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U.S. House of Representatives,
Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises,
Committee on Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 2:05 p.m., in room 2128, Rayburn House Office Building, Hon. Richard Baker, [chairman of the subcommittee], presiding.

    Present: Chairman Baker; Representatives Shays, Gillmor, Barr, Weldon, Biggert, Miller, Hart, Kanjorski, Maloney, Jones, Meeks, Inslee, Ford, Lucas of Kentucky, Shows, Crowley, Israel, and Ross.

    Also Present: Representative Kelly.

    Chairman BAKER. We will go ahead and call our hearing to order. I wish to ask for unanimous consent that for today's hearing Mrs. Kelly be considered a Member of our subcommittee for the purposes of questioning the panel that follows and that she will be recognized pursuant to myself and Mr. Kanjorski for the purposes of pursuing that line of questioning. And that is without objection, of course.

    Today we have, I believe, the obligation to review the progress to date in meeting the goal established by the adoption of Gramm-Leach-Bliley in the harmonization of the 50-State regulatory process for insurance agency licensing and marketing. I had the misfortune recently to sit down with some folks and look at a chart—that was an amazing piece of work—that showed the regulatory requirements in order to seek and obtain approval for the marketing of an insurance product in each of the 50 States simultaneously, and it is indeed an overwhelming set of circumstances.
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    Despite the fact that there is some comfort taken that to date, 21 States have agreed to reciprocity, there are several observations which I would like to make that I think give Members some concern. The 21 States frankly only represent about 30 percent of the licensed agents, and only 20 percent of the premium being paid. The standard to expect attaining is a national marketing system of uniformity; I think we are falling far short of our expectations.

    And therein also is an important point. My view of the provisions of Gramm-Leach-Bliley as a member of that conference committee is that it went beyond the question of just reciprocity. I went to the issue of uniformity, and that is indeed a different standard, so that we have much work to do. It is my hope that today, in the course of this hearing, we will hear from those who are engaged in this issue, NAIC and others, that there has been significant progress beyond the reported numbers. But certainly, the subcommittee will move very slowly in its actions and carefully listen to all affected parties.

    It would be my view that this would be an ongoing, long-term project, not on a short-term paper we hand in tomorrow and walk away from, so that this hearing today marks the initiation of that process. I believe that this can be a productive endeavor and encourage those with the responsibility to work aggressively toward a harmonized standard, averting the need for the Congress to act in any other manner.

    With that, I would recognize Mr. Kanjorski for any opening statement he may choose to make.

    Mr. KANJORSKI. Thank you, Mr. Chairman.
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    One-half of the sand has now fallen through the hourglass, marking a time Congress gave the States under Gramm-Leach-Bliley Act to establish reciprocity and uniformity thresholds for non-resident producer licensing. It is therefore appropriate and constructive for us to hold a hearing at this time on the efforts to date by the States to comply with the NARAB provisions contained in the 1999 law and the need for further Congressional action to improve the efficiency and effectiveness of the Nation's insurance industry. I therefore commend you, Mr. Chairman, for bringing these matters to the subcommittee's attention and for helping to educate our Members about the new jurisdiction. This hearing also represents the first time our subcommittee has substantively examined insurance issues in the 107th Congress.

    In an effort to allow an agent or broker to conduct business in more than one State using a single license, Congress included provisions to create the National Association of Registered Agents and Brokers, or NARAB, in the law to overhaul our Nation's financial services marketplace. These provisions require at least 29 States and territories to implement reciprocal or uniform standards for agents licensing by November 12th, 2002. If these jurisdictions fail to meet this deadline, the law then triggers the establishment of NARAB as a semiautonomous body managed and supervised by State insurance commissioners with the power to set and preempt certain State standards in order to create a national licensing standard for insurance. As I understand, the States, under the guidance of the National Association of Insurance Commissioners, have to date focused on meeting the reciprocity standards contained in the GLB Act while pursuing uniformity as a long-term goal.

    Last fall, the subcommittee on finance and hazardous waste held a hearing about the status of implementing the NARAB provisions of the Act. At that time, limited action had occurred and doubts existed about whether the States would meet the deadline. Since then, however, considerable progress has been made. According to the National Association of Insurance Commissioners, 21 States have now passed legislation seeking to satisfy the reciprocity requirements. As a result, it now appears likely that the States will preempt the creation of NARAB.
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    From my perspective, streamlining the insurance licensing process represents an important first step in increasing the effectiveness and efficiency of our Nation's traditional system of State insurance regulation. The McCarran-Ferguson Act authorized States to regulate the insurance business, and Congress reaffirmed this system in the GLB Act. Absent continued advances in State efforts to streamline and increase uniformity in their insurance laws and regulations, however, some may, in the near future, encourage Congress to consider altering these statutory arrangements. The States must consequently continue to work proactively to modernize their systems for regulating the insurance marketplace.

    In closing, Mr. Chairman, I believe it important that we learn more about the views of the parties testifying before us today, and if necessary, work to further refine and improve the legal structures governing our Nation's insurance system. I also look forward to hearing from our witnesses about their impressions and to working with you in the future on insurance issues. Thank you, Mr. Chairman.

    Chairman BAKER. Thank you, Mr. Kanjorski.

    Mrs. Biggert, would you have an opening statement?

    Mrs. BIGGERT. No.

    Chairman BAKER. At this time, then, I would recognize our first witness today is the Honorable Sue Kelly, Member of the subcommittee, and appreciate her longstanding interest in the subject of insurance uniformity and welcome you here today to make comments on this important topic. Thank you, Sue.
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    Mrs. KELLY. Thank you very much, Chairman Baker, Ranking Member Kanjorski and Members of the subcommittee. I want to thank you for inviting me to testify on the National Association of Registered Agents and Brokers, which is known as NARAB, section of the Gramm-Leach-Bliley Act. Let me begin by reading to you a quote which demonstrates both the desire of State regulators to achieve uniform licensing standards and the impediments to it: ''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.''

    This statement expressing the clear desire for uniform insurance regulatory system was made by Mr. George W. Miller of the New York's Insurance Commissioner. He was the New York Insurance Commissioner who founded the National Association of Insurance Commissioners. Mr. Miller made this statement at the end of the very first meeting of NAIC in 1871. Since then, the NAIC has been working for 130 years to achieve some form of regulatory uniformity. I wish they could have solved the problem, but clearly, they have not.

    Some of the problems for agents and brokers who offer policies in more than their home State are simply the result of needless duplication, yet the root of many other problems is protectionism. I believe that the licensing laws affecting agents and brokers are among the most anachronistic. An overwhelming majority of commercial insurance is sold on an interstate basis, yet an agent or broker has to get upward of 100 insurance licenses in order to market national insurance programs.
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    More seriously, those agents encounter numerous obstacles that have been erected in States to protect in-State agents from out-of-State competition.

    Today's insurance business spans State and national borders, with an increasing emphasis on national insurance programs, multistate clients and cutting-edge technology. Yet today's agent licensing system is based on yesterday's market, one in which agents and their clients did business in their region and nowhere else. Agents who want to write a national insurance program have to procure and maintain licenses by line, class, producer and State. These agents are confronted with a mind-numbing minutiae of individual State licensing requirements, including such prerequisites as fingerprinting, certified copies of high school diplomas, printed notices in the local newspaper before an agency can get a license. These have nothing at all to do with the real insurance regulation or professionalism of its practitioners. Some States require corporate rather than individual agent licenses, which means the agency must be incorporated in the State where it wants to obtain a license.

    Other States will not permit any non-resident agent to solicit business in the State. In this time of increasing global competition, it is hard to lecture to our trading partners about opening markets when we still have these kinds of barriers to interstate domestic commerce. Together, we took an important step when we made NARAB a part of the Gramm-Leach-Bliley bill. If 29 States can repeal their anticompetitive licensing laws by November of 2002 with the voluntary licensing clearinghouse, NARAB would create—it will not be implemented.

    In this way, the initiative operates as a sword of Damocles if a clear majority of States fail to repeat protectionist requirements. Let me be clear. We must not let the States stop at 29. We have to push further. We must take the next step beyond NARAB, and we must realize the goal set by Mr. Miller 130 years ago, which is a goal of uniformity for 50 States and reach it before the end of this decade.
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    As evidenced by the State's continuing effort to avoid NARAB implementation, the States will act if we give them the right incentive.

