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INSURANCE REGULATION AND COMPETITION FOR THE 21ST CENTURY
Tuesday, June 11, 2002
U.S. House of Representatives,
Subcommittee on Capital Markets, Insurance
and Government Sponsored Enterprises,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to call, at 2 p.m., in Room 2128, Rayburn House Office Building, Hon. Richard H. Baker [chairman of the subcommittee] presiding.
Present: Representatives Baker, Ney, Bachus, Royce, Oxley, Weldon, Hart, Rogers, Tiberi, Kanjorski, Bentsen, Moore, Maloney of Connecticut, and Lucas of Kentucky.
Chairman BAKER. I would like to call this hearing of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises regarding insurance regulation and competition for the 21st century to order. Today's hearing is a continuation of the committee's review of current regulatory structure of the insurance marketing and practices with an eye toward determining the advisability of what needed reforms may be considered by the Congress. In the course of these hearings we will hear from a number of participants from various market perspectives, each of whom has recommendations to make to the committee for consideration and subsequent action.
It would be my hope that in today's continuation I am looking forward to the testimony of those who have agreed to appear before the committee, and advise you that the Members will be in and out as the day proceeds, but in order not to delay anyone, we are going to try to be as much on time as possible. Five minutes after is pretty much on time for the congressional committee. So I welcome you and will do so more formally at the appropriate time.
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Chairman BAKER. Chairman Oxley, did you have an opening statement for the record today?
Mr. OXLEY. I do, Mr. Chairman, and thank you.
Today insurance represents one of the critical foundations for our Nation's infrastructure. In fact, insurance now represents about 6-1/2 percent of consumer household spending, exceeding entertainment, clothing and health care. Insurance has become an integral part of consumers' lives, and without it, few people would be able to own homes, drive cars, obtain medical care or provide retirement security for their families.
And yet our American insurance market place is entering into a time of crisis. States collect enormous revenues from insurers, spending only a fraction on insurance regulation and on consumer protection. Some States fix prices below the levels necessary to attract adequate capital even where extensive competition does or could exist. And each State imposes its own regulatory regime for formal approval, creating long delays for consumers and making it impossible for insurers to provide products uniformly nationwide. Consumers ultimately bear the cost of this reduced competition and innovation.
The current patchwork system of insurance regulation also has far-reaching international consequences. The financial services marketplace is rapidly becoming more global, with our trade negotiators prying open foreign markets to American products. We could not be strong overseas if we are not strong at home. And we could not argue that foreign markets need to be more open and transparent when our domestic market is still Byzantine and impenetrable.
To remain competitive we need to speak with one voice from our country to harmonize international regulations and ensure adequate consumer protections and solvency oversight. Consumers cannot be adequately protected if insurers are subjected to conflicting requirements at the international, Federal and State levels.
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It is my primary hope that our State legislators and insurance commissioners can enact meaningful reform. The States have had some success, significant progress in agent licensing reform, solvency oversight and accreditation. I would note, however, that this success is far from complete and has only occurred in the face of congressional legislative pressure, pressure that will continue to grow if the pace of reform does not improve.
Numerous groups have now come forward to our committee desperate for reform. In fact, some people have tried to take advantage of this by jumping the gun and coming forward with proposals before the committee has had a chance to fully review the great number of issues that Congress needs to analyze in considering any proposals. But we cannot and will not risk such an important foundation of America's infrastructure without understanding all of the risks involved and developing a public record with all industry and consumer groups participating, and that is why, Mr. Chairman, I congratulate what we are doing in this series of hearings. We are just beginning to search out a consensus on what reforms might be achievable. Our goal is an industry that is competitive and profitable and brings consumers the efficiency and effectiveness they deserve.
I appreciate our witnesses coming today to help us grapple with these very difficult issues and look forward to their testimony. I would like to offer a special welcome to Joe Gasper, at present the chief operations officer of Nationwide, a great company that just happens to be based in my home State of Ohio.
With that, Mr. Chairman, I yield back.
[The prepared statement of Hon. Michael G. Oxley can be found on page 136 in the appendix.]
Chairman BAKER. Thank you, Mr. Chairman.
Chairman BAKER. Mr. Moore has indicated he has no opening statement.
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Mr. Kanjorski, do you care to make a statement at this time?
Mr. KANJORSKI. I will submit something for the record.
The CHAIRMAN. For the record, thank you, Mr. Kanjorski.
[The prepared statement of Hon. Paul E. Kanjorski can be found on page 229 in the appendix.]
