order of functional
financial regulation that will depend upon the active cooperation of
many Federal and State agencies to be effective. Although this approach
is novel at the national level, it is well known among State insurance
regulators who have been working together cooperatively for more than a
century. We have found from experience that organized cooperation
through the NAIC produces strong supervision results overall, yet we
are also know that extraordinary effort, hard work, and constant
attention are needed to achieve such results.
The regulatory framework established by GLBA designates the States
as the appropriate functional regulators of insurance products in the
United States, including those provided by Federally-supervised banking
and securities firms. This most recent Federal statutory affirmation of
State insurance authority is wise because it recognizes our successful
record over the years in meeting the special consumer protection
requirements of insurance products. For example, all 50 commissioners
joined together to end the use of race-based insurance premiums and
obtain rightfully-owed insurance payments for victims of the Holocaust.
In addition to recognizing general State authority over insurance,
GLBA mandates specific State regulatory action in three areas--
a) Coordinating and cooperating with Federal functional regulatory
agencies for banks and securities firms;
b) Issuing privacy rules to protect the non-public financial
information given by consumers to insurance providers; and
c) Establishing a national licensing system for insurance agents and
brokers in order to avoid the creation of the National
Association of Registered Agents and Brokers (NARAB).
Working through the NAIC, State insurance departments are strongly
committed to implementing all requirements of GLBA promptly.
Furthermore, State regulators are committed to uniform insurance
regulation by eradicating outdated procedures that overly favor home-
state autonomy at the expense of efficient interstate commerce. Our
ultimate goal of a national regulatory system based upon existing State
authority goes well beyond the requirements of GLBA.
Going Beyond GLBA--NAIC's Regulatory Modernization Program
I was elected President of NAIC in December 1999, just one month
after GLBA was signed into law. My first action as President was to
announce that modernizing the State regulatory system would be my top
priority for NAIC during the year 2000. To achieve this goal, I
immediately began working with my fellow commissioners to develop a
plan that will get us there.
The critical first step was the acknowledgement of insurance
commissioners in every State that common progress cannot occur without
common agreement on our objectives. To that end, we began collectively
drafting a regulatory modernization mission statement. After careful
discussions, the commissioners from each of the 50 States and the
District of Columbia individually signed a document entitled
``Statement of Intent: The Future of Insurance Regulation'' (Attachment
One). A copy is appended to the end of my testimony.
The insurance commissioners' Statement of Intent is a major
breakthrough toward regulatory modernization. We are personally and
jointly committed to achieving the same specific objectives on a set
schedule. These are now the shared goal of insurance commissioners
throughout the United States.
The Statement of Intent sets forth the following mission
objectives--
Working with our governors and State legislatures, we will
undertake a thorough review of our respective laws and
regulations to determine needed changes that accomplish
functional regulation as contemplated by the Gramm-Leach-Bliley
Act.
We are committed to streamlined licensing for producers, and
will work to implement effective uniform licensing standards.
Building on initiatives already underway, we will review our
financial reporting, analysis, and examination processes to
address market changes that demand consideration of the
national and international impact of insurance industry
operations.
We will continue to use the NAIC process to develop and
implement effective regulatory cooperation agreements with
other Federal and State regulatory agencies regarding the
sharing of financial monitoring and enforcement information.
Working with our governors and State legislatures, we will
take steps to improve the speed to market for new insurance
products.
We will evaluate the experience of specific States with regard
to reforming the system of rate forms and filings for certain
insurance lines in order to achieve greater uniformity and
eliminate unnecessary requirements.
We will review the current focus, structure, and
implementation of market conduct programs to determine the
merits of voluntary uniform national standards as a basis for
market conduct examinations and enforcement that will protect
local consumers.
We have endorsed the Uniform Electronic Transactions Act
(UETA), and will continue to identify necessary reforms that
will facilitate e-commerce while maintaining important consumer
protections.
We are committed to exploring all options that could offer
greater uniformity within the State-based system of insurance
regulation, and we will explore the development of a proposal
for a State-based system that could provide the same
efficiencies as a Federal charter for insurance companies.
Insurance Regulators Are on Schedule to Meet All Modernization
Objectives
Prior to final approval of the commissioners' Statement of Intent
in March, the NAIC began a series of actions to implement GLBA
requirements and lay the groundwork for larger improvements. The
implementation schedule set by Congress for certain parts of GLBA is
quite tight for Federal and State regulators, especially the provisions
that will require State legislative action. The NAIC and its members
have approached this implementation effort with urgency and
determination, and have committed to meet the same deadlines as Federal
agencies even where GLBA does not require us to do so.
In December 1999, I sent letters to the heads of all Federal
functional regulatory agencies seeking to meet with them in order to
establish a process for cooperation. At mid-July, I can report that I
have met personally with the Comptroller of the Currency (OCC), the
Director of the Office of Thrift Supervision (OTS), and Governor
Laurence Meyer who oversees insurance matters for the Federal Reserve
Board. The NAIC and several State regulators have also met with
officials at the Federal Deposit Insurance Corporation (FDIC). These
meetings and communications have been very successful in getting the
process of cooperative functional regulation off to a good start.
Within NAIC, we created nine special working groups and assigned
them particular tasks to accomplish the GLBA mandates and mission
objectives in our Statement of Intent. The activities of these working
groups have dominated our time and attention at NAIC since then.
As a result of exceptional efforts, the NAIC and State insurance
regulators are on target to meet the objectives set by GLBA and our
Statement of Intent. We have a lot of work yet to do, but we are well
on the way to attaining our goal. Furthermore, I am confident that
State insurance regulators will continue to do whatever it takes to get
the job done right.
Cooperating with Federal Regulators under GLBA
Establishing sound working relationships with Federal regulators is
absolutely essential for State insurance departments under GLBA. In
fact, it is so important that NAIC was actively engaged in meeting with
our Federal counterparts more than a year before GLBA became law. After
enactment of GLBA, we decided to consolidate our efforts under a new
Coordinating with Federal Regulators Working Group given broad
responsibility to stimulate cooperation at all levels.
There are two basic ingredients for making regulatory cooperation a
success. The first is negotiating and signing written agreements
between Federal and State agencies that lay out the ground rules for
sharing information and keeping it confidential when necessary. The
second is establishing personal contacts at other agencies to promote
mutual understanding, education, and practical cooperation on
monitoring and enforcement matters.
The NAIC is currently involved in achieving acceptable written
cooperation agreements with the Federal Reserve, OCC, OTS, and FDIC. We
are farthest along with OTS and OCC. Our model consumer complaint
sharing agreement with OCC has been signed by 28 State insurance
departments, and our broad information sharing agreement with OTS has
been signed by 21 States to date. While we continue to encourage State
departments to sign these existing model agreements, we are
simultaneously working to improve all cooperation agreements with
Federal agencies to better reflect the final provisions in GLBA.
The process of establishing personal working contacts between State
and Federal regulators is also going very well. Attached to my
testimony is a chart summarizing the most important meetings held by
NAIC so far (Attachment Two), however there have been many additional
contacts with Federal regulators through the NAIC and directly with
State department personnel. Generally, these are high-level meetings
that have focused on exchanging information and viewpoints regarding
regulatory jurisdiction, supervision methods, and specific cases such
as the Citigroup merger. Federal banking agencies have also started
sending regular attendees to NAIC national meetings held four times
each year, which is an excellent way for them to meet State regulatory
staff and observe how we make our policy decisions.
NAIC has an extensive schedule of insurance supervision training
classes and materials which we have made available to Federal
regulators. In exchange, Federal agencies are beginning to open their
training programs to State insurance regulators. Taking part in these
classes develops professional expertise in other financial industries
and facilitates the process of making personal contacts.
Meeting GLBA Consumer Privacy Requirements
The Title V consumer privacy requirements in GLBA create a quandary
for State insurance regulators. Section 501 of GLBA directs us to
implement the same privacy rules for consumer financial information as
those prescribed by Federal agencies, while Section 507 permits States
to implement stronger privacy standards. This dual charge sets up a
conflict between what State insurance authorities MUST do under GLBA
and what States MAY do regarding consumer privacy. In neither case does
it appear that Congress gave full consideration to the privacy needs of
insurance consumers, as opposed to consumers of other financial
products.
Protecting the privacy of insurance consumers is an important area
where NAIC is 20 years ahead of Congress. NAIC issued a consumer
privacy model law in 1980 that gives insurance consumers far greater
privacy rights than those in GLBA. Our records indicate that 17 States
have adopted all or part of the NAIC model. In those States, consumers
are presently enjoying a high level of privacy protection, and
insurance providers are complying without problems as far as we know.
We believe State laws based on the NAIC model exceed GLBA, which means
they will remain in force under Section 507 of GLBA.
NAIC issued a newer model law in 1998 to protect the privacy of
consumer health information. While offering protections similar to the
1981 model, this newer model is specifically tailored for States
wishing to focus on health information. We expect this model will
receive consideration as legislators have more time to consider the
model or public attention becomes more focused on keeping personal
health information under the control of consumers.
In addition to these existing models, the NAIC's Privacy Issues
Working Group is moving swiftly to construct model insurance consumer
privacy regulations intended to serve as guidance for States not
presently having privacy regulations that satisfy Title V of GLBA. The
purpose of these interim regulations is to help State insurance
authorities comply with the minimum requirements of GLBA quickly and
give essential interim guidance to insurers. In addition, the NAIC will
consider how to achieve stronger privacy protections across-the-board
for all consumers of financial services, including insurance.
The Working Group started in February by requesting public comments
from interested parties regarding how NAIC should implement the privacy
provisions in GLBA. After evaluating many comment letters and hearing
public witnesses at NAIC meetings in March, May, and June, the Working
Group circulated a draft of proposed regulations that mirror the
Federal GLBA privacy rules as much as possible, while addressing
specific insurance issues such as medical information. Additional
public comments are still being received, and the Working Group will
consider these at the next NAIC meeting scheduled for late August.
Although final GLBA privacy rules are not completed, by unanimous
vote all 51 commissioners endorsed making the date for enforcing State
insurance privacy rules under GLBA the same as the July 1, 2001 date
set in the Federal rules. We hope to finish the NAIC's model GLBA rules
at our national meeting in September.
Satisfying NARAB--Starting with Reciprocity and Moving toward
Uniformity
The message from NARAB is clear: fix and make more uniform the
system for agent licensing. That is what we are doing. We
wholeheartedly support the licensing goals endorsed by Congress in
NARAB. We do not, however, support the creation of NARAB itself as a
separate organization. NARAB would cast a cloud of uncertainty over the
legal authority of State insurance departments to protect consumers
throughout the United States. If NARAB were to prevent States from
exercising their full range of powers to regulate insurance for the
benefit of consumers, there would be nobody to perform this vital
function.
Prior to passage of GLBA, the NAIC was working on an improved
Producer Licensing Model Act that would promote uniformity and
efficiency among the States. We moved quickly to amend this model
legislation to comply fully with the NARAB provisions in GLBA when they
became final. The revised version of the Producer Licensing Model Act
was completed in February 2000 in order to make it available in time
for consideration by several State legislatures which were just
beginning their sessions. At this point, three States--Kentucky, New
Hampshire, and Missouri--have enacted the model, two States have a bill
pending, and 31 States are expected to introduce the bill during their
next session in 2001.