    I ask you today to join me in looking beyond NARAB today and calling for uniformity among the States. This way we can ensure that our insurance agents and brokers can focus on providing the best insurance service at the lowest cost to consumers, not continuing to hire extra staff in an attempt to comply with the staggering complexity of 50 insurance agencies and regulatory standards.

    I thank you very much for this opportunity, and I just want to take a moment to thank Chairman Oxley for taking up this fight in the Gramm-Leach-Bliley conference and getting this provision back in the bill. In addition, it would not have been possible without the support of you, Chairman Baker, who had perhaps the best statement of all in a conference when you spoke in favor of NARAB. I thank you very much for the opportunity to share my thoughts, and at this time I am glad to answer any questions that you might have.

    Chairman BAKER. Thank you very much.

    Chairman BAKER. Some have stated that as to Congressional activity on this subject, that Congress really hasn't had hearings scrutinizing NARAB operations or the concept of NARAB to any significant degree prior to the Gramm-Leach-Bliley considerations in conference. I know for a certainty that on the Banking Committee side of the formula in the decade-long debate of modernization, this was, in fact, a subject of repeated discussion. Do you have knowledge about the Commerce Committee's activities in this arena, and wasn't Chairman Oxley—a Chairman of the subcommittee of jurisdiction—an issue in which he had some longstanding interest?
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    Mrs. KELLY. The Commerce Committee actually did have hearings, and we had hearings here in the banking committee at that time. I have a copy of George Reider's—the Connecticut insurance commissioner—testimony in front of our committee. That was on February 11th, 1999. He testified on NARAB and this is a copy of his testimony. Unfortunately, I can't say the same for some of the people, I suspect, who are saying that there were no hearings. There were.

    Chairman BAKER. And the reason I bring that up, is the next step in critical comment is that we have too short a time line in which to address such a complicated matter. I don't think anybody, one, should have been taken by surprise, but is there a sufficient clock remaining, in your view, for this process to achieve productive-end conclusion?

    Mrs. KELLY. Chairman Baker, I am glad you asked that question. I think that we gave 3 years for the States to address the problem, and after about a year-and-a-half, 21 States have acted on the problem. I think there is probably easily going to get that 29, because this is something whose time has come. So I think now we should go back and take a look at it and perhaps just move this out and do what Miller asked in his remarks 130 years ago, let us do it for all 50 States, because it just simply makes sense. In hindsight, I think perhaps we should have set that bar higher.

    Chairman BAKER. And finally, the point of view that this is about companies engaging with producers and upsetting the apple cart at the State level, I am not, and I don't believe you are, an advocate of Federal regulation of insurance sales, but we do have to recognize that on the consumer side of the coin, new product development, competitive pricing and ultimately better service is the end goal of this. It is about making sure that the best products are available for whatever the consumer need might be, and having 50 arbitrary grocery stores in which you have to have a different list of rules to enter each store isn't in the consumer's best interest. I assume that is your motivation as well.
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    Mrs. KELLY. I would agree with you. I think if we raise the bar, what we are doing is something that is really reasonable and is going to do a tremendous amount of good for the consumers, and it is the consumers who are benefiting from this piece of legislation.

    Chairman BAKER. I want to express my appreciation for your willingness to participate and your longstanding interest and leadership on this issue as well.

    Mr. Kanjorski.

    Mr. KANJORSKI. Mrs. Kelly, I think you make a good point, but I am more interested in learning what you would suggest for how we could raise the bar?

    Mrs. KELLY. I think we have perhaps set it at too low at the requirement for 29 States. We need to raise the bar. One of the concerns that I have is that we have some of the larger States engage in this as well. If we have a smaller States with smaller populations, we are not affecting everyone in the United States. Those larger States need to be a member of this community. We need to get them into uniformity, and it will help the consumers tremendously in those larger States as well.

    Mr. KANJORSKI. But how would we raise the bar? What is the stick and what is the carrot?

    Mrs. KELLY. I am sorry. What were you——
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    Mr. KANJORSKI. What would be the stick and/or the carrot that we could use to accomplish raising the bar? California is not in. Pennsylvania is not in. Texas is not in. I agree with you that if we could only get 29 of the smaller States to stay in while 21 of the larger States stay out, we are not going to be terribly successful. But what would you utilize to accomplish greater reciprocity?

    Mrs. KELLY. I would think we could find a way to attach an additional bill that would open that number up to 50. You see, what has really happened here, when we did the NARAB and passed the NARAB bill, we essentially put a sword of Damocles over their heads. We gave them 3 years and said, either do this yourselves, or we will step in.

    Well, the end game of this has been that 21 States already, in a year-and-a-half, have stepped in and said, you know, this is really a good idea, we are going to do this. If we sort of give them that type of incentive again by finding a vehicle to attach a new piece of legislation that would open this a bit, all the way to the rest of the 50 States, I think we will get uniformity. And then I think it will be something that will inure to the benefit of the consumers.

    Mr. KANJORSKI. I think it is an important issue, and I compliment you for your position.

    Mrs. KELLY. Thank you. These agents have to spend a lot of money getting these separated licenses, and that is only reflected in their fees.

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    Chairman BAKER. Mrs. Biggert.

    Mrs. BIGGERT. Thank you, Mr. Chairman. In your quote from 1871, it was talking about uniformity. Do you think that you should just skip over—is uniformity your goal, and why wouldn't that be the standard to achieve the States rather than just to have the reciprocity as the first tactic?

    Mrs. KELLY. Uniformity is the goal, Mrs. Biggert. The idea of having uniformity is that it would, first of all, inure to the benefit of the consumer because of the cost of the agents. Right now, some of the things that the agents are required to do are just simply costly. If you, for instance, are requiring an agent, if they want to offer multistate insurance, they have to, in some instances, go out to a State and spend a week taking a course in another State that is not their home State, and that is perfectly understandable, but if the course doesn't add anything to their knowledge and is not enhancing their ability to offer their insurance in that State, it seems to be needless duplication. What NARAB would allow is a self-regulating organization. We set the bar so that everybody is involved, allow them to self-regulate, and by their self-regulation, it drops the cost to the consumers of the insurance. It seems to make sense.

    Mrs. BIGGERT. Thank you. Thank you, Mr. Chairman.

    Chairman BAKER. Mr. Israel here, you are next. No questions?

    Mr. ISRAEL. I have no questions right now, Mr. Chairman.

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    Chairman BAKER. Mr. Shows.

    Mr. Inslee.

    Mr. INSLEE. No questions.

    Chairman BAKER. I thank you for your willingness to participate and do appreciate your longstanding interest in this subject and look forward to continuing to work with you. Thank you.

    Mrs. KELLY. Thank you very much, Mr. Chairman.

    Chairman BAKER. At this time I would invite the members of our second panel to please come forward. Welcome, gentlemen, and for the purposes of proceeding, each of your statements have been made part of the record. Please feel free to summarize as much as practicable. Constrain your remarks to maximize the opportunity for Members to ask questions, and we are pleased to recognize the Honorable William J. Kirven, Commissioner of Insurance for the State of Colorado and Co-Chair of the National Association of Insurance Commissioners NARAB Working Group to speak here on behalf of the NAIC. Welcome, Mr. Kirven.


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    Mr. KIRVEN. Thank you, Mr. Chairman. As you stated, Mr. Chairman, I am the Insurance Commissioner of the State of Colorado. I am the Chairman of the Western Zone, and Co-Chair——

    Chairman BAKER. If you could pull that mike down a little bit.

    Mr. KIRVEN. And Co-Chair of the NAIC's Financial Services Modernization Working Group on NARAB. You do have my prepared testimony. What I would like to spend my 5 minutes addressing is the questions that were in the Chairman's letter that you sent to the NAIC.

    The first question is what are our long-term goals for streamlining producer licensing, and I think Congresswoman Kelly is absolutely right. If our long-term goal is uniformity, we realize that the reciprocity in 29 States is not really true and effective reform.

