May 24, 2007
Statement of Senator John E. Sununu
The National Insurance Act of 2007
Mr. President, I rise today to reintroduce legislation that will
bring our nation’s insurance regulatory system into the twenty-first
century by providing uniformity, predictability, and greater efficiency
to the way insurance is regulated in this country.
The National Insurance Act of 2007, which builds upon legislation
Sen. Johnson and I first introduced last year, provides for an optional
federal charter that would offer insurers the choice of being regulated
under a new Commissioner of National Insurance or under the continued
jurisdiction of the States.
I am pleased that Sen. Johnson once again joins me as an original
cosponsor of this bill. Since we introduced the initial National
Insurance Act just over a year ago, momentum has been building for
the reforms called for under our legislation and the question has
become not whether an optional federal charter should be implemented,
but when.
In an increasingly global financial services industry, numerous
studies have called for changes to the manner in which insurance
is regulated in the United States as one of the ways to make our
financial services sector more competitive in the worldwide economy.
The bipartisan Bloomberg-Schumer report on financial services industry
competitiveness, for example, states, “One priority, in the context
of enhancing competitiveness for the entire financial services sector
and improving responsiveness and customer service, should be an
optional federal charter for insurance, based on market principles
for serving customers.”
Furthermore, the Blue Ribbon Commission on Mega-Catastrophes states,
“It (an optional federal charter for insurance) would lead to…consistent
regulation of insurer safety and soundness, and the elimination
of duplicative regulation and supervision…In addition, an OFC should
promote greater competition that would benefit policyholders.”
In addition to the study recommendations, a number of other indicators
suggest that the time is right for reform. The coalition in support
of the bill continues to grow and the general acceptance of the
concept of reform we have proposed is also growing.
The arguments against the bill are increasingly seen for what they
are: parochial in nature, rather than forward-looking and in the
best interests of consumers, our financial services sector, and
the strength of our overall economy.
In 1999, Congress passed the Gramm-Leach-Bliley Act – broad legislation
that modernized the rules that regulate banks and securities firms
and provided a foundation for the financial services industry to
become more integrated, market-oriented, technologically advanced,
and global in nature. Since then, consumers have benefited from
improved industry competition and innovation, greater choice of
financial products, and more efficient delivery of services.
The insurance industry, however, has not enjoyed the same dynamic
marketplace within the global economy. Long subject to a patchwork
of State regulations, the sector’s menu of available services is
not as robust as it could be. An inefficient regulatory system spread
across more than 50 different jurisdictions imposes direct and indirect
costs on insurers in the form of higher compliance fees associated
with non-uniform regulations and delayed market entry for new products
from onerous approval barriers.
With advances in technology, insurance is increasingly a global
product that cries out for a more consistent and efficient regulatory
environment that allows new products to be brought to market in
a much quicker fashion than the current system often allows. Under
the State regulatory regime new product launches are consistently
delayed up to two years while they await the approval of an individual
State regulator.
A more uniform regulatory environment, mirroring the highly successful
dual banking system, should substantially improve the climate in
several critical ways for those who buy, sell and underwrite insurance,
while also providing superior consumer protection.
As the Bloomberg-Schumer report puts it, our bill would allow best-in-breed
regulations to “rise to the top” and become national standards.
A Division of Consumer Protection, as created by the regulator,
would oversee strict regulations and guard against unfair and deceptive
practices by insurers and agents for the advertising, sale and administration
of products. A Division of Insurance Fraud, also created under the
bill, would make insurance fraud a federal crime.
While taking these cautionary steps to protect consumers, the bill
does not, however, permit the federal regulator to set rates or
price controls for insurance. Instead, the National Insurance Act
appropriately relies on competitive pricing within the marketplace.
Finally, the Office of National Insurance would be able to fill
a vacuum and provide true national regulatory expertise and guidance
on a number of issues Congress is legislating on that affect policyholders,
the health of the insurance industry, and the overall economy.
The only real substantive change to this year’s bill in comparison
with the one introduced last year is that our updated legislation
includes language that would add surplus lines of insurance as a
type of insurance that a person with a Federal producer’s license
would be authorized to sell under the Federal charter program.
Other technical and clarifying changes were made, but by and large
this is last year’s bill, with its spirit and purpose intact.
Former New York Insurance Commissioner, George W. Miller, who founded
the National Association of Insurance Commissioners (NAIC), made
the following statement in 1871: “The Commissioners are now fully
prepared to go before their various legislative committees with
recommendations for a system of insurance law which shall be the
same in all States, not reciprocal but identical, not retaliatory,
but uniform.”
It’s now been over 135 years since that statement was made, and
unfortunately we’re not much closer to Mr. Miller’s goal.
In the months ahead, however, we look forward to making substantial
progress on this legislation as we build on the momentum to modernize
this country’s insurance regulatory system and do what the State
system has failed to do for over 135 years.
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