The NAIC's Producer Licensing Model Act is the primary vehicle for
States to satisfy the statutory requirements of GLBA because it fully
implements the requirements for licensing reciprocity among States.
Adoption of the Model Act by a majority of States will assure full
compliance with the NARAB provisions by November 2002.
Adoption and implementation of this model law, however, does much
more than simply satisfy the minimum requirements of GLBA. It provides
for significant uniformity in licensing and goes a long way toward
achieving our ultimate goal of uniformity among the States in agent
licensing. Although our immediate goal is minimum compliance with GLBA,
our ultimate goal is for all 50 States to be operating under a national
system of unified standards and procedures.
The NAIC expects that States will meet and exceed the NARAB
provisions in GLBA within the three-year time allotted by the statute.
We plan to accomplish this goal by making necessary changes to the
existing system of State insurance supervision so that NARAB will never
be created as a separate organization. This approach will satisfy the
objectives of NARAB sponsors who want to see State regulation improved
without additional Federal action.
The NAIC is taking several additional steps to improve agent
licensing. In partnership with the National Insurance Producer Registry
(NIPR), a non-profit affiliate of the NAIC, we have been aggressively
investing over the past three years in modernizing our technical
infrastructure to develop a more centralized producer licensing
processing center. At present, the NAIC maintains a regulatory network
and centralized database of 2.6 million of the Nation's 3 million
producers. This information is available to regulators and insurance
companies over the Internet, and is updated daily by automated
processes at the State insurance departments.
Currently, 32 States are online with the Producer Database and the
target is to have all 50 States contributing to PDB between December
2000 and June 2001. Because PDB is a mirror of the State licensing
database, NIPR is creating a single system to automatically process
appointments, terminations, and uniform non-resident license
applications on behalf of individual State insurance departments
against data in PDB within 24 hours of receiving the electronic data
from an insurance company or producer. Approximately 110,000 producer
appointments and terminations are being processed by 24 States through
NIPR monthly right now, and we expect to have all 50 States
participating in 2001.
The next key step in this process will be the implementation of a
single electronic licensing application. These system improvements will
bring about regulatory efficiencies that far exceed the expectations in
NARAB and set the stage for uniformity.
State Regulators Need Help from Others to Comply with NARAB
The key to State compliance with the NARAB provisions in GLBA is
adoption of the NAIC's Producer Licensing Model Act by a large majority
of States. As regulators, we have started the process at the NAIC by
developing the Model Act and revising it to meet the requirements of
GLBA.
The next step will be for State legislatures and governors to
consider the Producer Licensing Model Act, and hopefully adopt it
without substantial changes. NAIC members will be urging our
legislators and governors to act as quickly as possible because the
clock is ticking toward the November 2002 deadline for State compliance
with NARAB provisions.
NAIC officers and members have also been reaching out to insurance
industry trade groups and companies to seek their support for adopting
the Producer Licensing Model Act in each State. Industry
representatives are active and influential in State government affairs.
Having them join with regulatory officials in pushing the Model Act
would be very helpful to getting it enacted into law.
Many industry groups participated in drafting the modernization
reforms contained in the Model Act. These include: Council of Insurance
Agents and Brokers, National Association of Insurance Financial
Advisors, Independent Insurance Agents of America, Professional
Insurance Agents, National Association of Professional Surplus Lines
Offices, Consumer Credit Insurance Association, National Association of
Life Companies, American Council of Life Insurers, Alliance of American
Insurers, American Bankers Association Insurance Group, Association of
Banks in Insurance, National Association of Independent Insurers, and
the American Insurance Association.
Some commercial firms have complained to Congress and others that
State regulation needs to be modernized. We hope industry
representatives will actively support the modernization efforts which
are now the top priority of the NAIC and State insurance regulators.
Now is the time for all of us to replace words with actions.
There is also a role for the Congress with respect to giving NAIC
access to NCIC, which I will discuss later.
NAIC Initiatives Go Beyond Federal Requirements
There are three key NAIC program initiatives in our regulatory
modernization plan that go far beyond the requirements in GLBA and
other Federal laws. To make them happen, NAIC has created special
working groups, whose activities are described below--
national treatment of insurance companies
The National Treatment of Companies Working Group is responsible
for identifying regulatory procedures that will treat eligible
insurance companies the same across the Nation. Already, 29 states are
participating in the NAIC's Uniform Certificate of Authority
Application (UCAA), and one more is in transition. The Working Group's
goal is to encourage all 50 states and the District of Columbia to use
the UCAA by December 2000.
Another goal is standardizing the licensing review process. While
the UCAA provides a uniform application, the Working Group is looking
to expand this effort to also include standardized review criteria
nationwide. We also plan to develop a streamlined operating structure
that would give certain companies ``national treatment'', including
regulatory procedures related to solvency monitoring, holding company
supervision, approval of mergers and acquisitions, market conduct
reviews, and corporate re-organizations. A draft model to accomplish
this goal is currently underway, and will be discussed during the
Working Group's next meetings in August and September.
The importance of this national effort is set forth in our
Statement of Intent--
``We are committed to exploring all options that could offer
greater uniformity within the state-based system of insurance
regulation.
``An initial step toward this streamlined system is already
available through the Accelerated Licensure Evaluation and
Review Techniques (ALERT) program, which is a streamlined
insurer licensing procedure. We will encourage all states to
join ALERT and initiate use of the newly developed expansion
application process. This will allow streamlined admissions for
those companies already admitted in one ALERT state simply
through the filing of an expansion application in another ALERT
state. The expansion application process introduces elements of
reciprocal reliance on the more detailed work of the state
reviewing the complete application. We will pursue development
of an e-repository for company applications to facilitate one-
stop filing.
``In addition, we will evaluate the broad range of regulatory
issues and concerns and develop a proposal for a state-based
system that could provide the same efficiencies as a federal
charter for insurance companies.''
speed-to-market
The Speed-to-Market Working Group is responsible for identifying
one-stop product filing procedures and a more efficient product
approval process. The Working Group is considering domestic regulatory
approval in conjunction with some form of oversight or the formation of
a single-source entity that is charged with filing review. They are
considering a centralized electronic filing repository as a key
objective, and have discussed methods for implementing long-range
speed-to-market plans. Still on the table are development of an
interstate compact and reciprocal agreements.
There is widespread support among the States to pass legislation
regarding commercial lines de-regulation. Just as we revised our
producer licensing model law to respond to NARAB, we will similarly
revisit our rate and form filing procedures to assure they promote true
speed to market.
Much progress has already been made on speed-to-market through the
NAIC's System for Electronic Rate and Form Filing (SERFF) program.
SERFF is an electronic process for insurers to file required rates and
policy forms with State regulators. The current monthly total of such
filings is 300 to 400, which has been increasing steadily since the
beginning of this year. There are 34 States approved for SERFF, with 20
of those States currently active in receiving and reviewing SERFF
filings. Of the 287 companies eligible, about 150 are active in making
SERFF filings.
Version 2.0 of SERFF is set to roll-out around Labor Day. It offers
the advantage of being available through the Internet, and will provide
many enhancements such as improvements in multi-state filing and a more
user-friendly interface. Version 2.0 should greatly boost interest in
SERFF and rapidly increase the numbers of licenses, active
participants, and electronic filings transmitted.
market conduct issues
Along with solvency, consumer protection is the hallmark of the
State insurance regulatory system. Our goal is to address national
market conduct to make it as strong as our coordinated solvency
monitoring system. The Market Conduct Issues Working Group is
responsible for streamlining regulatory procedures dealing with
coordination or duplication, uniform procedures, philosophy, focus of
examinations, self-audits and assessments, training, costs, and uniform
legal standards. Streamlining insurance supervision is a top priority,
but assuring consumers of fair treatment in the marketplace will always
be our highest priority.
Congress Can Help Improve State Regulation
Improvements in several Federal laws affecting State insurance
regulation would help give us all the tools we need to meet the
challenges of the modern marketplace. During Congressional
consideration of GLBA, the NAIC suggested several amendments to Federal
laws that would be useful.
The primary benefit of making the following changes to Federal laws
is to achieve uniform regulatory procedures and national enforcement
quickly by using the existing system of State regulation. The NAIC
proposes that Congress--
Provide State insurance regulators with access to the national
criminal information database (NCIC) through the NAIC or its
affiliates for regulatory purposes and for checking criminal
histories as required by the Federal Insurance Fraud Prevention
Act. (18 USC 1033)
Grant Federal immunity from liability for NAIC and NIPR
database activities related to creating a national licensing
and enforcement system.
Protect the confidentiality of regulatory communications among
NAIC, State regulators, and Federal agencies.
NAIC and its members will be pleased to provide additional
information and assist Congress in adopting Federal legislation to
achieve these goals.
Conclusion--State Regulators Are Meeting the Challenge of Modernization
The NAIC and State insurance regulators are well on the way to
implementing the provisions of GLBA as intended by Congress. More
importantly, we are also well on the way to doing far more than
Congress or industry representatives have asked us to do regarding
uniformity, efficiency, and modernization. We will need help from other
State officials, industry, and Congress to complete the job expected by
consumers, policyholders, and claimants as we begin the 21st century.
We look forward to working with Congress and other interested
parties as State insurance regulators continue to develop and implement
our modernization programs.
Attachment One
statement of intent: the future of insurance regulation
Our primary goal is to protect insurance consumers, which we must
do proactively and aggressively. We also recognize that consumers as
well as companies are well served by efficient, market-oriented
regulation of the business of insurance.
Insurance is unique in the world of financial services.
Historically, insurance markets have developed from state to state
reflecting the differences in population, geography, weather patterns
and delivery systems. State regulation has addressed that marketplace
efficiently and effectively.
Fueled by enhanced technology and globalization, the world
financial markets are undergoing rapid changes. In order to protect and
serve more sophisticated but also more exposed insurance consumers of
the future, insurance regulators are committed to modernize insurance
regulation to meet the realities of an increasingly dynamic, and
internationally competitive financial services marketplace. This will
include working with all parties to combat and reduce the incidence of
fraud, thereby providing a safer environment for consumers and lower
costs.
We pledge to work cooperatively with all our partners--governors,
state legislators, federal officials, consumers, companies, agents and
other interested parties--to facilitate and enhance this new and
evolving marketplace as we begin the 21st Century.
i. implementing the gramm-leach-bliley act
Proposed Amendments of State Laws
Working with our governors and state legislators, we will undertake
a thorough review of our respective state laws to determine needed
regulatory or statutory changes to achieve functional regulation as
contemplated by the Gramm-Leach-Bliley Act. Anti-affiliation statutes,
licensure laws, demutualization statutes, and various essential
consumer protections, including sales and privacy provisions, will be
part of this review. We will move forward quickly to both promulgate
regulations and suggest statutory changes to facilitate implementation
of the new law.
Streamlined Licensing for Producers
We are committed to uniformity in producer licensing and will work
to implement effective uniform producer licensing standards. As a
necessary interim step, the NAIC adopted the Producer Licensing Model
Act for consideration by state legislatures. This Model Act provides
specific multi-state reciprocity provisions to comply with the
requirements of the Gramm-Leach-Bliley Act.