Chairman BAKER. Mr. Rogers, did you have an opening statement? Did you care to make an opening statement, sir?
Mr. ROGERS. Yes, Mr. Chairman, if I may. Thank you, Mr. Chairman.
Just briefly, and I want to first thank the first panel. I do want to talk to an individual who is joining us on the second panel, and I appreciate all of you being here to speak on the dynamic that is happening in the insurance industry right before our eyes and the furious and sometimes adversarial regulation conditions in which you operate in State after State across this country. You are the industry that people love to hate, but it is absolutely crucial that we make sure that you can survive with the free market bent, so you can provide efficiency to those consumers. I am glad you are here today to help us weed through a very difficult circumstance and so we can understand the impact of tort law and sometimes the changing market conditions as we continue to provide insurance services.
I just wanted to take a moment, Mr. Chairman, and welcome Bob Restrepo from Allmerica, and I want to compliment him. Their parent company bought kind of a small insurance company in my hometown called Citizens Insurance. That was the place when I was growing up where people wanted to go to work. They were great corporate citizens. They were involved in every activity in our community. They employed and provided great conditions and a great product, an insurance product. When citizens was purchased, we heard all the rumors that certainly sent a shock wave through a small town in mid-Michigan that they were going to up and leave and be torn apart and sold off and moved in several different directions.
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And I want to compliment Bob for taking over and not only continuing that tradition of being a great corporate citizen for our community, but growing and expanding on it, investing in it, moving some operations there, rewarding the very talented people who are there, and making good things happen in our small town.
So for all the bad things you hear about corporate America and mergers, this was a great success story for us and really, I think, for the consumers who are continuing to buy that product. So I wanted to welcome Bob here today. And from Howell, Michigan, a small town in the Midwest, we thank you for what you have done and what you are continuing to do, and the great things you are doing with Allmerica. You are making great changes there for all the right reasons, and we appreciate it. And welcome.
Thank you, Mr. Chairman. I yield back the remainder of my time.
Chairman BAKER. Thank you, Mr. Rogers.
Chairman BAKER. There being no further Members to issue an opening statement, all Members' statements will be made part of the record, and the record will remain open for an additional 30 days for any statements any Member chooses to submit for the record.
Chairman BAKER. At this time, Mr. Tiberi, we would be moving to our panel of witnesses. I understand you may have some interest in making a remark at this time.
Mr. TIBERI. Yes. Thank you, Mr. Chairman.
It is with great pleasure that I recognize one of my constituents actually who is on the panel, the first panel, Joe Gasper, who is the COO, as Mr. Oxley mentioned, of Nationwide Financial, and also a board member of Nationwide Financial, and also president of Nationwide Financial and Nationwide Life Insurance Company; a native of Steubenville, Ohio, and now a resident of Dublin, Ohio, which is the district that I represent.
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And Nationwide actually is headquartered in the district that I represent in downtown Columbus. In fact, Nationwide is now developing an area called the Arena District. For any hockey fans in the audience, the Columbus Blue Jackets are Columbus's newest major league team, and thanks to Nationwide in a small part, a wonderful corporate citizen who I have had the opportunity to work with, watched Nationwide grow up, being a Columbus native over the last 30 years, and had an opportunity as a legislator to work with not only the financial company, but also the other companies that Nationwide is involved in.
As the panelists know, Mr. Gasper is chairman of the board of the American Council of Life Insurance, president of the Association of Life Insurance Companies, and a member of the board of the Insurance Marketplace Standards Association. In his spare time in Columbus, he is on the board of Columbus Children's Hospital, and BalletMet, and the OSU Foundation board. He is a graduate of the Ohio State University, where our President is going to be speaking on Friday. It is great to have him here today.
Great to see you, Joe.
Chairman BAKER. Thank you, Mr. Tiberi.
Chairman BAKER. And we would now proceed with our panel of witnesses. For operating procedures we generally try to keep remarks to 5 minutes. Your full testimony will be made part of the official record to enable Members to have as much time for questions after your remarks.
Welcome, Mr. Gasper. It certainly is a privilege to have you here today, and we look forward to your remarks.
STATEMENT OF JOSEPH J. GASPER, PRESIDENT AND CHIEF OPERATING OFFICER, NATIONWIDE FINANCIAL SERVICES, CHAIRMAN, AMERICAN COUNCIL OF LIFE INSURERS
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Mr. GASPER. Thank you, Mr. Chairman and members of the subcommittee. Mr. Chairman, there is one thing that just about all the witnesses here in these hearings can agree on, and that is the current state of the insurance regulatory system is lacking in uniformity and efficiency, and these lapses diminish the ability of the insurers to compete effectively in a changed financial services marketplace or to serve our customers' needs in the most productive and efficient manner.