    The States are using a two-step process to approach the streamlining. It is our goal to achieve reciprocity in every State plus the District of Columbia, while moving to uniformity through the adoption of a Model Act, again, in every State. Not only does this involve revising State laws as necessary, but also developing and utilizing technology to implement a centralized process for agent licensing.

    In order to achieve these goals, in October of 2000 we completed the revisions to the Producer Licensing Model Act to make the model more consistent with the NARAB revisions of Gramm-Leach-Bliley. The States are now working to enact that model nationwide, and I will talk a minute in how we are coming on that.
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    On the technology front, the NAIC is working through its non-profit affiliate, the National Insurance Producer Registry, to streamline the agent licensing process through the use of improved technology and a centralized producer database. And the goal here is to make it possible for State insurance regulators and producers to complete the non-resident licensing process for any number of States within a 24-hour period using a single application form.

    The current status of our reforms is the States are making strong progress. Twenty-one States have enacted the Producer Model Licensing Act or relevant portions of it. Four States have bills that are waiting their governor's signature. Another 15 States have producer licensing legislation pending, and we anticipate another four or five States will introduce the legislation in the coming weeks. I was advised today, for example, that California has introduced a version of the Model Act.

    One other State intends to adopt regulations to implement the Model Act, and it is our understanding that the remaining States are either still considering legislation, or otherwise planning to do it in the next legislative session.

    Obviously, I think it would have been better if everyone had done it this session instead of cutting it so close, but there are people who are waiting until the next session.

    The fourth question you asked was how many jurisdictions have passed NARAB-compliant legislation, and what percent of the total premium do these jurisdictions represent. The initial process of certifying whether a State's producer licensing laws are compliant with the NARAB provisions is just now beginning. Of course, the NAIC was actively involved in the preparation of the legislation that was submitted to the legislators in the various States. As you understand, what gets submitted isn't necessarily what comes out at the back end of that process, and so now, the NAIC is preparing to examine the laws as they were enacted to determine whether or not they are, in fact, still compliant with the NARAB requirements. And that is, as you know, an obligation of the NAIC to make a determination as to whether or not the required number of States have, in fact, achieved reciprocity as required by GLB.
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    As for determining the amount of premiums covered by States that are NARAB compliant, this is not something that we presently track, because it does not provide a relevant measuring stick. There is no meaningful correlation between the State's premium volume and the number of non-resident producers, which is what we are really talking about as far as efficiency and effectiveness of licensing. We prefer instead to look at the number of licensed agents of those States that are adopting the producer licensing model. In those States that have thus far enacted producer licensing legislation, this accounts for almost one-third of all licensed agents in the country, or nearly one million out of 2.9 million. If we add those States with bills awaiting their governor's signature and those States with pending bills in the legislative session, nearly 70 percent of the licensed agent population will be covered.

    There has been some reference to the size of the States, Mr. Chairman, and in fact, California, I think, in 1999, had roughly 238,000 total licensed agents, but only 44,000 of those were actually non-resident producers who were licensed.

    How many jurisdictions do we anticipate passing NARAB by the deadline? Obviously, we think that there will be in excess of the minimum of 29, and we are confident that we will have those minimum 29 on board, but again, we do not intend to stop there. We intend to achieve our goal of getting all jurisdictions to meet reciprocity and then move on ultimately to uniformity.

    With respect to measuring premiums affected by reciprocity, again, we have not found that to be a meaningful measure and do not really have data. Do we believe the potential creation of NARAB has assisted States in their efforts to enact agent licensing reforms? I think it is hard to say with any certainty. Certainly we started this process long before GLB was enacted, but it certainly gave focus to—and some inspiration to the effort that the NAIC has made, and I think that has been a very positive effect. I think it is important to keep in mind that State regulators were, in fact, working on agent licensing reforms well in advance of GLB.
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    The last question you asked was to discuss the need for comprehensive uniformity in agent licensing. In March of 2000, almost all members of the NAIC signed off on a statement of intent, wherein they expressed their commitment to work toward implementing effective uniform producer licensing standards.

    Today, the NAIC's commitment remains as strong as ever. The NAIC, working with its affiliate, the National Insurance Producer Registry, is continuing to work with States to achieve a centralized electronic producer licensing process that will reduce the costs and the complexity of regulatory compliance related to the current multi-state process. Those concludes my answers.

    Chairman BAKER. Thank you very much, Mr. Kirven. I appreciate your responses.

    Our next participant is the past Chairman of the Council of Insurance Agents and Brokers, Mr. Albert Counselman. Welcome, Mr. Counselman.


    Mr. COUNSELMAN. Thank you. Good afternoon, Mr. Chairman and Members of the subcommittee. I am Skip Counselman, President of Riggs, Counselman, Michaels & Downes in Baltimore, Maryland. I am also past Chairman of the Council of Insurance Agents and Brokers. I am grateful for this second opportunity to testify on the issue of agent and broker licensing. I first testified before Chairman Oxley's Subcommittee on Finance and Hazardous Materials in July 1997 about 4 years ago.
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    I would like to say that while I appreciate the efforts of the NAIC leadership and while I can see progress being made, the marketplace reality has changed little for a firm such as mine. I still am facing several of the same burdensome requirements that I faced 4 years ago, and little has been done to significantly streamline the licensing process for me and for my employees.

    In my prior testimony, I noted that I had to personally maintain 100 separate licenses. Today I still maintain 90 licenses, not much of an improvement. The application process has gotten slightly better, as most States now accept the NAIC's uniform applications. However, many States still require additional documentation beyond what is requested on those forms. And even though I hold a non-resident agent license in Texas, for example, I still may not solicit business from any Texas resident. So as you can see, not much has changed in the last 4 years.

    With that said, I think that the enactment of NARAB provisions of the Gramm-Leach-Bliley Act had a positive effect on State's efforts to enact licensing reforms. It was only after the enactment of NARAB that the States got serious about enacting these reforms.

    It is highly unlikely that States would have moved this quickly without the Bunsen Burner effect of NARAB giving them a jump start, especially when you consider the fact that our association formed its first committee to work on licensing reforms more than 60 years ago. NARAB was a true provision of modernization in the Gramm-Leach-Bliley Act. Were it not for the tenacious support and initiatives from Congresswoman Kelly, the leadership of Chairman Oxley and your active support of NARAB in conference, Mr. Chairman, things assuredly would not be changing for the better, particularly at their current pace.
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    This initiative was bipartisan and provides a very good model for a carrot-and-stick approach that can effectively move insurance regulation forward toward goals of efficiency. As this subcommittee explores the options for improving harmonization of State laws, we would urge you to recognize the progress that has been achieved through NARAB, even though regulators strongly opposed its passage at the time. The Council appreciates the progress that has been made in reforming the licensing system, but we believe that we are only at the beginning of the road.

    After NARAB's enactment, the NAIC pledged to go further than NARAB in reforming the licensing system and to secure not only reciprocity of all licensing jurisdictions, but also uniformity of licensing laws in all jurisdictions.

    It is a virtual certainty that a majority of these jurisdictions will enact the necessary legislation to meet NARAB's reciprocity requirements. However, there are some questions as to whether NAIC will reach its initial goal of reciprocity in all jurisdictions.

    The Council is very concerned about this prospect. While 20 States have enacted laws that meet the reciprocity standard, those States account for only 20 percent of the total premium in the U.S. Council members represent only the top one percent of agents and brokers, but place over 80 percent of all commercial insurance business in the U.S., and if only 29 States enact the necessary laws, a large number of agents and brokers will not actually be benefitting from the NARAB regulations and proposals.

    The Council continues to have concerns about States such as California, Texas, Florida and New York. The Council firmly leaves that increased uniformity of licensing laws is the key to full acceptance of non-resident licensing reciprocity. This is why we have consistently supported States enactment of NAIC's Producer Licensing Model Act, because it brings State agent and broker licensing laws much closer to uniformity than they have ever been before.
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    However, there is still a need for the States to go further. For example, there is the issue of tenure and renewal dates in all 50 States. There is the issue of countersignature laws, which still exist, which are protectionist in several States.