While reciprocity is a short-term answer, uniformity is the
efficient, long-term solution. As a result, we have empowered the
NAIC's non-profit affiliate Insurance Regulatory Information Network
(IRIN) to develop recommendations for a streamlined, national producer
licensing process that will reduce the cost and complexity of
regulatory compliance related to the current multi-state process. We
believe that by leveraging work already done on the Producer Database
and the Producer Information Network and by using IRIN as a central
clearinghouse for non-resident licensing information, efficiencies will
be realized that exceed expectations outlined in the National
Association of Registered Agents and Brokers (NARAB) provisions of the
Gramm-Leach-Bliley Act.
Financial Examinations and Reviews of National Companies
We will consider the implications of the Gramm-Leach-Bliley Act on
the regulatory authority, focus, and procedures provided by the NAIC
Insurance Holding Company System Model Act and accompanying Model
Regulation and will recommend changes for consistency with the
functional regulatory scheme set forth in the Gramm-Leach-Bliley Act
and related federal regulations.
Building on initiatives already underway, we will review our
financial reporting and financial analysis and examination processes in
light of the new law and changes occurring in the market place. We will
refine our risk-based approach to examining the insurance operations of
financial holding companies to place greater emphasis on a company's
unique risk exposures and how it manages those risks.
We will recommend mechanisms to enhance communication and
coordination among all functional regulators, and we will review the
role of the NAIC resources in supporting such communication and
coordination.
We will pursue development of a group-wide approach to regulating
insurer groups and enhancing coordination among states. As a part of
this initiative, we will consider consolidated financial statements for
the insurance operations of groups.
Implementing Functional Regulation and Sharing Regulatory Information
We will continue to use the NAIC process for the development of
model agreements, and we will build on our progress to date. We will
actively encourage the execution of information sharing agreements
between the individual states and each of the key federal functional
regulators.
In addition, we will develop a comprehensive agreement for the
sharing of information among states.
The NAIC adoption of the model confidentiality law provisions
demonstrates its commitment to break down barriers to sharing
information between the States. We will work with state legislators to
support such confidentiality legislation. We will pledge to form
coalitions with interested parties to promote uniform and consistent
enactment of the confidentiality provisions.
ii. year 2000 national regulatory priorities
``Speed to Market''
Working with our governors and state legislators, we will take
steps to improve speed to market for insurance products. This will
include development and implementation of a system of deference to the
state of domicile using one-stop filing for products issued on a multi-
state basis, where appropriate. To support this system, we will develop
and implement state-based uniform standards for policy form and rate
filings for appropriate product lines. In pursuing this evaluation, we
will keep in mind the need for flexibility to allow local treatment of
conditions produced by local markets. For lines that do not lend
themselves to uniform standards, we are committed to reviewing market
barriers for further efficiencies. We will take steps to shift the
focus of states away from a prior approval system, where appropriate.
We will also develop an e-repository for filings, a system for tracking
data, and a state certification process.
In addition, we will take steps to shift the focus of states away
from a prior approval system, where appropriate.
Regulatory Re-engineering
The benefits of uniform regulatory procedures for insurers selling
products to large, sophisticated commercial policyholders are
compelling. Many states have adopted and are implementing laws to re-
engineer their commercial lines regulatory functions.
We will evaluate the progress of specific states with respect to
commercial lines reform, and compare those actions with the Property
and Casualty Model Rate and Policy Form Law. Based on this evaluation,
we will consider amending the Model and taking other appropriate steps
to achieve greater uniformity and consistent application of rate and
form requirements with our members.
We will continue to explore avenues to reduce unnecessary
requirements for policies sold to insurance purchasers with insurance
knowledge and market power. Where appropriate, we will explore
increased reliance on the benefits of open competition.
Market Conduct Reform
Market conduct is an essential regulatory tool. Its importance to
regulators, producers and consumers will increase as the ``Speed to
Market'' reforms are implemented and the marketplace evolves.
We will examine the current focus, structure and implementation of
market conduct programs in the states to identify the issues and
concerns that currently exist in this area. This examination will help
us determine the merits of voluntary uniform national standards as a
basis for market conduct examinations and enforcement actions. In
pursuing this evaluation, we will keep in mind the need for flexibility
to allow local treatment of conditions produced by local markets.
Facilitating Electronic Commerce that Protects Consumers
The insurance-buying public and industry must be allowed to benefit
from the broad range of opportunities that e-commerce offers. As a
result, we adopted the recommendations of the Electronic Commerce and
Regulation Working Group and endorsed the Uniform Electronic
Transactions Act (UETA) for consideration and enactment in each of the
states. As e-commerce evolves, we will continue to identify necessary
reforms that will facilitate e-commerce while maintaining important
consumer protections.
Treatment of National Insurance Companies
We are committed to exploring all options that could offer greater
uniformity within the state-based system of insurance regulation.
An initial step toward this streamlined system is already available
through the Accelerated Licensure Evaluation and Review Techniques
(ALERT) program, which is a streamlined insurer licensing procedure. We
will encourage all states to join ALERT and initiate use of the newly
developed expansion application process. This will allow streamlined
admissions for those companies already admitted in one ALERT state
simply through the filing of an expansion application in another ALERT
state. The expansion application process introduces elements of
reciprocal reliance on the more detailed work of the state reviewing
the complete application. We will pursue development of an e-repository
for company applications to facilitate one-stop filing.
In addition, we will evaluate the broad range of regulatory issues
and concerns and develop a proposal for a state-based system that could
provide the same efficiencies as a federal charter for insurance
companies.
Attachment Two
NAIC Meetings with Federal Agencies
----------------------------------------------------------------------------------------------------------------
Federal Agency Date Key Participants Notes
----------------------------------------------------------------------------------------------------------------
Federal Reserve Board................ April 9, 1998.......... Governor Susan Philips/ Initial meeting to open
George Nichols, a cooperation dialogue
Elizabeth Costle. at the Federal Reserve
Building in DC.
Federal Reserve Board................ May 8, 1998............ Rich Spillenkothen, Fed Day-long meeting
supervision chief/ between NAIC and
Commissioner Terri Federal Reserve
Vaughan. experts to explore
regulatory methods at
the Federal Reserve
Building in DC.
Federal Reserve Board................ June 20, 1998.......... Roger Cole, Fed Discussion of RBC and
financial chief/ other Accounting/
Commissioner Terri Financial Issues at
Vaughan. NAIC national meeting
in Boston.
Federal Reserve Board................ December 5, 1999....... Connecticut and Federal NAIC/Federal Reserve
Reserve experts regulator-only meeting
handling Citigroup re Citigroup at NAIC
merger. national meeting in
San Francisco.
Federal Reserve Board................ January 10, 2000....... Governor Laurence Meeting of top leaders
Meyer, Rich from Federal Reserve
Spillenkothen/ and NAIC to discuss
Commissioners George GLBA cooperation--Held
Nichols and George at the Federal Reserve
Reider. Building in DC.
Federal Reserve Board................ February 24, 2000...... Rich Spillenkothen and Domestic Joint Forum
numerous Federal and regarding GLBA
State regulators. compliance issues--
Regulators only--Held
at Federal Reserve
Building in DC.
Federal Reserve Board................ March 12, 2000......... Rich Spillenkothen/ Discussion of GLBA
Commissioner Terri issues at NAIC
Vaughan. national meeting in
Chicago.
Office of the Comptroller of the November 17, 1998...... Sam Golden, OCC Visit with OCC
Currency. Ombudsman/Commissioner Ombudsman at OCC's
Donna Lee Williams. Houston office to
review consumer
complaint procedures.
Office of the Comptroller of the February, 1999......... Jerry Hawke, Addressed NAIC
Currency. Comptroller. commissioners
conference in DC.
Office of the Comptroller of the March 8, 1999.......... Sam Golden, OCC Addressed NAIC FSM
Currency. Ombudsman. Committee at national
meeting in DC.
Office of the Comptroller of the June 7, 1999........... Sam Golden, OCC Addressed NAIC FSM
Currency. Ombudsman. Committee at national
meeting in Kansas
City.
Office of the Comptroller of the October 1999........... Senior OCC officers Met with insurance
Currency. from DC and regional commissioners at their
offices. regional zone meetings
at NAIC national
meeting in Atlanta.
Office of the Comptroller of the October 4, 1999........ Leann Britton, OCC Addressed NAIC FSM
Currency. supervision chief. Committee at national
meeting in Atlanta.
Office of the Comptroller of the November 1, 1999....... Leann Britton/ Day-long meeting of
Currency. Commissioner Terri senior NAIC and OCC
Vaughan. officials to discuss
regulatory cooperation
at OCC office in
Kansas City.
Office of the Comptroller of the December 6, 1999....... Delora Jee, OCC deputy Addressed NAIC FSM
Currency. supervision chief. Committee at national
meeting in San
Francisco.
Office of the Comptroller of the February 11, 2000...... Leann Britton, Julie Day-long meeting of
Currency. Williams/Commissioners senior NAIC and OCC
George Nichols and officials to discuss
Terri Vaughan. regulatory cooperation
at OCC office in DC.
Office of Thrift Supervision......... February 27, 1998...... Ellen Seidman, OTS Initial meeting of OTS
Director/Commissioners and NAIC leaders to
Glenn Pomeroy and promote regulatory
George Nichols. cooperation.
Office of Thrift Supervision......... June 1998.............. Ellen Seidman, OTS Addressed NAIC Banks
Director. and Insurance
Committee at national
meeting in Boston.
Office of Thrift Supervision......... October 14, 1998....... Mary Jane Cleary/Jack Discuss next steps in
Chesson. promoting regulatory
cooperation between
OTS and state
regulators.
Office of Thrift Supervision......... November 3-4, 1998..... Rick Riccobono, OTS Two-day meeting in
Deputy Director/ Kansas City between
Commissioner Terri senior experts at NAIC
Vaughan. and OTS to explore
regulatory methods and
cooperation issues.
Office of Thrift Supervision......... December 16, 1998...... Scott Albinson, OTS Discuss OTS-NAIC
Deputy/NAIC Staff. regulatory cooperation
agreement at NAIC DC
office.
Office of Thrift Supervision......... December 1998.......... Senior OCC officers Met with insurance
from DC and regional commissioners at their
offices. regional zone meetings
at NAIC national
meeting in Orlando.
Office of Thrift Supervision......... April 6, 2000.......... Ellen Seidman, OTS Meeting of leaders at
Director/Commissioner OTS office in DC to
George Nichols. discuss GLBA
implementation issues
and promote signing of
regulatory cooperation
agreements.
Office of Thrift Supervision......... June 29, 2000.......... NAIC's Nat Shapo/Eric Consultation meeting
Nordman and senior regarding
attorneys from Federal implementation of
banking agencies. Section 305 insurance
sales rules for banks.
Federal Deposit Insurance Corporation February 8, 2000....... FDIC staff and Jack Initial meeting at FDIC
Chesson. office in DC to
discuss regulatory
cooperation under
GLBA.
Federal Deposit Insurance Corporation June 11, 2000.......... FDIC staff/Commissioner Meeting of FDIC
Terri Vaughan. officials and state
regulators to explore
regulatory cooperation
under GLBA at NAIC
national meeting in
Orlando.
Federal Deposit Insurance Corporation June 28, 2000.......... FDIC staff and Jack Meeting regarding
Chesson/John Fielding. development of model
regulatory cooperation
agreement between FDIC
and State insurance
departments.
