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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