    Mr. Chairman, I wish to thank you for holding this hearing today, but we would also like to note that the battle must continue forward on this issue. As you consider options, we ask that you consider what appropriate issues should be considered so that all jurisdictions representing 100 percent of premium volume benefit by uniformity throughout the country. Thank you for this opportunity and for your leadership on this important issue.

    Chairman BAKER. Thank you, Mr. Counselman.

    Our next witness is Mr. Ronald Smith, here today in his capacity as Chair of State Government Affairs and past President of the Independent Insurance Agents of America, as well as participating on behalf of the National Association of Insurance and Financial Advisors and the National Association of Professional Insurance Agents. Welcome, Mr. Smith.


    Mr. SMITH. Thank you, Chairman Baker. Chairman Baker, Ranking Member Kanjorski and Members of the Subcommittee, good afternoon. I am Ron Smith. I am an insurance agent from Rochester, Indiana, and I am representing the Independent Insurance Agents of America, the National Association of Insurance and Financial Advisers and the Professional Insurance Agents.
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    No segment of the industry is affected more by licensing laws than our diverse membership, and no group is impacted more by the reforms we are discussing today.

    Despite our longstanding support for State regulation and effective licensing laws, we feel the current licensing system does not operate as efficiently as it should. For this reason, we have led the effort to streamline the licensing process, and we have pushed for increased uniformity across State lines.

    The passage of the NARAB provisions assured our members that effective licensing reform was finally eminent. It has now been 18 months since the enactment of the Gramm-Leach-Bliley Act, and we are halfway to the NARAB deadline. The associations that I represent have a presence in every State capital. And our members and affiliates have been working closely with State lawmakers to enact reform.

    This partnership has resulted in a staggering amount of reform in a short period of time. Because of these efforts, the NARAB threshold of 29 States will be cleared, we believe, before the end of 2001 over 1 year ahead of the timetable established by Gramm-Leach. Our success at the State level cannot be overstated. Here are some of the numbers.

    Twenty-one States, as have been mentioned, have enacted significant reciprocity and uniformity laws. We believe there are 10 additional States that have passed reform bills through both legislative chambers, and if those bills become laws, that will mean approximately 31 States which account for almost 50 percent of all licensed individuals and almost 45 percent of the country's total property and casualty insurance premiums. We think that will happen yet this year. Many other States are currently considering licensing reform bills, and by the end of this year, we anticipate that over 45 States will have considered licensing reform legislation.
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    We think we have made some progress. Given the pace of activity that has occurred, it is now clear that the creation of NARAB will be averted. We commend the hundreds of State legislators who have worked diligently on insurance license and reform over the last several months. They have clearly done their part to modernize insurance regulation.

    While the accomplishments of the last several months are impressive, we intend to keep the pressure on. Our organizations believe it is essential that we have national reform. Reaching the statutory bare minimum is not good enough, and we will not settle for reform in only 29 States. Instead, we will continue to push for reform in all States, both prior to and after the November 2002 deadline.

    Some in our industry suggest that the process is insufficient, because larger States have not yet acted. We are a little more optimistic on that point. We believe that several large States will be taking some action. 41 States will adjourn by August of this year in their State legislatures, and we anticipate that at least 35 of those States will have taken at least some action this year. Most of the remaining States, including the largest States, have legislative sessions that continue on an ongoing basis. These additional States include New York, California, Illinois, Pennsylvania, Michigan, Ohio and New Jersey. Each of these States is now working to enact licensing reform, and we are optimistic that several of these States will get something done, maybe even this year. Effective and meaningful reform must be national in scope, and it is essential that the largest States be part of the mix.

    By enacting the NARAB provisions, Congress took affirmative steps to ensure that insurance agents would have access to a streamlined and functional licensing mechanism. While we have consistently argued that the States were up to the challenge, we are nevertheless pleased with the results so far. We must continue, however, to build on this progress and gain enactment of similar reforms in the remaining States. We are confident that this will occur and we will continue to work closely with State policymakers to achieve meaningful
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licensing reform on a national basis.

    On behalf of IIAA, NAFIA, and PIA, I thank you for this opportunity to present our views. We look forward to working with this subcommittee in any capacity needed. Thank you.

    Chairman BAKER. Thank you very much, Mr. Smith.

    Mr. Kirven, I want to start with what appears to be differing views about the real direction of the provision within Gramm-Leach-Bliley and whether or not there was clear enough direction in the language of the Act to understand the goal.

    And this is just my perspective. I can't speak for all members of the conference, and certainly Mrs. Kelly probably has her own view. But reciprocity is something different from uniformity, and when we sat around that table talking about the marketing of products, it, I believe, was with a view toward the goal of uniformity. You then went on to say that the Gramm-Leach-Bliley requirement was not the initiation of the effort, but it certainly was an incentivizer to the overall activity.

    Do you think that we—pending the current target of November, 2002, nothing will alter that event—need to start thinking about another incentive program for uniformity?

    Mr. KIRVEN. From the NAIC's perspective, I would hope that you would not. I think the NAIC itself is committed to uniformity. We want all jurisdictions to have a uniform application process where you simply file one application and you can get licensed in any State in the Union. We have a strong incentive to do that.
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    As you have noted, Mr. Chairman, there are some States that still have, for example, countersignature laws in effect. I agree that those are certainly economic protection. And in certain States, apparently the agents—we need their cooperation, and we need to have their support to change some of those things, and if they don't, then that is certainly a problem for us.

    I don't think it is any secret that the most difficult part of this process for us is having to go to each of these legislatures, introduce a bill and everybody has their ideas and it is our system on how that can best be accomplished. And sometimes what we put in as a Model Act doesn't exactly look like a Model Act when it comes out.

    That is a difficult issue for us. I think we have made great progress to date doing that, but I want there to be no question that the NAIC's goal is clearly uniformity. We have never felt that reciprocity was an end in it. But we also realized, given the timeframe and given the amount of work that we have to do with these legislatures, that reciprocity would certainly help us beat the clock, so to speak.

    But I would certainly not—and I don't think the organization will tolerate—say, ''Well, we made that deadline, let us keep trying.'' I think we are going to push ahead for uniformity.

    Chairman BAKER. Well, as a longstanding member of the Louisiana legislature, I have good reason to have my concerns about our ability to achieve certain goals.

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    I would point to the fact that almost every bill that is passed in the legislature has the proviso, except for the Parish of Orleans. Even the rules of time apparently don't apply to Orleans Parish any longer. So for those reasons and the fact that you observed that it was some modest assistance in focusing the organization's attention, for what it is worth, if it helps, just let them know that somebody else is talking about additional interest in the matter, should progress not achieve desired goals.

    Mr. Counselman, you indicated you have approximately 90 licenses today, as opposed to a hundred. How does that occur, and what do you perceive from the market side is the difficulty in the larger States coming on board?

    Mr. COUNSELMAN. Thank you, Mr. Chairman.

    Ninety as opposed to a hundred is because of the good cooperation from some of my associates in my own company. We have a total of 190 non-resident licenses for people in my company. We operate in one location in Baltimore, in one State; and so some of my associates have additional licenses that I used to hold exclusively. So the streamlining of 10 percent isn't really streamlining. It is just some of my associates are carrying those——

    Chairman BAKER. You were just trying to be nice, I guess.

    Mr. COUNSELMAN. Right. I am trying to be precise.

    But the uniformity is the major issue, because even if we have licenses in all of these States, we are not fulfilling the identical requirements in those different States. The applications are different, and the requirements are different. For example, in criminal background checks, it seems like a reasonable thing to require. The manner in which that information is gathered for the different States is not consistent.
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    Chairman BAKER. I thank you very much. My time has expired.

    Mr. Kanjorski.

    Mr. KANJORSKI. I am trying to understand that issue better. When you say that you will meet the requirement that 29 States will pass laws by the deadline, you are only talking about reciprocity. You are not talking about uniformity. Is that a correct assessment of your accomplishment in the 3-year deadline?

    Mr. KIRVEN. Yes. I am talking about 29 States' reciprocity. We will exceed that goal, but our real goal is 50 States for uniformity.

    Mr. KANJORSKI. After the 3-year period, how much uniformity are you going to have?