----------------------------------------------------------------------------------------------------------------
Mr. Oxley. Thank you, Mr. Nichols.
Ms. Williams?
STATEMENT OF JULIE L. WILLIAMS
Ms. Williams. Mr. Chairman and members of the subcommittee,
thank you for inviting the Office of the Comptroller of the
Currency to participate in this hearing. The significant
changes to the financial services industry effected by the
implementation of the Gramm-Leach-Bliley Act make cooperation
and coordination between regulators at the Federal and State
levels more important than ever before to achieve effective and
efficient regulation of the industry we supervise. I am pleased
to have the opportunity to provide an update on these matters.
My testimony today addresses the subjects in which the
subcommittee indicated a particular interest: the dual banking
system and our coordination with State insurance regulators.
Turning first to the dual banking system, this term refers
to the fact that banks may be chartered by either a State or
the Federal Government. The development of the system may be
traced back to the early years of our Nation. Beginning in
1863, two separate and independent banking systems were
operating in this country--the State and National Banking
systems. Today, our dual banking system is far more complex and
can best be described as two interrelated systems in which most
State chartered banks are subject to a significant degree of
Federal supervision and regulation. Indeed, the largest
component of State bank supervision and regulation today comes
from the Federal level. On the other hand, Federal law also
makes State laws applicable, to a varying extent, to federally
chartered banks.
The dual banking system, however, is not without its
detractors. Some have criticized the system as overly complex
and burdensome, imposing conflicting standards on equivalent
banking organizations, and encouraging laxity in supervision by
having the State and Federal regulatory agencies compete with
each other for chartering business.
Others have defended the dual banking system as
representing federalism in practice, by providing a uniform
national system while permitting experimentation and innovation
at the State level. It has been argued that the dual banking
system provides checks and balances against over-regulation by
a single body. Finally, many would say that despite its
complexity, our banking system has functioned with notable
success in fostering economic opportunity and our Nation's
prosperity.
The OCC's oversight of national banks has been interrelated
with State insurance regulation for some time and will be even
more so following the Gramm-Leach-Bliley Act, which establishes
a system of functional regulation. Both before and after
enactment of the Act, we have taken a number of actions to
coordinate and work with State insurance regulators.
First, the OCC and the NAIC jointly developed a model
agreement to share information about consumer complaints with
respect to national banks involved in insurance sales
activities. We have entered into such complaint sharing
agreements with 28 State insurance regulators. These agreements
facilitate banks' compliance with consumer safeguards by
ensuring that the regulator with the appropriate jurisdiction
to resolve the complaint will receive and process the
complaint.
Second, we are working to develop a broader agreement that
will significantly expand the types of information shared by
the OCC and the State insurance regulatory agencies. We are
also exploring ways to better share information with State
insurance regulators about individuals who have committed fraud
or have otherwise been subject to OCC enforcement actions.
Third, in an effort to further develop working
relationships between the OCC and the State insurance
regulators, we also have been engaged in a continuing and
productive dialog with the NAIC and with individual State
regulators. To date, regional representatives of the OCC have
met with 43 State insurance regulators, and OCC staff regularly
consults with NAIC staff and the staffs of the State insurance
regulators regarding Gramm-Leach-Bliley Act implementation
issues.
Finally, we and the other Federal banking agencies have had
very productive discussions with the NAIC regarding the
development of Federal regulations implementing the provisions
of the Act that address consumer protection concerns in
depository institution sales of insurance. The banking agencies
have provided a working draft of the proposed rule to the NAIC,
and on June 29, representatives of the OCC and the other
agencies met with NAIC representatives to discuss the proposal.
We expect the proposal, reflecting these consultations, to be
issued for public comment later this summer.
Again, I appreciate the opportunity to testify before the
subcommittee this morning, and I will be happy to try to
respond to any questions the subcommittee may have.
[The prepared statement of Julie L. Williams follows:]
Prepared Statement of Julie L. Williams,* First Senior Deputy
Comptroller and Chief Counsel, Office of the Comptroller of the
Currency
---------------------------------------------------------------------------
* The views expressed herein are those of the Office of the
Comptroller of the Currency and do not necessarily represent those of
the President.
---------------------------------------------------------------------------
introduction
Mr. Chairman and members of the Subcommittee, thank you for
inviting the Office of the Comptroller of the Currency (OCC) to
participate in this hearing. The significant changes to the financial
services industry effected by the implementation of the Gramm-Leach-
Bliley Act (GLBA) make cooperation and coordination between regulators
at the Federal and State levels more important than ever before. We
appreciate this opportunity to share with you the OCC's experience
working with State insurance regulators.
As the Subcommittee requested, today I will provide a short
overview of the dual banking system. I will then discuss how the OCC is
implementing GLBA both through the formal development of supervisory
policies together with State insurance regulators, and through our less
formal, but equally important, efforts to strengthen and maintain the
productive working relationships we have established with our State
insurance regulator colleagues. I will conclude my remarks by reporting
to you about the status of our work to prepare, in consultation with
State insurance regulators, the insurance consumer protection
regulations required by section 305 of GLBA.
the dual system of banking regulation
``The dual banking system'' refers to the fact that banks may be
chartered by either a State or the Federal Government. The development
of the system may be traced back to the early years of our Nation, when
popular, and especially agrarian, animosity towards the establishment
of banks by the National Government was very strong. 1 The
opposition was based on the widely accepted belief that banks
encouraged usury, diverted funds from agriculture, increased
speculation, and were responsible for a host of other social and
economic evils.2 Nonetheless, a permanent Federal banking
system was established in 1863, when the financial demands of the Civil
War, and the need for the consistency and uniformity of a national
system, made such action exigent.3 However, the animus
against banks did not prevent the establishment of State chartered
banks, and during the period between 1837 and 1863 many banks were
formed under State authority. By the time the national banking system
began in 1863, State chartered banking was an established presence in
the United States.
---------------------------------------------------------------------------
\1\ J. White, Banking Law 7 (1976).
\2\ Id.
\3\ B. Hammond, Banks and Politics in America from the Revolution
to the Civil War 721-727 (1957). Hackley, Our Baffling Banking System,
52 Va. L. Rev. 565, 570 (1966). Two Federal banks were chartered prior
to 1863--the First and Second Bank of the United States, each for a
period of 20 years. In 1832 President Jackson vetoed legislation
renewing the charter of the Second Bank of the United States,
effectively ending Federal chartering activity until the Civil War. J.
White, Banking Law 16 (1976).
---------------------------------------------------------------------------
Thus, beginning in 1863, two separate and independent banking
systems were operating in the country--the State and National Banking
systems. In the nineteenth century, a bank could be chartered and
regulated by either authority without interference from the other.
Today, our dual banking system is far more complex. Starting with
the Federal Reserve Act in 1913, Federal regulatory involvement with
the affairs of State chartered banks began to grow. This involvement
was accelerated by the advent of Federal deposit insurance in 1933, so
that today virtually all State banks are subject to substantial Federal
oversight. At the same time, Federal provisions began to incorporate
certain State laws into the Federal regulatory framework, and made
these laws applicable to federally chartered banks. Further, a bank may
elect (with regulatory approval) to convert at any time from State to
Federal charter, or Federal to State charter. Thus, instead of having
two independent banking systems, the dual banking system today can best
be described as two interrelated systems in which most State chartered
banks are subject to a significant degree of federal supervision and
regulation, and where State laws are made applicable, to a varying
extent, to federally chartered banks.4 Indeed, the largest
component of State bank supervision and regulation is Federal.
---------------------------------------------------------------------------
\4\ For a more detailed description about the dual banking system,
see Scott, The Patchwork Quilt: State and Federal Roles in Bank
Regulation, 32 Stan. L. Rev. 687 (1980); Scott, The Dual Banking
System: A Model of Competition in Regulation, 30 Stan. L. Rev. 1
(1977); Brown, The Dual Banking System in the United States (1968).
---------------------------------------------------------------------------
Some have criticized the dual banking system as an overly complex
and burdensome institution that imposes conflicting standards on
equivalent banking organizations, and which encourages laxity in
supervision by having the State and Federal regulatory agencies compete
with each other for chartering business.5 This complexity is
highlighted by the fact that the dual banking system actually consists
of one Federal system and 50 State systems, since each State is free to
construct its own regulatory framework.
---------------------------------------------------------------------------
\5\ See, e.g., Redford, Dual Banking: A Case Study in Federalism,
31 Law and Contemp. Probs. 749, 770-773 (1966).
---------------------------------------------------------------------------
On the other hand, others have defended the dual banking system as
representing Federalism in practice by permitting individual States the
flexibility necessary to provide for the banking services needed by
their local communities, and encouraging experimentation and innovation
at the State, as well as Federal, level.6 Further, some have
argued that by providing an alternative chartering mechanism, the dual
system provides ``checks and balances'' against over-regulation by a
single monolithic body.7
---------------------------------------------------------------------------
\6\ Id.
\7\ Id. See also, Golembe, Our Remarkable Banking System, 53 Va. L.
Rev. 1091 (1967).
---------------------------------------------------------------------------
One key aspect of the current system of bank regulation for
purposes of the Subcommittee's inquiry today, however, is that the
OCC's oversight of national banks has been interrelated with State
insurance regulation for some time. Since 1916, national banks have
been expressly permitted to sell insurance directly pursuant to the so-
called ``place of 5,000'' provision at 12 U.S.C. Sec. 92.8
After the enactment of GLBA, national banks may also sell insurance
through financial subsidiaries without regard to these geographic
restrictions.
---------------------------------------------------------------------------
\8\ Before GLBA, an estimated 50% to 65% of all banking
associations and virtually all banks with assets of more than $10
billion were selling some form of insurance. Larry LaRocco, ``Banks'
Role in Insurance to Grow After Gramm-Leach-Bliley Act,'' National
Underwriter, Nov. 15, 1999, at 7.
---------------------------------------------------------------------------
glba's functional regulation regime
GLBA establishes a system of functional regulation that requires
each financial regulator to defer to the regulator primarily
responsible for supervising particular entities. Thus, in general,
State insurance regulators will oversee insurance agencies and
companies, securities regulators will oversee registered securities
firms, and banking regulators will oversee banking organizations.
The functional regulation provisions in GLBA restrict the OCC's
ability to require reports, examine and take remedial actions against
functionally regulated national bank subsidiaries and affiliates. For
example, GLBA requires the OCC to rely, to the fullest possible extent,
on reports provided by national bank insurance subsidiaries to their
functional regulator. In addition, GLBA permits the OCC to examine a
functionally regulated subsidiary or affiliate of a national bank only
if: (1) we have reasonable cause to believe that the subsidiary is
engaged in activities that pose a material risk to the national bank;
(2) we reasonably conclude--after reviewing reports obtained from the
functional regulator--that the examination is necessary in order for us
to be adequately informed about the systems for monitoring and
controlling operational and financial risks that could pose a threat to
the safety and soundness of the national bank; or (3) based on reports
or other information, we have reasonable cause to believe that the
subsidiary is not in compliance with laws that we have the jurisdiction
to enforce. Other statutory standards substantially limit the ability
of the OCC to take enforcement actions against functionally regulated
entities.