Where we disagree is on the remedy. Life insurers believe that an optional Federal charter, with emphasis on the word ''optional,'' is by far the most effective way to bring the regulation of insurers in line with the needs of consumers and the reality of the financial services marketplace. Today many insurers do business not just across one or two State borders, but nationwide and around the world. Our competition is no longer just other insurers, but foreign and domestic banks, mutual funds, multinational financial conglomerates. The current system requiring virtually every facet of our business activities to be approved in 51 jurisdictions has become an overbearing administrative burden and a competitive albatross. The subject of this hearing, product regulation, is a prime example of that problem.
Banks, among our chief competitors in the financial services market, can roll out an innovative new credit instrument countrywide within 30 days. A similar product developed by a securities firm might take it a bit longer, perhaps 60 days, to meet SEC requirements. For a life insurer the process of getting each states approval can require as long as 2 years. And ultimately, because each State requires something a little different, the insurer winds up with 35 to 40 different products, not just one. The competitive implications of this disparity in regulatory efficiency are enormous and are the major reasons for our pursuit of an optional Federal charter.
But while speed to market is an important reason, it is by no means the only one. Many activities that are routine for other types of businesses are an ordeal for the insurance industry; advertising, mergers and acquisitions, market conduct, company and agent licensing and more. There is a long list of problem areas.
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The fact is that the current State-based system of insurance regulation was not designed to accommodate national companies, and it doesn't. That is not to say that it should be eliminated and replaced by Federal regulation. Far from it. Many of the ACLI member companies plan to remain State-regulated. A Federal charter should be an option for those businesses, organizations, products, markets, and strategic plans that would be well served by a less burdensome and expensive alternative.
I would like to close by focusing on two points. The first is that life insurers along with the banking and securities industry now form a triumvirate of essential financial service providers with striking similarities between the three in terms of their mission, their products and their importance to the financial health of the Nation. And yet, unlike banking and securities, there is no Federal insurance mechanism to address insurance issues on a broad scale, no Federal repository of insurance expertise, no agency at the Federal level to address critical issues affecting this multitrillion-dollar industry and its hundreds of millions of customers. The recent debate over terrorism insurance coverage serves only to underscore the existence of this void in Federal insurance knowledge and authority.
To look at it another way, consider what would happen if there was a crisis in the stock market, but no SEC for Congress to turn to for guidance, no Federal securities agency to initiate broad corrective actions to reassure investors in foreign markets. Congress would be forced to query a succession of State securities regulators to try to piece together information on what went wrong and then to come up with its own plans to address the problems, all within a very short time frame and under intense pressure. Can we afford any longer to leave the insurance industry and its customers in a similar position?
The second point is that while we recognize a change of this magnitude will take time, we do not believe that we have the luxury of waiting through two or three Congresses producing Federal legislation aimed only at arm-twisting the States to become more uniform. The States with our full support are already trying to use an incremental approach to regulatory reform. However, incremental changes, while helpful, cannot address in comprehensive fashion the full range of regulatory problems facing our industry.
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What we strongly urge this committee to do is to keep focusing on one remedy that can eliminate overnight all the uniformity and efficiency problems that we have, the optional Federal charter.
Thank you, Mr. Chairman.
Chairman BAKER. Thank you very much, Mr. Gasper.
[The prepared statement of Joseph J. Gasper can be found on page 231 in the appendix.]
Chairman BAKER. Our next witness is Mr. Tony Nicely, Chairman, President and CEO of GEICO Insurance, and Chairman of the National Association of Independent Insurers.
Welcome, Mr. Nicely.
STATEMENT OF TONY NICELY, CHAIRMAN, PRESIDENT AND CEO, GEICO INSURANCE COMPANIES, CHAIRMAN, NATIONAL ASSOCIATION OF INDEPENDENT INSURERS
Mr. NICELY. Thank you, Mr. Chairman. Good afternoon, Mr. Chairman and members of the subcommittee. My name is Tony Nicely. I am Chairman and CEO of GEICO. GEICO is the fifth larger private passenger insurer in the United States, employing 18,000 associates. I also serve as chairman of the National Association of Independent Insurers, and it is in that capacity that I am honored to testify before you today. NAII's 700-plus membership comprises all types of insurance companies, writing approximately $98 billion in annual premiums. NAII's diverse mix of insurers provide us a broad perspective from which to comment on the conditions of insurance regulation.