    Mr. KIRVEN. Well, actually, the Model Act is designed to create a lot of uniformity now. It does a dual purpose. It also establishes reciprocity, but it goes on to establish definitions of the various lines in commonality among the States that adopt it. So it is, in fact, a start toward uniformity; and if everybody adopted the Model Act, I think we could probably safely say we had uniformity.

    Mr. KANJORSKI. How many States have adopted the uniform act?

    Mr. KIRVEN. Twenty-one States. Ten, I think, are through both houses awaiting governors' signatures.
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    Mr. KANJORSKI. That is the Model Act itself?

    Mr. KIRVEN. That is the Model Act.

    Mr. KANJORSKI. So you will have both reciprocity and uniformity?

    Mr. KIRVEN. For the most part in those. We have to look at those. When we put them in, they are the Model Act; and when they come out, there have been some changes to them as they go through the process. And that is what the NAIC is going to do as part of its compliance process, is to look at the enacted laws to see how compliant they are with the minimum standards that we have for uniformity.

    Mr. KANJORSKI. How soon will that analysis be finished?

    Mr. KIRVEN. Well, the working group, which I cochair, is in the process right now of establishing a checklist of each item that must be in the State laws to meet our requirements for determination that they are compliant with reciprocity. We are going to work on that at the June meeting. So we will start this summer. And we would be glad to share with the subcommittee our progress on certifying those States.

    Mr. KANJORSKI. Could you do that? I think it would be very helpful to us.

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    Mr. KIRVEN. OK.

    Mr. KANJORSKI. Mr. Smith, I know you are trying to walk a fine line here, being optimistic and favorable, but I sort of heard a little hesitancy in your testimony. When the day is done, are we really not going to accomplish what we are looking for?

    Mr. SMITH. I think there is a big difference between reciprocity and uniformity, and our association has always felt that way. We worked extremely hard on the Model Act. We spent a lot of time, effort and energy on the language in the Model Act. There were some attempts to change that language. We were effective in fighting those off, because we thought the changes were harmful to consumers. And so, quite frankly, we have been a little disappointed in what has come out of some of the State legislatures.

    We would look forward to working with this subcommittee, if that need be, to reach the goal of uniformity. There is no question that that is where we should be.

    I live in a community of 7,000 people in north central Indiana. I have 15 licenses around the various States and actually deal with my largest client, who happens to be in the State of Florida. So this is not just something that affects big brokers. It affects smaller agents and brokers like myself who happen to have clients that deal all around the country.

    Mr. KANJORSKI. Is this delay done for protectionism, or is it that every State wants to feel they have a right to be unique and a little different?

    Mr. SMITH. I think there has been a lot of protectionism in the past, particularly countersignature laws. We are basically now down to five States. We think one of those is going to get rid of their countersignature law. But it has been very protectionist.
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    I think now several States believe that they have one or two ingredients that for their State is crucial in the licensing process, but yet for the vast majority of States, it is not deemed crucial—criminal background checks and some things like that. That is where in particular I think some of the larger States have been hung up on their passage of the Model Act. So that is why we maintain a certain degree of optimism, because we do have associations in each of those States working with the State legislatures and the NAIC to see if we can't reach some compromises there.

    Mr. KANJORSKI. Mr. Counselman, is it your hope that you are going to go down from the 90 licenses that you now own to just one?

    Mr. COUNSELMAN. I would hope I would go to one.

    Mr. KANJORSKI. Can any of you give me an idea about when you have 90 licenses, what does it cost you?

    Mr. COUNSELMAN. It is different in every State. On average, it is probably about $100. It could be as little as $25 or as much as $150, but in addition some States have bond requirements, and that could be $100 to $500 in addition.

    Mr. KANJORSKI. It seems to me that you are talking about thousands of dollars for your agency.

    Mr. COUNSELMAN. I am talking for my own firm in excess of $100,000, and for me just with 90 licenses, I am talking thousands of dollars. But when you multiply that by the literally millions of agents across the country, it is a very major issue. And the time it takes to fill out those applications, somebody has to take the time to do it at work.
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    Mr. KANJORSKI. Very good. Thank you, Mr. Chairman.

    Chairman BAKER. Thank you, Mr. Kanjorski.

    Mrs. Kelly.

    Mrs. KELLY. Thank you, Mr. Chairman.

    Mr. Kirven, you are talking about your your group, is the NAIC really agreeing with this goal that we are trying to achieve with NARAB?

    Mr. KIRVEN. Yes.

    Mrs. KELLY. Well, if you agree with the goal, it seems to me that 130 years is a long time to try to enlarge this question and try to push it. I would like to know when you think we will have uniformity. What is your stated goal at this point in terms of time in all of the States? In 3 years? Five years? Six months? What are we talking about?

    Mr. KIRVEN. Well, I would think that if we can reach the reciprocity level in 3 years, I don't know why we couldn't—and this is my personal opinion. We don't have a fixed date. I don't know why we couldn't try and achieve uniformity within the next 3 years.

    Mrs. KELLY. Well, I am asking you about all 50 States, sir, not just the fact that we put the 29 States in as a goal.
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    Mr. KIRVEN. I understand, Congresswoman Kelly. I said—if it took us 3 years to reach 29 as a minimum, which we will reach more than that, I would hope within another 3 years we can reach uniformity, because it takes—you know, GLB was passed in November of 1999 I think. That was really too late to get bills ready for introduction in the 2000 session. So in Colorado we did it the very first session we could, which was this year, got it done and passed. Some States are waiting, but I would think that, if we need to make more changes, we will need 3 years as a reasonable amount of time to finalize, fine-tune uniformity on some of the acts now that may not come out uniform.

    Mrs. KELLY. Do you think this would have occurred without the NARAB legislation, without that sword of Damocles? We have given NAIC quite some time, 130 years.

    Mr. KIRVEN. I think that certainly the act has given impetus to an effort that was ongoing. People talk about how lately the NAIC is moving at light speed, and I guess that proves Einstein's Theory of Relativity. It took us 130 years to do some things. Lately, we have done a few in a couple of years. So we are picking up some momentum, Congresswoman Kelly, and I think that we will continue to maintain this. I think there has just been a real hard look at all of our efforts, speed-to-market issues that the Chairman has referred to.

    I certainly as an—coming from private industry and coming into this job have realized that this system is very balkanized and very redundant and really needs to be reformed. I am very committed to that, and I think that my colleagues in the NAIC are committed as well.

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    Having said that, though, no matter how much we agree, we still have to go to our State legislator to change our laws in a lot of cases, and we want them to be uniform across the country. And my personal opinion is, is that, yes, we may need some help with some pre-emption of countersignature laws. If some States can't just seem to get it done, then perhaps we will need some kind of a pre-emption which will make them get rid of the countersignature laws so we can get to uniformity. What I would like to see you do is give us adequate time, as you have, to make our best efforts to accomplish this goal.

    Mrs. KELLY. I am sure that we would all be very happy to try to help you. When you say adequate time, I am just looking at the time line you have had before—and I don't mean to beat a dead horse here. Certainly I appreciate your coming here to testify, but I am concerned, because I think that the time has come for us to have a uniformity. There has been 130 years. When do you think the NAIC is going to have comprehensive uniform standards for the States to follow beyond the limited uniformity parameters that are in the Producer Licensing Model Act? Do you think that is going to be coming soon?

    Mr. KIRVEN. I think our Producer Licensing Model Act goes a long way toward achieving uniformity today in its present form if we can get it adopted in all of the States.

    Mrs. KELLY. But I asked you about a comprehensive uniform standard. I am not talking about reciprocity and not talking about models. I am talking about real standards for real people.

    Mr. KIRVEN. And I am talking about the same thing. The Model Act has more than just reciprocity set forth in it. It has certain well-defined lines of business and how to be licensed and what the criteria are and the educational requirements. So we can make that on a uniform application across the country. It would be a uniform filing basis.
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    Mrs. KELLY. My trouble here is the comprehensiveness of it. I hope that you will work extremely quickly to accomplish the goal, but I appreciate the fact that you are looking for us to help you. I am sure we are very happy to help you.