These provisions effectively place the functional supervisor--State
insurance regulators in the case of functionally regulated national
bank insurance subsidiaries, for example--in a pivotal position to
identify activities conducted by a national bank's insurance subsidiary
that could compromise the safety and soundness of its parent national
bank (or other parent depository institution). Close cooperation with
State insurance authorities is thus not only statutorily required, but
is essential for us to fulfill the OCC's primary mission of ensuring
the safety and soundness of the National Banking System.
To achieve this goal, the OCC will continue to monitor the impact
of subsidiaries' insurance activities on the safety and soundness of
parent national banks, by examining banks' systems and procedures for
monitoring and controlling risks arising from those activities and by
reviewing carefully the information we receive from State insurance
regulators. Moreover, the GLBA functional regulation provisions
highlight the importance of developing processes to share appropriate
information between the OCC and the State insurance regulators and
establishing close working relationships with State insurance
regulators. The OCC has taken several actions in furtherance of these
goals.
information sharing
The exchange of appropriate and meaningful information not only
assists the OCC and State insurance supervisors in identifying
individual and systemic risks, but also establishes the foundation for
prompt and effective action to address consumer concerns. The OCC
recognized the need for cooperative efforts to address consumer
concerns well before passage of GLBA. In 1996, the OCC invited State
insurance commissioners to the OCC to open a dialogue between two
historically distant regulatory systems and to begin exploring ways to
better coordinate our efforts. As a result, the OCC and the National
Association of Insurance Commissioners (NAIC) jointly developed a model
agreement to share information about consumer complaints with respect
to national banks involved in insurance sales activities. The OCC then
worked with individual State insurance regulators to ``customize'' the
agreement to be consistent to unique features of a particular State's
law. To date, the OCC has entered into consumer complaint sharing
agreements with 28 State insurance regulators.
These agreements require the OCC to send to the appropriate State
insurance regulator copies of all complaints that the OCC receives
relating to insurance sales in that State by a national bank. Likewise,
the State insurance regulator will send to the OCC copies of all
complaints it receives involving a national bank. The agreement also
provides that the OCC and the State insurance regulator communicate
with each other to the fullest extent possible on matters of common
interest, such as regulatory and policy initiatives.
These agreements enhance consumers' ability to remedy their
complaints and facilitate banks' compliance with consumer safeguards by
ensuring that the regulator with the appropriate jurisdiction and
authority to resolve the complaint will receive and process the
complaint. Complaints received from the States also will assist the OCC
in focusing its examination resources with respect to national banks
that sell insurance directly. Information about consumer complaints
will help examiners spot trends in insurance sales practices among
national banks that sell insurance and in the banking industry in
general and enable them to take appropriate supervisory steps if any
particular bank generates complaints with more than normal frequency.
The OCC's Customer Assistance Group (CAG), located in Houston,
Texas, is primarily responsible for implementing these agreements in
coordination with the State insurance regulators. The CAG is fully
staffed with banking compliance professionals who log, track and
resolve national bank customer complaints with the assistance of a call
center employing modern call center technology. As of June 30, 2000,
the CAG has referred 70 complaints to those States that have signed the
agreement and received 3 referrals from State insurance regulators. All
referrals received by CAG are processed and sent to the bank for
responsive action, and the information is shared with the appropriate
State insurance regulator.
In light of the heavy reliance on State insurance regulation that
GLBA requires, we are currently working to develop a broader agreement
that will significantly expand the types of information shared by the
OCC and the State insurance regulatory agencies. We anticipate that
these agreements will provide for the sharing of various types of
supervisory information in addition to incorporating the existing
consumer complaint sharing provisions. For example, we expect the
agreement to follow the GLBA provisions and permit each agency to
request from the other information regarding: (1) the material risks to
the operations or financial condition of a regulated entity; (2) the
insurance activities of a regulated entity; or (3) other matters
necessary to disclose fully the relations between a regulated entity
supervised by the OCC and a regulated entity supervised by the State
insurance regulator, provided the information requested is in
furtherance of the agency's lawful examination or supervision of the
regulated entity. The agreement is intended to cover the exchange of
information involving national banks, national bank subsidiaries,
Federal branches or agencies, companies engaged in insurance activities
subject to the supervision of the State insurance regulator, and other
entities over which the OCC or the State insurance regulator has
examination or supervisory authority.
These new, more comprehensive agreements are also intended to cover
information relating to enforcement actions. This provision will permit
each agency to assess whether the enforcement action poses risks to an
entity it regulates that is not subject directly to the enforcement
action, and put the agency on notice of possible violations of law or
unsafe and unsound practices that may require independent investigation
and follow up with the entity it does not regulate. Over the next few
months, we expect to work with the NAIC to develop our draft into a
model supervisory information sharing agreement that will serve as the
basis for agreements between the OCC and each State insurance
regulator.
The OCC also is exploring ways to better share information with
State insurance regulators about individuals who have committed fraud
or have otherwise been subject to OCC enforcement actions. The OCC
currently makes this information publicly available through it Web
site. For example, the OCC currently lists on its Web site the names of
individuals that are the subject of formal enforcement actions,
including removals from the industry, orders to make reimbursement, and
assessments of civil money penalties.9
---------------------------------------------------------------------------
\9\ This information is available on the OCC's Web site at http://
www.occ.treas.gov/enforce/enforce.htm.
---------------------------------------------------------------------------
The OCC has also recently amended its rules relating to national
bank corporate activities to include new procedures for sharing with
State insurance departments appropriate information relating to initial
and continuing affiliations between national banks and companies
engaged in insurance activities. The OCC included these procedures
following discussions with, and at the request of, NAIC members that
they receive some notification when a national bank applies to the OCC
to commence insurance operations in a particular State. Under the new
procedures, a national bank must describe in its notice or application
to the OCC to establish a financial subsidiary or an operating
subsidiary, or to make a non-controlling investment in an entity that
will engage in insurance activities, the type of insurance activities
that the bank is engaged in or will engage in and the lines of business
for which the company holds or will hold an insurance license. The OCC
will then forward this information to the appropriate State insurance
regulator.
maintaining intergovernmental working relationships
As I have described, our original consumer complaint sharing
agreement grew out of the contacts we initiated with the NAIC in 1996.
In an effort to further develop working relationships between the OCC
and the State insurance regulators, we have been engaged in a
continuing and productive dialogue with the NAIC and with individual
State regulators. To date, regional representatives of the OCC have met
with 43 State insurance regulators to identify implementation issues
arising from the GLBA functional regulation system. Senior OCC
representatives attend NAIC quarterly meetings on a regular basis.
These meetings have provided a valuable means for the OCC and State
insurance regulators to exchange information about their respective
regulatory priorities and supervisory approaches.
OCC staff also has regularly consulted with NAIC staff and the
staffs of the State insurance regulators regarding GLBA implementation
issues. Senior NAIC and OCC staff have met on several occasions over
the past year to discuss the new functional regulation framework. The
OCC and the NAIC held an introductory meeting on November 1, 1999. On
February 11, 2000, senior OCC, NAIC staff and several State insurance
commissioners met to discuss issues such as consultation about
affiliations between banks and companies engaged in insurance
activities, privacy, consumer protections, a national insurance
licensing system, supervision methodologies, and a mechanism for
coordination on emerging issues. Also in February, the OCC, the Federal
Reserve Board, the FDIC, the OTS, the CFTC, the SEC, the State
insurance commissioners, and the State banking commissioners met to
discuss Gramm-Leach-Bliley implementation issues.
Going forward, the OCC will build on these relationships as we
coordinate our oversight of insurance activities conducted by national
banks and their subsidiaries with that of the functional insurance
regulators. To this end, the OCC and NAIC are planning a follow-up
meeting in August, that I will attend. Among the issues on the
tentative agenda for this meeting are: the supervisory information
sharing agreement, privacy regulations, insurance complaint resolution
procedures, and continuing joint training and outreach opportunities.
insurance consumer protection regulations
The OCC, as well as the other Federal banking agencies, also has
had productive discussions with the NAIC regarding the development of
federal regulations to address consumer protection concerns relating to
depository institution sales of insurance. Section 305 of GLBA requires
the OCC, the Federal Reserve Board, the FDIC, and the OTS jointly to
issue consumer protection regulations that apply to retail sales
practices, solicitations, advertising, or offers of any insurance
product by a bank (or other depository institution) or by any person
engaged in such activities at an office of the institution or ``on
behalf of'' the institution. Among other things, the rules must
address: (1) specific disclosures that must be made to the consumer
before completion of the insurance sale; (2) the physical segregation
of the area of insurance activity from the area where retail deposits
are routinely accepted; (3) limitations on referrals by persons
accepting deposits in the area where such transactions are routinely
conducted; and (4) prohibitions on misrepresentations. The agencies are
required to publish final regulations no later than 1 year after the
enactment of the GLBA.
The banking agencies have provided a working draft of the proposed
rule to the NAIC. On June 29, 2000, representatives of the OCC and the
other agencies met with NAIC representatives to discuss the proposal.
We expect that the agencies' proposal, which will be issued this
summer, will reflect the comments and suggestions provided by the NAIC
at that time.
conclusion
The notion of ``duality'' suggested by the designation ``dual
banking system'' does not, either under the law or in practice, mean
that today Federal and State banking regulators operate independently
of one another within their respective jurisdictional spheres. In the
insurance area, the growing involvement of national banks in insurance
activities has required a cooperative relationship with State
regulators since well before GLBA was enacted. After GLBA, however, the
Federal/State relationship assumes greater importance for the safety
and soundness of the National Banking System because of the reliance
that the GLBA functional regulation framework places on the first-line
supervision of insurance activities by the States. The OCC is committed
to continuing to work closely with State insurance authorities not only
to implement the express requirements of the statute but also to foster
regular, open lines of communication that will facilitate the
achievement of both Federal and State regulatory objectives.
Mr. Oxley. Thank you, Ms. Williams.
And our final witness is the Hon. Neil Breslin from New
York State.
STATEMENT OF HON. NEIL BRESLIN
Mr. Breslin. Thank you, Mr. Chairman and my fellow New
Yorker, Congressman Towns, and members of the subcommittee. As
was indicated, my name is Neil Breslin and I represent some
300,000 people in and around the city of Albany, the State
capitol. I also serve as the Ranking Member of the Senate
Committee on Insurance.
But I am here today in my capacity as Chair of the State-
Federal Relations Committee of the National Conference of
Insurance Legislators.
As many of you know, the National Conference of Insurance
Legislators, known as NCOIL, is an organization of State
legislators, most of whom are bankers or participants in the
insurance committees in their various States. They bring back
information and participate in many of our conferences to
facilitate and coordinate in the uniformity of insurance across
this country.
On behalf of the legislators active in NCOIL, let me
express my appreciation for this opportunity to testify on
issues related to financial modernization, globalization and
the enactment of GLBA. I would like to point out that with the
exception of redomestication and National Association of
Registered Agents and Brokers--NARAB--provisions, NCOIL
supported the financial modernization legislation that
eventually became GLBA. However, the enactment of GLBA has
raised questions as to what States are doing to comply with the
new law and to respond to marketplace realities.
Against a backdrop of GLBA and of increasingly globalized
insurance markets, the National Association of Insurance
Commissioners--NAIC--has developed a Statement of Intent: The
Future of Insurance Regulation. That statement identifies,
among the NAIC's goals, the need for one-stop shopping for
insurance products, for national chartering of insurers within
a State-based system, and for more expeditious regulatory
approval of insurance products.