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NAII supports State regulation of insurance and opposes Federal involvement in the regulation of the insurance industry. We believe that geographic and State conditions are such that consumers' needs differ from State to State. The goal of regulators should be to balance insurer solvency with an open and competitive marketplace.
Today I would like to highlight two issues, financial regulation and data reporting. A more detailed discussion of these topics is included in my written statement. Solvency regulation is the single most important role that States play in the regulatory arenas. The improvements made to the States' solvency regulatory system over the past 10 years have reduced the number of insurer insolvencies.
Almost all States have adopted the financial requirements of the NAIC Financial Accreditation Standards program. The system is based on strict financial reporting requirements and regular financial examinations. All insurers must comply with financial regulatory standards, including uniform laws prescribing capital and surplus requirements as well as types of investments insurers may hold. All but the very smallest insurers are required to certify and file audited financial statements on an annual basis. The annual statement reporting requirements are far more comprehensive than normal GAAP reporting standards.
It should be noted that the tragic events of September 11, which caused the largest insured loss in history, are not expected to cause the insolvency of a single U.S. Insurer. We think that this is testimony to the general success of the State solvency regulatory system.
While financial oversight is the most important role of the State regulators, State guaranty funds are also critical as the safety net in the event of an insurer insolvency. Since their origins in the 1970s, State guaranty funds have paid out over $9 billion in property/casualty claims to make sure that the promises made to insurance buyers are kept.
In general, the State financial regulatory system is working effectively. We believe Federal intervention in this area is ill-advised and unnecessary. We are also skeptical of any plan to overlay Federal standards over the current State-based guaranty fund system.
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The issue of data reporting and availability is another critical area that I would like to highlight briefly. Many States and many small and medium-sized insurers rely on supplemental rating information developed by advisory organizations such as the Insurance Services Offices in order to administer their rating programs. Under current optional Federal charter proposals, insurers would not be required to report data and could be constrained from reporting data because of Federal antitrust exposure. Without the availability of aggregate loss cost data, these smaller and midsized insurance companies would not have credible data and would be unable to compete with larger companies that can rely solely on their own data.
NAII believes that State regulation is the most effective way to achieve a competitive insurance market and to target products to meet local needs. However, we agree that the insurance regulatory system must improve. Progress has been made in the areas of rate and form filing, agent licensing, company licensing and market conduct examinations. State legislators and regulators have particularly—have been particularly receptive to competitive-based reform measures for commercial lines consumers. The NAII believes that such reforms would also benefit automobile and homeowners insurance buyers.
We are confident that the States can and will continue to improve the regulatory system. We will continue to evaluate Federal proposals with an open mind, but believe it is premature for Congress to expand the Federal regulatory role. NAII has completed an extensive analysis of the two optional Federal charter proposals. These two proposals, frankly, generate more questions than answers. They provide such broad regulatory authority to the Federal insurance regulator that it is difficult to assess the ultimate impact on consumers or the industry. All stakeholders must become fully aware of what Federal regulation of insurance would mean to insurance buyers.
Competition and product choices serve the consumer best. Many States are moving toward modernization, but some still need to be prodded. Ongoing oversight by this committee can help impress upon those States the urgency of acting now. We believe modernization at the State level is an achievable goal.
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And in closing, the NAII believes that a flexible, innovative and competitive State regulatory system is the most efficient and cost-effective way to deliver protection to the insurance buyers. Thank you.
Chairman BAKER. Thank you very much, Mr. Nicely. We appreciate your testimony.
[The prepared statement of Tony Nicely can be found on page 258 in the appendix.]
Chairman BAKER. Our next witness is Mr. Donald Young, who is President of the Health Insurance Association of America. Welcome, Dr. Young.
STATEMENT OF DONALD A. YOUNG, M.D., PRESIDENT, HEALTH INSURANCE ASSOCIATION OF AMERICA
Dr. YOUNG. Yes. Thank you, Mr. Chairman, distinguished members of the subcommittee.
The members of the Health Insurance Association of America provide a wide range of health insurance products, including medical, dental, supplemental, long-term care insurance and disability insurance. I am delighted to have this opportunity to provide our views about the general issue of insurance regulation.
Health insurance is primarily regulated by the States. However, health insurers are also increasingly subject to Federal laws. Proposals before the Congress such as the Patients' Bill of Rights would dramatically expand this Federal role. The regulation of health insurance is complex. Many everyday health insurance functions simply have no other counterparts in other types of insurance.