    And I thank you, Mr. Chairman, for allowing me to appear here today.

    Chairman BAKER. Thank you, Mrs. Kelly.

    Mr. Israel.

    Mr. ISRAEL. Thank you, Mr. Chairman.

    Mr. Smith, you noted in your testimony that we should not settle for reform in only 29 States, we have to go beyond that, and that you are optimistic that this year we will have more than 29 States. We are talking about the large market States like California, Texas, Florida that have high premium value, lots of agents and brokers. In addition to being optimistic, can you tell me specifically what steps your organizations are taking in order to bring these jurisdictions on board?

    Mr. SMITH. It is a little bit different in every State, because it depends on the views of all the people in that State.

    For instance, Texas. Texas has passed the bill, and it has gone through both the house and senate in Texas, but we are not sure that it is going to be compliant or the NAIC will consider it compliant for purposes of uniformity or reciprocity. However, it would help the vast majority of agents and non-resident agents that would apply to the State of Texas.
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    California has some particular things that they require of their resident brokers that they think if they just pass the uniform model that they will actually be letting non-resident agents operate in their State on a basis that is much less comprehensive than their own residents are required to meet.

    So those are two instances where some of the particularities in those States—we are working with our lobbyists in those States, we are working with the NAIC in those States, and then working with NCOIL and various legislative groups in the various States. So to get into particulars, every State is just a little bit different, and it is their own feeling about some of those things that we are trying to help overcome.

    Mr. ISRAEL. The three organizations that you represent, IIAA, NAIFA, and PIA, are active in California, Florida, Texas. Are you playing an active role in encouraging those States to come on board?

    Mr. SMITH. Yes, absolutely.

    Mr. ISRAEL. Thank you, Mr. Chairman.

    Chairman BAKER. Thank you, Mr. Israel.

    Mr. Barr.

    Mr. BARR. Thank you, Mr. Chairman.
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    Could you update me—and I apologize if this came up earlier in the testimony; I was at a separate hearing—on what is going on with California, Texas and Louisiana, I think?

    Mr. SMITH. Louisiana, I believe, has passed the Model Act.

    Texas has passed both houses of the legislature. Again, I restate I am not exactly sure that that will be considered NAIC compliant. They had a couple little pieces in it.

    California, we are working diligently with, as we speak. As a matter of fact, our lobbyists here that works with me, Wes Bissett behind me, spoke with their lobbyists yesterday on the issue.

    And I think Ohio is another State that we might mention. The commissioner there, Lee Covington, is a strong supporter of this. But yet in Ohio they have had some very substantive discussions about budgets and things like that; and this legislation, quite frankly, has tended to hit toward the bottom of the barrel. So we are optimistic that later in this year we might get something done in Ohio.

    So we are working as hard as we can in all of those States with our lobbyists. Our national association has affiliates in all 50 States, and that is who we work with through our affiliates there.

    Mr. BARR. So Louisiana, that has been signed?
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    Mr. SMITH. No. Passed. It has passed and has gone to the governor. It has not been signed yet.

    Mr. BARR. And in Texas, similarly?

    Mr. SMITH. Yes.

    Mr. BARR. Are there still some problems remaining in the language of the Texas bill?

    Mr. KIRVEN. I believe that is correct. It is not compliant with the Model Act, and I am going to talk to the commissioner about that.

    Mr. BARR. Is there going to be some effort to change that, or is it too late, if it has passed both houses?

    Mr. KIRVEN. I know that while I am here I am going to talk to someone about what issues we don't feel are compliant and talk to the commissioner and see if we can't have some of those revisited. I don't know if it is in conference committee or how we can do that, but we are going to try and talk to Texas and see if we can't make them change the bill to be more compliant with the Model Act.

    Mr. BARR. I guess you can talk to them, but not mess with them.

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    Mr. KIRVEN. That is correct.

    Mr. BARR. And California is just being California or——

    Mr. SMITH. Wes says that the bill is in committee and may very well be moving forward soon.

    Mr. KIRVEN. Congressman, if I may——

    Mr. BARR. Are you all optimistic that we will see it move through the California legislative system this year?

    Mr. KIRVEN. Mr. Chair, can I—Congressman, I—one of the biggest things we have in California is they have a fingerprint check, and they use it. So a lot of States have it. They put them in a folder, and they never look at them, but California apparently does. That is an add-on under the reciprocity thing. It is not allowed, and California refuses to give it up. I think maybe roughly 14 States even have requirement, and so we are a little stuck there.

    California won't meet reciprocity because they have an additional requirement to fingerprint, and yet it also is not uniform across the country. But we are working through NIPR to try and—work so we can get an electronic fingerprint one time.

    For example, if—and Mr. Counselman wants to be licensed in 50 States, and if we have his one electronic fingerprint, we can check it once, pay one data access fee for the database, which is $24 or $25, and spread that cost across all 50 States. So we hope to recognize savings, and we always have his print there. We will only have to check it once for every State and at least make that available to the States that want to use it.
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    So we are trying to do workarounds on some of these issues, but it is difficult. Some States don't want to give that up. I wouldn't argue it is not a valid consumer protection.

    Mr. BARR. Well, thank y'all very much. We appreciate your efforts; and if we can be of any help, let us know. Thank you.

    Chairman BAKER. Thank you, Mr. Barr.

    Mrs. Jones.

    Mrs. JONES. Mr. Chairman, I come from Ohio. I am not quite sure what we are doing, but we are trying to fund education in Ohio. That is our top priority for our legislature right now.

    I have a couple questions. You say there are five States who have not done something. I think that was you, Mr. Smith. Was that part of your—one of you said——

    Mr. SMITH. I referred to several States, and we are hopeful that at least 45 will have taken at least some action by the time their legislatures come back. So, yes, there are four or five that have not really addressed the issue yet.

    Mrs. JONES. And can you tell me who they are? Not if you don't——
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    Mr. SMITH. We can get you a list. We will be happy to share our list. We have a list of all the States and the activities that we think are taking place. We will be happy to share that list with you.

    Mrs. JONES. Just so I am clear on—and we are using the same terminology, can one of you define what you mean by countersignature laws?

    Mr. COUNSELMAN. I can describe how it impacts on the sale of insurance, an example would be Florida, because they are famous for their countersignature law. If I as an out-of-State agent write some business in the State of Florida, I have to have that policy signed or, more specifically, countersigned by a resident Florida agent. Florida also requires the payment of 50 percent of the commission, regardless of whether the agent actually participated in the transaction.

    Mrs. JONES. Now, when I first came to Congress back in 1999 and H.R. 10 was being considered, the big push was leave the regulation of insurance to the States.

    Now, if you want to leave the regulation of insurance to the States, why then do you want to push this other piece to uniformity and reciprocity across the board? What is the advantage of that?

    Mr. COUNSELMAN. The advantage is the efficiency, because the NARAB proposal would still allow the States to regulate insurance and to regulate agents.

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    Mrs. JONES. So it is more efficient for you to be uniform with licensing, but it is more efficient for each State to be the regulator?

    Mr. COUNSELMAN. Just on the licensing issue alone, it is more efficient to get a license once; and so, just on that basic principle, we want there to be uniformity of licensing.

    Mrs. JONES. If you know, are licensing fees used to fund insurance regulation within the States?

    Mr. COUNSELMAN. They are a part of funding, but the major funding for insurance regulation comes from premium tax that is collected by the States, which, on average, is about 3 percent of premium. So licensing fees are an additional source of income, but they are not the major source of income, to my knowledge.

    Mrs. JONES. Are you able to tell me what percentage of the funds that fund a licensing regulation in the State come from licensing fees?

    Mr. COUNSELMAN. I wouldn't know the answer to that.

    Mr. KIRVEN. It is not that significant, Congresswoman.

    Mrs. JONES. I don't know whether it is, and I am trying to get educated on it.

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    Mr. SMITH. I am sure that Mr. Counselman and I would both be happy to pay a fee if we could go ahead and apply for a license in Florida. I am in Indiana. If I could use my status in Indiana to apply at the same time in Florida, I would be happy to pay a fee if that is what it took, rather than go through a whole separate licensing process and pay a fee that way.