NCOIL not only supports this statement, it actively
supports these goals.
At the same time, NCOIL opposes any proposal that would
require amendment of McCarran-Ferguson, the landmark law that
authorized the States to regulate the business of insurance.
Congress has reaffirmed that authorization in GLBA.
My testimony today will address three specific areas of
concern to you and to State legislators. Those areas relate to:
NARAB provisions of Gramm-Leach-Bliley, national chartering,
and privacy.
As relates to NARAB, since the enactment of GLBA, State
legislators have focused on the new law's provision that would
lead to establishment of NARAB. GLBA would begin implementing
NARAB by November 12, 2002 if at least 28 states have not
enacted uniform or reciprocal laws and regulations governing
the licensing of resident and non-resident producers.
NARAB would serve as a national licensing authority that
would draw on existing State laws to devise uniform licensing
requirements. It would serve as the mechanism for agents and
brokers to obtain licenses in any State where they want to do
business. Unfortunately, it would create yet another regulatory
bureaucracy, one that would significantly undermine the ability
of States to regulate insurance.
In its wisdom, however, Congress has given the States time
to enact the kind of uniform laws and rules that will make
NARAB unnecessary. I am here to tell you that the States can
and will do that. And, I am here to tell you that the States
will do it within the deadline.
As has been indicated by Commissioner Nichols, the States
have already begun. I might add that Kentucky, being the first,
moved quicker than their basketball team.
The Kentucky legislation provides, among other things, for
a single producer license for residents and non-residents of
the State. It would also bar the Insurance Commissioner from
assessing a greater fee for an insurance license to a non-
resident based solely on the fact of non-residency. It would
also allow an individual surplus lines broker's license in
Kentucky if reciprocal arrangements existed in other states.
In addition, Missouri and New Hampshire have also enacted
similar laws, both of which meet the NARAB test. I have
introduced legislation that will meet the same test in New
York, which I have every confidence will be passed in our
upcoming session.
All these initiatives have a solid, well-thought-out
foundation. Their essential basis is a model law developed by
the NAIC. The NAIC adopted its model earlier this year,
following 2 years of testimony from all segments of the
insurance industry, consumer groups, and other interested
parties, many of whom are here today listening.
The NAIC model responds to the reality that more efficient
and uniform insurance producer licensing is needed to maintain
a U.S. competitive edge in an increasingly global economy. At
the same time, the model preserves the strong features of State
regulation of insurance as authorized under McCarran-Ferguson.
It encourages uniformity in areas such as non-resident
licensing, exemptions, commissions, appointments, and
reciprocity.
Over the last several months, NCOIL has provided State
legislators with appropriate information regarding GLBA and
NARAB. NCOIL will continue to do so.
In response to a request from NCOIL's President, Deputy
Speaker Clare Farragher of New Jersey, several insurance
industry trade associations submitted comments to the NCOIL
State-Federal Relations Committee regarding their stance on the
model. The comments, while acknowledging minor imperfections in
the model, demonstrated overall support. Those submitting
comments included the American Insurance Association, the
American Council of Life Insurers, the National Association of
Insurance and Financial Advisors, the National Association of
Mutual Insurance Companies, the Independent Insurance Agents of
America, and the National Association of Independent Insurers.
Two weeks ago, in Burlington, Vermont, at a National
Conference of Insurance Legislators meeting, the model act was
adopted unanimously by the National Conference of Insurance
Legislators. We have begun to coordinate our efforts aimed at
educating legislators and expediting enactment of the model in
the States. NCOIL legislators will sponsor the model and work
with legislative leadership and the insurance commissioners in
their respective states.
On national chartering, certain insurance organizations
have proposed to alter the State-based system by amending
McCarran-Ferguson. That could be a profound mistake. Under
McCarran, the domestic U.S. insurance industry has grown to a
market of more than 5,000 companies, which compete in terms of
price and service.
One such proposal would establish a system of nationally
chartered insurers. It would allow those insurers to operate
free of State insurance rating laws. It would free them to cut
prices and seize markets. It would leave consumers protected
only by the uneven and prolonged vagaries of antitrust law.
Another proposal would threaten to establish a dual-
regulatory system. It would allow for the regulation of large
multi-State companies, in part, by a Federal bureaucracy. It
would have smaller single-State and regional companies remain
under State regulation. Essentially, it would mean that
insurers would play by two sets of rules--one for the big guys,
one for the little guys. One set of rules would let big
national insurers roam free in a universe of opportunity. The
other would keep smaller companies corralled in local and State
markets. These ideas stem from the frustration of insurers in
their efforts to obtain meaningful access to U.S. and multi-
State markets.
Admittedly, the process of obtaining a license or policy
form approval in several, let alone 51 jurisdictions, can take
a prohibitive amount of time. It costs too much money. It
impedes innovation.
The essential question is this: Is there a way to preserve
the system of State-based regulation and at the same time
accommodate the need for national licensing or, as some have
called it, national chartering?
NCOIL believes there is a way. That way is through an
interstate compact. Under a compact, States could enact
licensing and chartering rules that would have the full force
of law in each of the compact jurisdictions and across State
lines.
The establishment of an interstate compact for insurance
regulation would require a single uncomplicated legislative act
in each compacting State. States that wish to join the compact
would enact that legislation. The compact agency would have
legal standing in State laws and in courts. It would be
accountable to the governments of the compacting States.
The momentum for a compact has started to build. The NAIC
National Treatment Working Group has begun to address the issue
of interstate compacts. It has issued several memoranda on the
legality and practicality of implementing an interstate
compact.
NCOIL developed a comprehensive interstate compact nearly a
decade ago. That compact evolved into the Interstate Insurance
Receivership Compact, which is now law in Illinois, Michigan,
and Nebraska. States can expand on that prototype. It spells
out the rules and procedures for governance of the compact, for
access to information, and for confidentiality. Former Acting
Illinois State Insurance Director James Schacht told a recent
NCOIL meeting that extending the Receivership Compact to
include agents licensing and national chartering would be
entirely feasible.
I have asked the NCOIL staff to prepare language to that
effect for examination by the NCOIL State-Federal Relations
Committee. Support for exploration of the idea of an interstate
compact applicable to insurance regulation came from former
House Member J. Alex McMillan of North Carolina in 1993.
Privacy--the States are addressing issues of privacy in the
context of GLBA. The NCOIL president has created an Executive
Committee Task Force on Privacy. The Task Force consists of the
NCOIL president, who will serve as its Chair; myself, as Chair
of the NCOIL State-Federal Relations Committee; and the Chairs
of the NCOIL Life Insurance, Health Insurance, and Property-
Casualty Insurance Committees. The Task Force will review
current State legislative proposals on privacy, hold several
meetings, including a public hearing, and will recommend a
definitive course of action for approval by NCOIL by mid-
November.
In summary, let me say that State legislators are, I
believe, working to meet both the legal requirements of GLBA as
well as the demands of a globalized marketplace. We are working
with the NAIC and the National Conference of State
Legislatures, probably in a way that we never have before,
which in part is because of GLBA. At the same time, we continue
to remain proactive in our defense of State primacy under
McCarran.
Thank you very much, Mr. Chairman.
[The prepared statement of Hon. Neil Breslin follows:]
Prepared Statement of Hon. Neil Breslin, Senator, State of New York
Chairman Oxley and members of the Subcommittee, my name is Neil
Breslin. It is my privilege to represent 300,000 residents of the City
and County of Albany in the New York Senate. I also serve as Ranking
Minority Member of the Senate Committee on Insurance.
I appear before you today in my capacity as Chair of the State-
Federal Relations Committee of the National Conference of Insurance
Legislators (NCOIL).
NCOIL is a non-partisan organization of state legislators whose
primary area of public policy concern is insurance legislation and
regulation. Many NCOIL legislators chair or serve as members of the
committees responsible for insurance in their respective legislative
houses across the country.
On behalf of the legislators active in NCOIL, let me express my
appreciation for this opportunity to testify on issues related to
financial modernization, globalization and the enactment of the Gramm-
Leach-Bliley Act (GLBA). I would like to point out that with the
exception of redomestication and National Association of Registered
Agents and Brokers (NARAB) provisions, NCOIL supported the financial
modernization legislation that eventually became GLBA. However, the
enactment of GLBA has raised questions as to what states are doing to
comply with the new law and to respond to marketplace realities.
Against a backdrop of GLBA and of increasingly globalized insurance
markets, the National Association of Insurance Commissioners (NAIC) has
developed a ``Statement of Intent: The Future of Insurance
Regulation.'' That statement identifies, among the NAIC's goals, the
need for one-stop shopping for insurance products, for national
chartering of insurers within a state-based system, and for more
expeditious regulatory approval of insurance products.
NCOIL supports that statement.
NCOIL supports those goals.
At the same time, NCOIL opposes any proposal that would require
amendment of McCarran-Ferguson, the landmark law that authorized the
states to regulate the business of insurance.
Congress has reaffirmed that authorization in GLBA.
My testimony today will address three specific areas of concern to
you and to state legislators. Those areas relate to:
NARAB provisions of Gramm-Leach-Bliley,
national chartering, and
privacy.
narab
Since enactment of GLBA, state legislators have focused on the new
law's provision that would lead to establishment of NARAB. GLBA would
begin implementing NARAB after three years--by November 12, 2002--if at
least 28 states have not enacted uniform or reciprocal laws and
regulations governing the licensing of resident and non-resident
producers.
NARAB would serve as a national licensing authority that would draw
on existing state laws to devise uniform licensing requirements. It
would serve as the mechanism for agents and brokers to obtain licenses
in any state where they want to do business. It would create yet
another regulatory bureaucracy, one that would significantly undermine
the ability of states to regulate the business of insurance.
In its wisdom, however, Congress has given the states time to enact
the kind of uniform laws and rules that will make NARAB unnecessary.
I am here to tell you that the states can and will do that.
And, I am here to tell you that the states will do it within the
three-year deadline set by Congress in GLBA.
The fact of it is that several states have already enacted the
required legislation.
Kentucky, under the leadership of its Insurance Commissioner,
George Nichols III, has led the way. The Kentucky legislation provides,
among other things, for a single producer license for residents and
non-residents of the state. It would also bar the Insurance
Commissioner from assessing a greater fee for an insurance license to a
non-resident based solely on the fact of non-residency. It would also
allow an individual surplus lines broker's license in Kentucky if
reciprocal arrangements existed in other states.
In addition two other states--Missouri and New Hampshire--have
enacted similar laws, both of which meet the NARAB test. I have
introduced legislation that will meet the same test in New York.
All these initiatives have a solid, well-thought-out foundation.
Their essential basis is a model law developed by the NAIC. The NAIC
adopted its model earlier this year, following two years of testimony
from all segments of the insurance industry, consumer groups, and other
interested parties.
The NAIC model responds to the reality that more efficient and
uniform insurance producer licensing is needed to maintain a U.S.
competitive edge in an increasingly global economy. At the same time,
the model preserves the strong features of state regulation of
insurance as authorized under McCarran-Ferguson--state authority and
state accountability.
It encourages uniformity in areas such as non-resident licensing,
exemptions, commissions, appointments, and reciprocity.