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While HIAA has long supported the State regulation of insurance, we also recognize that there are issues that need to be addressed, such as speed to market, and inconsistencies between Federal and State rules. Privacy provides a useful example of the interaction between Federal and State laws and difficulties that can arise for insurers. Congress addressed privacy in HIPAA, but HIPAA does not preempt all State privacy laws. Instead State laws more restrictive than Federal requirements continue to apply. As a result, insurers must determine for every State in which they do business whether State law is more or less stringent than the Federal requirements. And some States continue to adopt new privacy laws. Therefore, the comparison cannot be a one-time endeavor. The bottom line is that current law forces an insurer operating in multiple States to implement multiple privacy plans incurring greater expenses than would have been the case if a single uniform privacy law applied. This could be said for other issues regulated by both Federal and State laws.
One suggested solution for the regulatory problems is the optional Federal charter. Under this concept, federally charted insurers would primarily be regulated at the Federal level. HIAA has not taken a position on any of the pending optional Federal charter proposals. However, establishing an optional Federal charter appears to require several steps. First policymakers need to carefully review existing State regulatory and other oversight roles. Next they must decide which of these should be replicated in a Federal regulatory structure. Finally, for each issue, and there are many, they need to identify the specific regulatory policy that will apply to federally regulated insurers.
All of this is a significant challenge. As currently drafted, optional Federal charter proposals provide very little in the way of the statutory framework for regulating health insurance products at the Federal level. Rather, they defer most decisions to Federal regulators.
I would like to end by acknowledging that the States, through the NAIC, the National Association of Insurance Commissioners, are making serious efforts to streamline the regulation of insurance. The NAIC is also now exploring the use of interstate compacts as a way to improve consistency and reduce the regulatory burden. Such compacts raise a host of structural process and policy issues. We are working very closely with State insurance regulators to help assess these matters.
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HIAA would welcome the opportunity to work with members of this committee as you continue to examine the important issue of the regulation of insurance. Thank you.
Chairman BAKER. I thank you, Doctor. We appreciate your testimony today.
[The prepared statement of Donald A. Young can be found on page 309 in the appendix.]
Chairman BAKER. Mr. Nicely, last year in a hearing which we conducted on speed to market issues, you participated and in the course of that hearing indicated that the competitive rating system that Illinois has adopted was a favorably viewed methodology. Do you still view the Illinois model as one which is—offers advantages?
Mr. NICELY. Yes, Mr. Chairman, we do. It is not the only model, but it is certainly a model that we favor. Frankly, we have not found, and I personally have not found, anything in a nonmonopolistic society that serves the consumer better than the free market system that we have in this great country, and Illinois has that system. Certainly other States have similar systems that would be file-and-use systems. And two States that had very onerous regulation of rates, South Carolina and—actually a jurisdiction, meaning the District of Columbia, and a few years back moved to an open rating system, and they have found many new players and rates stabilized.
So, as I spoke to the National Association of Insurance Commissioners earlier this year, I believe that any commissioner who has worked in an open-competition State would say that it has served their citizens well.
Chairman BAKER. Certainly. In order to get to that perspective, a national basis, and being reliant today on the State leadership to achieve that end, what would be your expectation if you had to run a clock on seeing a 50-State uniformity initiated either by the NAIC, State insurance regulator or whatever moving force might be out there to get such a—or how long should the Congress wait before we act? At some point, I think we agree that there is some level of difficulty in the markets today because of inefficient regulation. And one day we are going to have to take action. How long would you suggest the Congress wait?
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Mr. NICELY. Let me answer that question this way, Mr. Chairman. I believe that even the toughest States are now beginning to see the light because of a number of reasons, and one of those reasons is that we are having a much better informed consumer today than we have ever had in our history. Let's take one of the toughest States of all, the State of New Jersey. Things have gotten so bad in New Jersey and consumers so riled up by paying the highest automobile insurance rates in the Nation that the Governor has—himself has recently said, I propose modernization and will work to do everything possible to modernize the regulatory system in the State of New Jersey.
It is my belief that other legislators will also begin to feel that way because the consumer, as was said in the opening statements by Chairman Oxley—consumers deserve better than paying higher rates than they should. And I believe that even tough States like New Jersey we will see moving forward. If we see no progress at all, then I would say more is required. But I believe even New Jersey we will see some progress in the very near future.
Chairman BAKER. Well, in the interim would there be—would it be ill-advised to move forward with the proposal that would take the Illinois model and make that a national plan? I mean, is there any downside to that?