    Mrs. JONES. So, in other words, you would pay 50 fees if you could get licensed once?

    Mr. SMITH. If that is what we are required. We are doing that now. So if it was found that that money was really, indeed—I am not advocating agents want to spend any more money than we have to—but. if it was found that some of that money was needed to help regulate the States, I am sure there would be some cost. We would be happy to pay a nominal fee, as long as we could get around or have a uniform license that we could use for every jurisdiction.

    Mrs. JONES. Well, there is some administrative cost to regulating an industry, and so what I am trying to find out from the three of you, if you can educate me—maybe you can't. Then I will ask someone else. Is part of that processing, or part of this—I don't know what word I want to use—this hurdle that you must leap responsible or is it attributed to the fact that the States say I need something to cover the cost of regulating your industry?

    Mr. COUNSELMAN. From my experience of sending in the licensing fees and the process that is involved in it, the application process and the issuing of the license, I am not advocating increasing fees, but I would doubt that the fee——
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    Mrs. JONES. So the record is clear. Right?

    Mr. COUNSELMAN. I would doubt that the fee that is collected would actually cover the cost of issuing the license, because there is so much paper that has to be reviewed before the license can be issued. I would be doubtful if the revenue actually covers the expense for an individual State to handle that service.

    Mr. SMITH. I am not intimate with all the monetary details of the State of Indiana, but I do know that in the State of Indiana premium taxes actually go into our general fund, and all of the premium tax is not used just for the funding of the insurance department. Several of the funds are sent to other departments in the State.

    Mrs. JONES. Mr. Chairman, if you would just allow Mr. Kirven to respond, I am finished with my question.

    Mr. KIRVEN. Congresswoman, I was trying to do my—we have about 80,000 agents registered in the State of Colorado, and I believe our fee is about 36 bucks, which I can't do in my head. But I can do $30. So it would be about $240,000 in—is that right—fees, and I think our contract to process licenses cost $300,000. So it is not a revenue generator for us.

    Chairman BAKER. Let me point out, too, if I may—if I am understanding the process correctly, if you file once in Indiana, pay your fees in Indiana, then a database is created in Indiana that other States can access to verify before you are allowed to enter into that market. So you are really talking about 50 State repositories where you are principally licensed, and other States have access via the Internet, I presume, to that database. Is that what we are envisioning?
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    Mr. KIRVEN. We already have a producer database which has all but about 300,000 of the agents licensed in it already today. So we do have that database; and, yes, it would be accessible for showing that you are licensed in your domiciliary State.

    Chairman BAKER. So in a practical matter, just following up on Mrs. Jones' line, we would not necessarily be increasing costs. We may, in fact, be reducing it with the elimination of all of the documents that are now shipped back and forth?

    Mr. KIRVEN. Hopefully the net result would be less expense, no more documents; and, for example, we would save money on background checks, too. We could just do it once, and it would apply to 50 States.

    Chairman BAKER. Terrific.

    Mrs. JONES. Mr. Chairman, if I could just follow up.

    Chairman BAKER. Yes.

    Mrs. JONES. What I was trying to determine was, when you have a regulator, the cost of regulation, be it investigation, be it whatever the heck it is; and I was just trying to see if those dollars that were generated by the application fed into that process. Thank you very much.

    Chairman BAKER. No. I understand. In my own State's case, I am sure the licensure fee has no correlation to the enforcement side of the business.
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    Congressman Miller.

    Mr. MILLER. Thank you, Mr. Chairman.

    I used to be in the State legislature on the insurance committee, and it always struck me as interesting that the fingerprinting was necessary for licensing, and they figured it should be required; yet, voter registration cards were punitive. Good luck on your legislation at the State. I don't know how you are doing, but it should be an interesting process.

    I have a couple different numbers that I am finding. One brings the total to 20 States that represent 20 percent of the total premiums written in the United States. Yet I understand that there may be discrepancies between our list and the list developed by others. Is there some States that have enacted licensing reform that the Council does not believe comply with NARAB reciprocity provisions? And the other list says 17 States have passed such laws, representing about 16 percent of the mark. Is that a fair statement? Seventeen States?

    Mr. COUNSELMAN. I believe you have quoted—when you mentioned the Council, you certainly were quoting my testimony. At any different point in time—and that might be the reason for the differences among our testimony, because these bills are being passed in the last few days. The numbers change daily.

    Mr. MILLER. Yes. You know, I have quite a few friends in the insurance industry and, you know, you talk to them about the requirements of different States and trying to provide the same service from State to State, how burdensome that is and how complex and in many cases confusing, and unless you are a very, very large company, it makes it very difficult for you and it makes it very difficult for smaller companies going into States.
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    And I am kind of changing my mind. In the past, I always believed that it should be an absolute State issue dealing with insurance issues and issues associated with a State, but I am beginning to wonder if there is a need for an optional Federal charter for insurance companies, similar to depository institutions. What is your opinion on that, just as a sidebar?

    Mr. COUNSELMAN. There may well be a place for an optional Federal charter for certain types of insurance or for certain categories of insurance. For example, one program that I represent has only 100 insureds. They are located through the country, but the policy form has to be filed in 50 States, because those 100 insureds are in different jurisdictions. So that would be an example of where it would be very useful to have a Federal charter.

    Mr. MILLER. Instead of an adviser group of individuals who are willing to give their time to discuss and debate these issues, and it is something I think needs to be debated in the near future.

    I don't have an answer. I don't think anybody does, but there seems to be a growing need for some form of regulation that is consistent, where you know what you are doing and without having to deal with—you dealt in California. I mean, your oversight changes weekly, depending on what bill goes before a committee. It is almost impossible to keep up with.

    But in the statement of intent, the 49 State insurance commissioners at the NAIC national meeting, it reads, quote, we have empowered the NAIC's non-profit affiliate insurance regulatory information network to develop recommendations for a streamlined national producers licensing process that will reduce the cost—I love this—reduce the cost and complexity of regulatory compliance related to the current multistate process, end quote.
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    However, under NARAB's provision for required reciprocity, States are still allowed to have countersignature requirements; and does this provision defeat your effort to reduce the costs and complexity of regulatory compliance related to the current multistate process?

    Mr. COUNSELMAN. It was a compromise. When the bill was enacted, that countersignature was specifically deleted in order to get the appropriate support. We really do believe that countersignature should be one of those uniform issues and should be addressed.

    Mr. MILLER. And if it is not addressed, you are still dealing with a complicated process you had to go through otherwise. So that basic intent really did you no good.

    Mr. COUNSELMAN. Well, at least it is a limited—the countersignature issue is a limited number of States, and the licensing issue obviously affects all 50 States, but countersignature—differing countersignature requirements are really focused on—I believe it is about five States.

    Mr. MILLER. So, basically, if we had an optional Federal charter, many of these issues would dissolve with that, if it could be worked out based on the different insurance entities that are involved in it?

    Mr. COUNSELMAN. It may or may not be resolved, because most agents would probably still be selling insurance through companies that are licensed and regulated in the individual States and perhaps other forms of insurance or specific programs that would be under a Federal charter. So, in all probability, agents and brokers would still have—they might then have two licenses instead of 50 or——
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    Mr. MILLER. So it would be much more simplistic?

    Mr. COUNSELMAN. It would be simplistic.

    Mr. MILLER. Thank you, Mr. Chairman.

    Chairman BAKER. Thank you, Mr. Miller.

    Just for information, we distributed to date all Members a tentative committee agenda, and one of the possible issues for fall consideration is examination of the national charter question. And so people don't get excited, that doesn't mean we are introducing legislation. We are just examining.

    Mr. MILLER. One of the States is on that charter concept?

    Chairman BAKER. Yes.

    Mr. MILLER. I applaud you for that, because I believe things have changed dramatically in recent years, and the requirements that many States impose on insurance companies tend to be punitive based on the mandates of 50 separate States and trying to meet those mandates. I think there is far too much confusion. I applaud you.

    Chairman BAKER. Well, it is merely a discussion to make inquiry that Chairman Oxley has indicated that that is an area of interest for his review, and so sometime this fall—it is the committee agenda as such. We are creating enough trouble between now—that we can't get to it till then.
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    Mr. MILLER. Thank you, Mr. Chairman.