Over the last several months, NCOIL has provided state legislators
with appropriate information regarding GLBA and NARAB. NCOIL will
continue to do so.
In response to a request from NCOIL's President, Deputy Speaker
Clare Farragher of New Jersey, several insurance industry trade
associations submitted comments to the NCOIL State-Federal Relations
Committee regarding their stance on the model. The comments, while
acknowledging minor imperfections in the model, demonstrated overall
support. Those submitting comments included the American Insurance
Association, the American Council of Life Insurers, the National
Association of Insurance and Financial Advisors, the National
Association of Mutual Insurance Companies, the Independent Insurance
Agents of America, and the National Association of Independent
Insurers.
Less than two weeks ago, on July 8, 2000, at the NCOIL Summer
Meeting in Burlington, Vermont, state legislators from across the
country voted unanimously to approve a resolution in unequivocal
support of the uniformity and reciprocity provisions of the model. That
vote followed several presentations and public discussions on the model
in the NCOIL State-Federal Relations Committee. It culminated nearly
two years of discussion at NCOIL meetings.
We have begun to coordinate our efforts aimed at educating
legislators and expediting enactment of the model in the states. NCOIL
legislators will sponsor the model and work with legislative leadership
and the insurance commissioners in their respective states.
national chartering
Certain insurance organizations have proposed to alter the state-
based system by amending McCarran-Ferguson. That could be a profound
mistake. Under McCarran, the domestic U.S. insurance industry has grown
to a market of more than 5,000 companies, which compete in terms of
price and service.
One such proposal would establish a system of nationally chartered
insurers. It would allow those insurers to operate free of state
insurance rating laws. It would free them to cut prices and seize
markets. It would leave consumers protected only by the uneven and
prolonged vagaries of antitrust law.
Another proposal would threaten to establish a dual-regulatory
system. It would allow for the regulation of large multi-state
companies, in part, by a federal bureaucracy. It would have smaller
single-state and regional companies remain under state regulation.
Essentially, it would mean that insurers would play by two sets of
rules--one for the big guys, one for the little guys. One set of rules
would let big national insurers roam free in a universe of opportunity.
The other would keep smaller companies corralled in local and state
markets.
These ideas stem from the frustration of insurers in their efforts
to obtain meaningful access to U.S. and multi-state markets.
Admittedly, the process of obtaining a license or policy form
approval in several, let alone 51 jurisdictions, can take a prohibitive
amount of time. It costs too much money. It impedes innovation.
The essential question is this: Is there a way to preserve the
system of state-based regulation and at the same time accommodate the
need for national licensing or, as some have called it, national
chartering?
NCOIL believes there is a way.
That way is through an interstate compact.
Under a compact, states could enact licensing and chartering rules
that would have the full force of law in each of the compact
jurisdictions and across state lines.
The establishment of an interstate compact for insurance regulation
would require a single uncomplicated legislative act in each compacting
state. States that wish to join the compact would enact that
legislation. It would provide for the establishment of a compact agency
that would act through a governing body. The governing body could
include the insurance commissioners of each compacting state. The
compact agency would have legal standing in state laws and in courts.
It would be accountable to the governments of the compacting states.
The momentum for a compact has started to build. The NAIC National
Treatment Working Group has begun to address the issue of interstate
compacts. It has issued several memoranda on the legality and
practicality of implementing an interstate compact.
NCOIL developed a comprehensive interstate compact nearly a decade
ago. That compact evolved into the Interstate Insurance Receivership
Compact, which is now law in Illinois, Michigan, and Nebraska.
States can expand on that prototype. It spells out the rules and
procedures for governance of the compact, for access to information,
and for confidentiality. Former Acting Illinois State Insurance
Director James Schacht told a recent NCOIL meeting that extending the
Receivership Compact to include agents licensing and national
chartering would be entirely feasible.
I have asked the NCOIL staff to prepare language to that effect for
examination by the NCOIL State-Federal Relations Committee.
Support for exploration of the idea of an interstate compact
applicable to insurance regulation came from former House Member J.
Alex McMillan of North Carolina in 1993.
Under a compact, the state insurance regulators could meet the
widely acknowledged need for national licensing of agents, brokers and
companies.
privacy
The states are addressing issues of privacy in the context of GLBA.
The NCOIL President has created an Executive Committee Task Force on
Privacy. The Task Force consists of the NCOIL President, who will serve
as its chair; myself, as Chair of the NCOIL State-Federal Relations
Committee; and the Chairs of the NCOIL Life Insurance, Health
Insurance, and Property-Casualty Insurance Committees. The Task Force
will review current state legislative proposals on privacy, hold
several meetings, including a public hearing, and will recommend a
definitive course of action for approval by NCOIL by mid-November.
NCOIL will vote on the Task Force recommendation at its Annual Meeting
in November.
summary
State legislators are, I believe, working to meet both the legal
requirements of GLBA as well as the demands of a globalized market
place. We are working with the NAIC and the National Conference of
State Legislatures (NCSL) to accomplish this.
At the same time, we continue to remain proactive in our defense of
state primacy under McCarran.
Mr. Oxley. Thank you, Senator Breslin, and all our
panelists.
Let me begin my line of questioning with you, Senator
Breslin.
I am an alumnus of what was known as COIL back then--they
added an N somewhere along the line after I left--but I am sure
the charge is pretty much the same and the activities are
pretty much the same. It was a fascinating experience for me
during my tenure in the General Assembly in Ohio to be
participating in that organization and have maintained some
friendships over that period of time.
You had indicated that NCOIL believes that a solution to
uniformity is to establish a series of interstate compacts. I
am not aware of the States incorporating or passing any
interstate compacts for as long as I can remember. And if that
is the case, are interstate compacts necessarily an alternative
to the NAIC proposals? Or can they be part of a two-track
system toward achieving uniformity?
Mr. Breslin. I think they can be part of that system. I
know the NAIC is also working on chartering. The chartering, it
seems to us, would eliminate the possibility of an additional
bureaucracy. The chartering could work on a regional basis. It
simply would pass laws which, as you know, would be between and
among the States. It would probably identify insurance
commissioners as the contact persons within each State. They
would meet and develop regulations under those laws that would
be effective in the charter States.
Could either act independently or in concert? I think
probably the objective would be more independently.
Mr. Oxley. You have testified that the process of obtaining
an insurance license or policy form approval in 51
jurisdictions can ``take a prohibitive amount of time, cost too
much money, and appease innovation,'' which I agree with. But
you also state that an optional Federal regulatory system would
allow large insurers to ``roam free in a universe of
opportunity''. What is wrong with that?
Mr. Breslin. I think that in that situation they would have
a considerable and distinctive advantage over one-State and
regional operators who are operating under specific State laws
at the same time. I think it would be ineffective and
discriminatory.
Mr. Oxley. It would be discriminatory against the smaller
companies?
Mr. Breslin. Absolutely.
Mr. Oxley. Even though perhaps those companies would be
niche players and finding particular markets to deal in and not
necessarily directly competitive with the larger company?
Mr. Breslin. I believe that would be the case.
Mr. Oxley. That it would still be discriminatory?
Mr. Breslin. Yes.
Mr. Oxley. And what effect would that have on the consumer?
Just lessen his choice?
Mr. Breslin. I think it would lessen his choice. I think
what would happen is you would run the risk of driving out the
smaller companies and leaving the possibility of major
companies directing the marketplace in an inappropriate
fashion.
Mr. Oxley. Does the advent of the Internet perhaps make all
this argument somewhat moot? That is, won't the larger
companies at some point be able to market their products
through every jurisdiction on the Internet and essentially have
the same effect?
Mr. Breslin. It would depend upon the particular laws they
are adhering to. If they are adhering to a different set of
rules than the locals, I would still have the same objections.
Mr. Oxley. But it does present some potential issues,
obviously, with this new technology that we find so
fascinating.
Do you see any inconsistencies--and if so, what are they--
between the McCarran-Ferguson statute and Gramm-Leach-Bliley?
Mr. Breslin. Not specifically, no. I think Gramm-Leach-
Bliley has still outlined the import of McCarran-Ferguson.
Mr. Oxley. Thank you.
Ms. Williams, in your testimony you state that the Gramm-
Leach-Bliley Act requires each financial regulators to defer to
the regulator primarily responsible for supervising particular
entities and that in general State insurance regulators will
oversee insurance agencies and companies, securities regulators
will oversee registered securities firms, and banking
regulators will oversee banking organizations.
Let me read Section 301 of the Gramm-Leach-Bliley Act,
particularly since there is a lot of my blood in this. ``The
insurance activities of any person, including a national bank,
shall be functionally regulated by the State subject to Section
104.''
Functional regulation has never been the supervision of
entities. It has always been of activities. That clearly was
the legislative intent. Thus, even if the entity is a national
bank, the insurance activities of the national bank are
expressly required under the Act to be functionally regulated
by the States, not the comptroller.
Is this provision or congressional intent in some way
ambiguous?
Ms. Williams. No, I don't think so, Mr. Chairman. I agree
with what you said.
What I was trying to do in the testimony is provide a
shorthand description of how functional regulation works. But
the section you quote and our understanding of the whole thrust
of Gramm-Leach-Bliley is that insurance activities, even if
they are conducted by the bank directly, are subject to
oversight and regulation by the appropriate State insurance
regulatory authority.
Mr. Oxley. Thank you.
You testified, starting with the Federal Reserve Act in
1913, the Federal Government started to get involved with the
regulation of State chartered banks. In hindsight, was this
Federal involvement necessary, or were there other ways of
preserving a purely State-based option?
Ms. Williams. You are entering into an area where you will
get a lively debate from the scholars that look at the
structure of the banking industry. They would probably say that
if you were starting from scratch, you wouldn't build the
system this way, that there would be other more efficient ways
to handle supervision and regulation of the banking industry. I
think there could have been other choices made. But the way the
system has evolved, it has worked.
Mr. Oxley. I applaud the efforts of the OCC to work with
the NAIC and the States to develop model agreements for the
sharing of information. In fact, I hope that these joint
efforts can serve as a model to resolve other insurance
disputes down the road. But do you have any concerns about the
confidentiality of information shared among the agencies? Is
there any need for congressional action to authorize or ensure
that an agency or association be given additional power to keep
information confidential?
Ms. Williams. I think the issue here, which Commissioner
Nichols has referred to, is that the Gramm-Leach-Bliley Act
does envision sharing of confidential examination and
supervisory information between the Federal banking regulatory
agencies and the State insurance regulatory agencies. But there
is no particular provision made for information sharing with
the NAIC.
The way the information and data systems have been
established in the insurance industry, a lot is centralized
through the NAIC. That is not covered in current legislation.
So there are issues about confidentiality and issues about
waivers of privileges that might exist with respect to
information if it were shared with the NAIC. These are issues
you have dealt with in the Gramm-Leach-Bliley Act with respect
to agency-to-agency sharing. So I think the area that might
require additional attention is with respect to sharing with
the NAIC.
Mr. Oxley. Commissioner Nichols, would you care to comment
on that?
Mr. Nichols. Again, I think that is an important element,
from our perspective. We think that the NAIC has to have that
protection.
In trying to create this uniform system, obviously, which
State is going to keep it. Through the association, we have
been able to establish the appropriate data bases that maintain
the financial information on companies, the issues of disparate
actions against agents. The whole process of complying with
NARAB will be used through an automated system that is
maintained by an affiliate of the NAIC.