Mr. NICELY. In my personal opinion, yes, sir, because as soon as you begin to tell the States that they have to use one form of competition over another, we are likely to get some political backlash.
Chairman BAKER. But if it is optional?
Mr. NICELY. If it is optional, it is still the same way, because I believe that when we get into optional—if we just have optional ratemaking, that is not likely to happen. So when we say optional, we say an optional Federal charter that would get into things like how do you handle residual markets, how do you handle reparations, what law do you use for tort, and many other things.
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So I don't think that you could just cut this up into little bitty pieces and say, well, we will just impose open rating on every State. If we could do that, that would be wonderful, but I don't believe that that would be possible.
Chairman BAKER. I thank you.
Mr. Gasper, I know you don't necessarily share that view, but what sense of urgency do you have as to the need for reform? I have, of course, read your statement, but if we knew we could get where we need to be in 2 years, is that too long?
Mr. GASPER. Mr. Chairman, I don't have to live in your reality of politics, but I would suggest to you that we are almost 15 years too late. Keep in mind that I am here as the president of a life insurance company, and I am representing an organization that represents life insurance companies, not property/casualty. I could make the case that the automobile business is a State oriented business, but the life insurance business is a national business. But if you look at this in terms of what happened in the mid-1980s in this country, with high interest rates and then with the equity markets, the whole business has changed. It is no longer a life insurance business. We are a top 10 life insurer in the United States, and we get 40 percent of our premium through payroll deduction. It comes to us every 2 weeks through 401(k) plans or 457 plans for cities, counties and States in the United States. So think about it. Whether or not you think of it as a life insurance company, 40 percent of our business is coming from retirement savings plans.
And so the market has changed dramatically. Life insurance is now a national business. It is really an international business too in some respects. It is not life insurance, it is retirement savings. It is about long-term savings, and what we have is a regulatory system that essentially is regulating it like it was traditional life insurance 40 years ago.
So the idea of waiting 2 years for real reform is not appetizing to me because I think we are essentially behind the times for this particular industry. And I keep emphasizing how we compete against banks and how we compete against security firms. We are not just competing among ourselves. If we were just competing with insurance firms, we would all be disadvantaged equally, but our competition is coming from mutual funds and banks.
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Chairman BAKER. Thank you, Mr. Gasper. My time has expired.
Mr. Kanjorski.
Mr. KANJORSKI. When you say ''this industry,'' now you are talking about the subset life insurance industry or the insurance industry as a whole?
Mr. GASPER. Well, I am speaking for the subset life insurance industry, which is the life, annuity and long-term savings retirement industry.
Mr. KANJORSKI. So your theory is we could create tiers identifying different aspects of the industry. But I suspect that Nationwide handles other insurance products, doesn't it, besides life insurance?
Mr. GASPER. Nationwide is a large property/casualty insurer, writes a tremendous amount of—.
Mr. KANJORSKI. What does that side of the company—.
Mr. GASPER. Well, I think that Nationwide, Nationwide in total as an enterprise likes the idea of insurers having an option. We are not talking about doing away with State regulation. We are talking about giving individual companies choice—so if Mr. Nicely's company wants State regulation and wants to remain State-regulated, he can. If GEICO decides that it wants to be federally regulated, it can. So all we are asking for is choice.
Mr. KANJORSKI. In all aspects, though. You are not just talking about life insurance.
Mr. GASPER. In all aspects, from my company's point of view. From the industry's point of view, as I sit here today as chairman of the ACLI, I am speaking for the life insurance industry.
Mr. KANJORSKI. All right. Mr. Nicely, your company is nationwide, without the trademark name. You sell life insurance, don't you?
Mr. NICELY. No, sir, we sell in 48 of the 50 States. We do not sell in New Jersey or Massachusetts because of the owners' regulation there.
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Mr. KANJORSKI. Okay. Well, and you honestly don't see any damage to having a level playing field nationwide? You are very satisfied with the present State regulation?
Mr. NICELY. Very is an overstatement, sir. We are satisfied. We certainly believe that State regulation must improve. We also believe that it will improve. There has been gradual improvement in all aspects of the regulation and in some States much greater than others.
Mr. KANJORSKI. We seem to be pushing the States to do that, though. I am wondering whether they have—what their own inclinations would be.
Mr. NICELY. Many of the States are doing it on their own. Some are doing it because they are being coerced, and others are just so resilient that they haven't moved yet. But as I said, and in answer to the Chairman's question, I believe even those States are beginning to see the light and will make the changes. The consumer is going to demand it.