    Chairman BAKER. Thank you.

    Mr. SMITH. If I can make a quick comment in that regard, I would appreciate it.

    We have been opposed to Federal charters, simply from the standpoint that we don't want just another level of bureaucracy added to our industry. But I do applaud the fact, though, that there is room for discussion. We like the idea of potentially maybe some national charters; and we, too, would applaud you for having discussions in that regard.

    Mr. MILLER. If approached properly, similar to banks, State savings and loans, it works very well; and I myself—and I am sure the Chairman and Mr. Oxley, have no interest in creating a bureaucratic nightmare for the industry to go through. It only, from my perspective, could happen if some reasonable conclusion and agreement could be reached within the industry that was beneficial, that would simplify the process everybody has to go by. Where you are asking for that today, we are saying maybe we can do that in a broader fashion.

    Chairman BAKER. And I want to reiterate, I am not advertising—as you are not advertising for new fees, I am not advertising for a new Federal regulator. Just to make the record clear.

    Mr. Meeks.
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    Mr. MEEKS. Thank you, Mr. Chairman.

    And you know, I, like my colleague, Mrs. Jones, am trying to learn. I know that, as a practicing attorney, I wish that I could go to—take one—get one license and practice in any State in the Union, but I can't, and there is different competing interests that the States have to determine how many lawyers are practicing in the State and to limit that number.

    But let me ask this question. Here is my real question. I know in the Gramm-Leach-Bliley bill they set a minimum goal in which to achieve the reciprocity in licensing reform efforts. If those minimum goals are met, why wouldn't it just then fizzle out?

    Mr. KIRVEN. Congressman, we recognized early on that those minimum goals are just simply that, that that is not really true reform and that we need to have nationwide uniformity amongst the States. Having 29 States simply is not an acceptable—a minimum for us. We are not going to quit. We really have—we are using this as impetus to push for total uniformity, because that is really what today's markets and the globalization of the industry requires.

    Mr. MEEKS. Well, is there anything else that you think that we should be doing in Congress to keep pushing reform?

    Mr. KIRVEN. As I stated earlier, I think that we appreciate the opportunity to see how much progress and see if we can get that uniformity. If there are a few holdout States or somebody that won't give up countersignatures, maybe some form of pre-emption would then be necessary to let us push our goal of 100 percent compliance.
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    Mr. MEEKS. Is there—and I missed most of the testimony, but do you see any compelling reason by any of the States not to want to have a reciprocity on reform?

    Mr. KIRVEN. Over time, States have developed unique features that they think are very essential; and we talked earlier about California and fingerprints and checking the criminal database, and only a minority of States do that, check fingerprints, but they are very married to that idea.

    That is one example of where a State has something that they are somewhat married to and reluctant to give up, and we are trying to address those issues going forward of a way to do that without necessarily requiring every State in the Union to do that, although it may or may not be a bad thing. Some people don't like the idea. We are working on letting those States still be able to do that but still having a uniform process.

    Mr. MEEKS. Thank you, Mr. Chairman.

    Chairman BAKER. Thank you, Mr. Meeks.

    Each State is different. Louisiana has had reason to fingerprint its past four commissioners.

    Mr. Weldon.

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    Mr. WELDON. Thank you, Mr. Chairman.

    Mr. Smith, in your written testimony, you note that some insurance departments have been hesitant to introduce and support the Producer Licensing Model Act. Could you please tell us which insurance departments you are referring to and why you think this is occurring?

    Mr. SMITH. We would be happy to get you that list.

    I think why it is occurring is because the issues that we have been talking about here, several States think that they have certain distinctive things about their particular State that require them to use fingerprints or have a countersignature or whatever those requirements are; and, therefore, they have been reluctant to get on board with the Model Act.

    I think some of the States we have talked about—obviously, Florida is a State we have worked with. California, Texas has had some problems. I mean, it is relatively common what those States are.

    Mr. WELDON. I am from Florida, you know, so be careful what you say.

    Mr. SMITH. Florida is a great State. I absolutely love Florida. And, as I say, my largest client is there. So we have worked very closely with a lot of the people in Florida, and our association works very hard with——
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    Mr. WELDON. I was just teasing you about that.

    Mr. SMITH. That is OK. It is OK. I don't change. They still have some questions—they question—a lot of the States—a lot—some of the States still question the need for this act, the uniform piece, and so that is what we are fighting in a few of the jurisdictions.

    Mr. WELDON. Is some of the dynamics of what has been going on some response to Gramm-Leach-Bliley, this section there of just market issues? Are the small States that are coming into compliance interested in getting into the big State markets? Are the big State markets reluctant to get into there because they see an opportunity for business going elsewhere? Just protecting the home turf, in other words.

    Mr. SMITH. I think that is a good question. I think there is some protection, I feel. I think a lot of it is timing. I think some of the big States have had budgetary items. I think this has been a secondary or back-burner issue for them. I don't see that any small State wants to get into big State marketing.

    We have clients in Rochester, Indiana, a town of 7,000 people, that literally have plants in several States across the country. So they are used to dealing with me; and if they have a plant in New Jersey or Montana or someplace else, they would rather have me take care of that on a rather simplistic matter than deal with some other agent some place in one of those jurisdictions.

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    So that is why uniformity is important. I really think it is an economic issue more than anything right now.

    Mr. WELDON. But if I understand all three of you correctly, the level of uniformity that has occurred so far would have never occurred without this provision and that if we are going to get all 50 States on board it is going to stay further action on the part of Congress, on the part of Federal Government.

    Mr. SMITH. I think one of James Bond movies was ''Never Say Never,'' but I think, yes, you may very well be right. This, the Gramm-Leach, provided the impetus for these reforms to start taking place.

    Will they be complete without more impetus? I think that is a question that we won't fully know the answer to until sometime next year as we get closer to the deadline. But you may very well be right. We may need some more preemption from this group to make sure we have reciprocity and uniformity.

    Mr. WELDON. Mr. Kirven, Mr. Counselman, do you want to comment on that?

    Mr. COUNSELMAN. Congressman, I think there are other issues that do come up that effect the passage of this legislation on a State-wide basis, and I think that because it is not always just licensing that is being examined, but it is other insurance issues that some States and some State legislatures feel that they want to have absolute control over without giving up any semblance of control.
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    Our point is that this isn't a control issue. This is a licensing efficiency issue. So we are trying to hammer home the thought that this is all about paperwork. This is not about regulation. But those other issues do come up, relating to a State giving up some ability to regulate insurance within its jurisdiction.

    Mr. WELDON. I believe my time has expired. Thank you, Mr. Chairman.

    Mr. BAKER. Thank you, Mr. Weldon.

    Mr. Lucas. No questions.

    Mrs. Kelly, did you have a wind-up comment?

    Mrs. KELLY. Thanks, Mr. Chairman.

    I just have a message for you, Mr. Kirven. Let me ask you to take a message back of one word to the NAIC. That word is ''uniformity.'' If you folks aren't able to do that and help us realize this goal, then I am sure that we are willing to ensure that you do.

    Thank you very much, Mr. Chairman.

    Mr. BAKER. Thank you Mrs. Kelly.

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    Gentleman, I do appreciate your courtesy and participation. Obviously, this is the first hearing on this subject within this subcommittee's responsibility. For the sake of keeping channels of communication open, we will proceed with a series of inquiries relating to the NARAB as well as the national charter matter. I feel it our obligation to prepare for next November should market progress not be where we all would like it to be. Then we certainly do not want, after having created the standard, to fail to react to the responsibility as outlined in Gramm-Leach-Bliley.

    To that end, the respective organizations should know that Chairman Oxley and this subcommittee have significant interest in the matter. We believe it good public policy, ultimately good for the consumers we all serve; and that to that end we can work cooperatively together toward a system that makes more market sense and delivers better products to all the folks who rely on you.

    So I thank you for your courtesies, and we look forward to working with you as the months proceed. Thank you.

    Our hearing stands adjourned.

    [Whereupon, at 3:34 p.m., the hearing was adjourned.]