So we think it is very, very critical for that protection
because that is sort of the entity that we as the States have
been empowered to maintain the information on a national level.
Mr. Oxley. Thank you.
Ms. Williams, in your written testimony, you stated that
the OCC was working on regulations addressing the physical
segregation of bank deposits taking activity from insurance
solicitation.
I am aware that the OCC has been requested to unilaterally
preempt State insurance consumer protection laws. While many of
these laws probably fall within the safe harbors provisions of
the Gramm-Leach-Bliley Act, Congress is unable to reach a
resolution on the proper separation of bank loan activities
from bank insurance activities. Congress did, however,
establish an expedited dispute resolution process for resolving
bank insurance disputes and included numerous requirements for
the regulators to consult and coordinate with each other.
Do you believe that the intent of Congress regarding the
expedited court process and required coordination with the
State commissioners has changed? And don't you agree that an
agreement among the regulators would be preferable to reduce
litigation and long-term legal uncertainty than the unilateral
preemption of State law?
Ms. Williams. Mr. Chairman, I think it is important for me
to clarify at the outset that we don't preempt State law. We
get requests to issue legal opinions, and we respond to many of
them and express our views. But those legal opinions that are
issued by the Comptroller of the Currency's Office don't
preempt State law. It is only when that issue is taken to the
courts by private parties--an affected regulated entity or an
affected industry trade group--that the Judiciary makes the
decision as to whether or not a particular Federal provision
preempts State law.
We are not preempting. We are just providing a view as to
how we think the Federal law interacts with State law.
The Gramm-Leach-Bliley Act provides that in a situation
where there is a disagreement between a view that we have
expressed and a view that a State insurance regulator has
expressed, there is an expedited dispute resolution to take
that to the Court of Appeals to get a determination. But there
is no preemption of the State law until the court reaches a
decision.
Mr. Oxley. But you do take a position. How is that
evidenced in the judicial proceeding? In other words, do you
file an amicus? What is your role?
Ms. Williams. We could.
Mr. Oxley. Have you done so in the past?
Ms. Williams. We have filed amicus briefs in the insurance
area in connection with cases dealing predominantly with
annuities. We filed an amicus brief a number of years ago in
connection with the litigation that gave rise, ultimately, to
the Supreme Court's decision in the Barnett case.
Mr. Oxley. So there is a history of that?
Ms. Williams. Of participating in the litigation, yes, sir.
Mr. Oxley. As a party?
Ms. Williams. Technically, not as a party but as an amicus
or friend of the court.
Mr. Oxley. Thank you.
Mr. Nichols, we appreciate your leadership to provide for
uniformity initiatives in areas like national treatment of
companies, speed to market, market conduct reviews. Clearly,
without your leadership the States would be well behind the
curve in this effort.
Have you established a timeframe for the goals that you set
in your statement? How many months can we expect to wait to see
what happens? Just give us a crystal ball view of what you
might want to do.
Mr. Nichols. First, thank you for your kind comments.
The time element we have operated on--when we initially
approved the statement of intent, we said that we would like to
have the actual proposals that would outline what this national
chartering system would look like as of December of this year.
Recognizing that many things are moving very quickly, we
actually decided to move that back to September of this year.
So our objective is that through our September meeting and
the end of the month we would have the final proposals that
would be available on the statement of intent so that everyone
would have public comment and the States could begin to have
discussions with their legislatures going in to the 2001
sessions.
So the first part of the statement of intent in terms of
the actual proposals and what we think should happen would be
the end of September.
Mr. Oxley. It might even dovetail with our efforts to have
a second hearing on this subject with interested parties,
particularly from the industry.
In your written testimony you stated that the NAIC has a
working group that is developing a model law to give certain
companies national treatment.
How would you propose that that work? And what obstacles do
you expect at the State and industry level?
Mr. Nichols. What we have looked at in the development of
the proposal is to identify what would be the requirements for
a company to be eligible for such a license. For example, do
you say that you have to have a certain premium volume? Do you
say that you have to already be licensed in a number of States?
Do we ask the question of, Do you have a product that could
roll out to every State?
So we are actually going through the process of identifying
the various options one could consider that makes one eligible
for a national license. Then we are also going to look at the
process of the requirements for the regulatory agent. So if I
have a company in Kentucky that would be eligible by product,
by premium volume, and by already being licensed in a certain
number of States, does Kentucky have the qualifications in
terms of our staffing? Are we accredited? Do we meet certain
standards for regulating that entity on behalf of all the other
States? Or should we look at a group of States that oversee
that.
We are trying to get down to--the company would have a
single place to go. That organization then would be responsible
for working with all the States across the country to make sure
that they are complying with the laws and that there is a
uniform system.
We have also talked about the need for companies to meet
certain financial requirements in terms of their overall
financial condition. When we have talked about how to implement
that, there are again three options. We could ask that all the
States pass the model, where we would have the same in all and
would sort of give deference to certain regulators. You could
achieve it in that direction.
As Senator Breslin has said, we have also recognized the
issue of an interstate compact. Would that be an appropriate
tool for us to use?
I wanted to note that there is only one interstate compact
that I am aware of in insurance and I am not even sure about
the States. I think it is Nebraska, Michigan, and Illinois who
initially talked about an interstate compact regarding
receivership. I am not sure if that has truly been confirmed by
their legislative bodies, but I know there was some activity in
that regard. So we have looked at that being an option.
But we have also--and this is what I would call a slippery
slope and you may have ice skates on with it--we are looking at
whether there is some role that Congress would have to play in
assisting us in creating this national system. Obviously, there
is legal discussion. If you had an interstate compact, would
you even have to come back to Congress to have Congress approve
that in order for it to be implemented?
So we recognize that as we go down this road we are going
to have to clarify clearly the role Congress would have to
play. But we think it is feasible and achievable that we could
create a national license for an insurance company that
outlines what the requirements are. We do that to take into
consideration a single-State company or a regional company to
make sure that they are not put at a competitive disadvantage.
But we think we can do that by overlaying it on the State
system as long as the State and the company both meet certain
very high, stringent standards.
Mr. Oxley. Finally, you indicated in your testimony that
you would need Congress' help, particularly in getting access
to the FBI's NCIC computer. In your estimation, would that
require specific congressional legislation to accomplish that
goal?
Mr. Nichols. To my understanding, it would require your
approval.
Mr. Oxley. Thank you.
I now recognize the gentleman from New York, the ranking
member, Mr. Towns.
Mr. Towns. Mr. Chairman, you did a thorough job. I want you
to know that.
Let me begin by asking a couple of quick things.
Mr. Nichols, I understand the NAIC State insurance privacy
law provides stronger protection for the consumer than the
privacy provision of the Gramm-Leach-Bliley Act. Is that
correct?
Mr. Nichols. That is correct. If you would allow me to
elaborate, the 1980 model act regarding privacy information,
which addresses all insurance information, including health--
from our perspective, it provides much broader protection. Here
is how it does it. One, the standard to be met is an opt-in
versus an opt-out requirement. Second, it also applies to
affiliates where that the Gramm-Leach-Bliley Act allows
affiliates to be treated within the family. Third, it allows a
consumer to have access to that information and the opportunity
to correct information that may be incorrect. Again, it goes
further because it actually addresses the issue of health
insurance.
Mr. Towns. How many States have adopted it?
Mr. Nichols. Sir, 17 States have adopted that.
Mr. Towns. Thank you.
Does the OCC final privacy rule enable banks to avoid
complying with the privacy laws in these 17 States?
Mr. Nichols. From our perspective, we feel like the reading
of the Gramm-Leach-Bliley Act says that States can go further
in terms of consumer protection. Where it talks about
specifically related to State insurance regulators that want to
address privacy issues for insurance, there are provisions
where it looks like to me if the State itself, through its
legislative body, were to pass stronger actions for all
participants that possibly a State could require additional
protections, even including banks.
I say that, not being a lawyer, even though I have probably
tried to practice for years. But there is a question that there
is a potential that a State could pass laws that would go
farther than the Gramm-Leach-Bliley Act and require it of all
financial institutes.
Mr. Towns. Hon. Breslin, would you like to comment on that?
Mr. Breslin. I would agree with the commissioner.
Ms. Williams. If I could clarify one point, the privacy
regulation is not just an OCC privacy regulation. It is a
privacy regulation that has been adopted by all the Federal
banking agencies, the Securities and Exchange Commission, and
the Federal Trade Commission. All the agencies that were
required by Gramm-Leach-Bliley to adopt privacy rules adopted
uniform standards.
I agree that for the areas that Gramm-Leach-Bliley covers,
it clearly says that States may enact laws that provide
enhanced protection.
Mr. Towns. Thank you very much.
Mr. Chairman, I yield back.
Mr. Gillmor. Thank you very much, Mr. Towns.
Ms. Williams, OCC has a web page listing names of
individuals subject to enforcement actions. NAIC is developing
a similar system. What do we need to do to get the various
financial regulators' data bases to coordinate with each other
to automatically perform a search and cross-check to alert a
regulator that we have a bad actor out there?
Ms. Williams. Congressman, I think you will find different
levels of issues in the coordination and information sharing
between the Federal financial regulatory agencies and the State
insurance regulatory agencies versus the NAIC. This was the
issue we referred to earlier, that there may be a need for some
additional Federal legislation to facilitate broader
information sharing among the Federal regulatory agencies and
the NAIC because it is not typically viewed as a regulatory
agency, as compared to the individual State insurance
regulators.
Mr. Gillmor. If we do that, one of the concerns is
unauthorized release of information privacy. If Congress moves
in that direction, do you have any thoughts at what we ought to
do to protect leaks, basically, out of the data base? You are
adding a large number of additional people that are going to
have access.
Ms. Williams. I think any time you are envisioning the
creation of a significant data base that has negative
information about individuals, you want to proceed carefully to
make sure that there are standards for the kind of information
that goes into the data base and that everybody participating
in it is subject to very strong safeguards controlling the
circumstances under which information can be released.
Mr. Gillmor. Senator Breslin, I applaud your work on
privacy with the insurance legislators group. We took a stab
last year, as part of Gramm-Leach-Bliley, at providing some
privacy protection. Many people think it didn't go far enough,
but at least it was a first step.
Can you give us any indication where you think you are
going to end up with your task force?
Mr. Breslin. I think it has heightened the awareness. As
Commissioner Nichols said, 17 States passed legislation under
the 1980 model act. I know in New York State we have already
begun to talk about legislation which would opt in for health-
related information and to be more specific and hopefully more
uniform in terms of opting out in other areas.
Mr. Gillmor. As a general rule, do you think that we need
to substantially strengthen privacy protection from where we
are now?
Mr. Breslin. Yes, I do. That is a personal opinion.
Mr. Gillmor. It happens to be one I share.
Very well, I have no further questions.
I would like to ask unanimous consent for all members to
submit statements for the record and to submit follow-up
written questions to the witnesses. If Mr. Towns doesn't
object, we have unanimous consent.
Mr. Towns. Without objection.
Mr. Gillmor. I want to thank members of our panel for
participating. You have been very helpful. Thank you.
[Whereupon, at 11:33 a.m., the subcommittee was adjourned.]