Mr. KANJORSKI. What would you think if we looked at an optional charter that was tiered either to specific aspects of the industry or to the size of the companies involved, and giving that sort of an option? Those companies that are—I don't know what the rate is, but equivalency of having 10 billion in assets in banks, whatever that would be comparable to, to give them a high tier and give them an option for a national charter, but the lesser companies to say—.
Mr. NICELY. I certainly wouldn't recommend that. Now, if you want to consider the tier on the basis of carving out certain segments of the industry, such, as Mr. Gasper said, the life insurance industry, that may be possible. We don't write life and wouldn't propose to speak for the life insurers, but I can certainly see the legitimacy of some of the arguments being made by Mr. Gasper. But the property/casualty is such a complex industry that goes to so many of the laws of the various States that carving that out with a national charter is so complex that I believe it will take several years just for all of the players even to understand what is being proposed as you do that.
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Mr. KANJORSKI. Don't you see sometime in the future, though, your company expanding to cover all aspects of insurance?
Mr. NICELY. Not necessarily, because we are one of those companies that believe if you can do one thing better than anyone else, it might be more profitable than trying to do a lot of things as well as anyone else. We simply would like to be the best automobile insurer in the Nation.
Mr. KANJORSKI. Don't you think if you get particularly successful, some hawk will be circling and maybe taking—.
Mr. NICELY. Well, of course that is probable, and when we get there, of course we may have a different view on how large we would like to be. But right now we only insure 5 percent of the autos in the Nation, and we would like to insure a larger number.
Mr. KANJORSKI. You raised an interesting question that has disturbed me a little bit, that if we move too precipitously on this question, we invite a hearing 2 years or 5 years from now on the question of adopting tort law standards, because obviously the distinctions in premiums and rates are very closely aligned with the tort law of the particular State involved. Do you see this as a potential problem that we —.
Mr. NICELY. I certainly do, in the highest of magnitude. Of course, in a way this debate goes back 200 years from Adams and Jefferson as to what really is best left to the States, and under the property/casualty industry, the needs in Alaska are very different than Texas, and Texas is very different than Florida and New York, et cetera. And I certainly wouldn't propose that a lot of the things, financial responsibility for instance—in certain high-income States it is the States have judged that they should have a higher level of financial responsibility, and other States it is much smaller. So you really do open the proverbial Pandora's box.
Mr. KANJORSKI. What do you think about the question on tort law? And I might say not only tort law, but contract law, because certainly that is going to bring in all the different inconsistencies in the various States. What—how do you respond to that, Mr. Gasper? What should we do in regard to that?
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Mr. GASPER. I think the answer revolves around two different industries. And so as Mr. Nicely has described the property/casualty industry, especially the auto and homeowners end of it, these are very important issues, and I think the States vary widely. When you talked about life insurance, which is essentially a national product, we don't see a lot of difference in terms of the statutory requirements inside a State or even what goes on in terms of the courts within the State that would really matter in terms of life annuity and long-term savings.
Mr. KANJORSKI. But that is part of your company that also is in favor of a national charter that handles the same type of insurance as Mr. Nicely's company. What would they think about the question?
Mr. GASPER. What would Mr. Nicely's company think?
Mr. KANJORSKI. No. How would your side of the company that handles casualty and loss deal with the tort and contract law?
Mr. GASPER. I think that our company would essentially say that Mr. Nicely should have a choice. If he believes State regulations make sense for GEICO, he should be able to stay there. If Nationwide's property and casualty operations thought that it made sense to be a nationally regulated company in order to get to market quicker or lower cost, it should have that choice. All Nationwide is asking for is a choice.
Mr. KANJORSKI. All right. Am I overtime—my time has expired, Mr. Chairman.
Chairman BAKER. Thank you, Mr. Kanjorski.
Mr. Ney.
Mr. NEY. Thank you, Mr. Chairman. I want to welcome all of the panelists today. I think it is very obviously an important subject, and I appreciate the chairman's desire to get this all out on the table.
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I would like to start with Mr. Gasper, welcome, being from Ohio, and also treat you pretty nice. I had a leak this morning in my ceiling, and you can guess where I am insured.
Let me just lay something out here that obviously is pretty understandable. Federally-chartered companies will be exempted from State-imposed market conduct rules. We know that. So if a consumer from our State were to go with the federally
chartered and, say, you know, with you all, and they would be under a different set of sales rules than a consumer that would go with a State-chartered company, so that consumers would be entitled to different illustrations, lemon laws, et cetera. I mean, I think we all agree that that is the way the system would work.
So it goes to the point—I understand what you are saying about choice, and there is an opt-out provision, but the scenario I described, don't you think it is going to be confusing for the consumer to be able to shop within the States and have to do an awful lot of groundwork?
Mr. GASPER. I think it gets confusing for consumers now. If I buy my life insurance or annuity policy in one State then I move to another State, am I still being regulated by the State that I was in? I think from the standpoint of life insurance, annuities, 401(k)s, I think the consumer's perspective is that they should be able to get the same kind of quality, the same kind of protection, in every state.
So my view would be that if consumers fully understood all the nuances that occur in 51 jurisdictions and the fact that when we get a product approved, many times we have to have 40 different requirements for the same product because there are 40 different applications for the same product because that is how the States operate, I think the consumers would be totally bewildered by that considering what they believe they are buying.
Mr. NEY. Of course, if you move from one State, you still know what the rules were when—you know, when you incurred that policy in the State that you lived in. But I just—and I want to go back to one other thing. Also, Mr. Nicely testified about State regulators, the 1980s, some of the problems. I have got some, you know, information up here, and some of the things from your testimony, it points out that they did a better job when they needed to. I am just wondering what your comment would be, Mr. Nicely, on the fact that, you know, what about if we could get the State regulators to once again, if they want their jurisdiction upheld, to be able to look at ways to streamline some of the problem areas? Do you think they could do that or not?
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Mr. NICELY. Of course they could, and I think they can. If you are asking a question does oversight by this committee—is it useful, and may it speed up the process, yes, I think the answer to that is true also.
So I commend the committee for your oversight and hope that you will be one of those interested, very interested parties that helps to keep the pressure on the States to bring about these reforms.
Mr. NEY. This may be an observation. I have dealt for years with the HIAAA, of course with Nationwide and others, and different insurance entities over the years. I chaired insurance and financial institutions in the Ohio Senate when I was there. And, you know, the Bible was McCarran-Ferguson. The Bible was State regulation. That was the first things. Once you got that out of the way, you could have a nice conversation with each other. You know, where did you stand on that issue?
And the only thing—I understand about expediency. I do look at the bottom line end to the consumers and how they are going to be confused or not on choices, because they will be dealing in some cases, even if there is an opt-out, with the Federal Government. I just—it is hard, I think, for a lot of people—maybe not others, but a lot of people over the years have had one mind-set to understand how possibly you can shift jurisdiction, and how many new staff do the regulators have, and do they promulgate rules and regulations that we are so busy we can't even keep up with particular oversight of those, and what happens to the consumer in those cases. And maybe you will be back here in a few years saying, oh, my goodness. Look what is happening to us. So I—you know, there is a lot to be talked about. But I think I just find it hard to understand how that—what caused this whole shift to go towards, you know, the Federal Government is better. We are here from the government and here to help you.
Mr. GASPER. I would not make the case that it is better. I am making the case about a choice, about an option. There are many banks that inside their organization will have a federally chartered bank and a State-chartered bank. I can see big organizations having federally chartered life insurance companies and State-chartered life insurance companies within the same family of companies. So it is not about better or worse. It is about choice. And a little competition could occur between the regulatory bodies in terms of who is the most efficient. Who is the one that basically is doing the best job for the consumers. So it is not about better or worse. It is about choice.
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Mr. NEY. Thank you.
Chairman BAKER. Thank you, Mr. Ney.
By time of arrival, Mr. Moore, you'd be next if you have questions.
Mr. MOORE. Mr. Gasper, every State already has in place safeguards to protect insurance consumers, and these protections would vary State by State. And I guess my question to you is what consumer protections would be necessary if we created this optional Federal charter that you are proposing here?
Mr. GASPER. I believe that in our proposal essentially we are not trying to eliminate anything in terms of consumer protection. As a matter of fact, I think we are trying to strengthen it by streamlining it so that it makes sense on a national basis.
Our view would be that the State regulator would promulgate rules for state chartered companies. The Federal system would build on that, but would be uniform across the country. And there would be little distinction between State and Federal regulation when it comes to protecting consumers.
Mr. MOORE. Do you believe the proposal that you have right now, the draft proposal that you have now, speaks to that adequately?
Mr. GASPER. I think in concept, it does. I think the devil is always in the details, and I think we have to flesh it out, but I think the makings are there to essentially bring all of the protections that consumers have today into the Federal system, and then the plus could be streamlining those so that they are better understood by the companies and the consumers and less costly to administer.
Mr. MOORE. You have talked, Mr. Gasper, about a proposal I think is modeled similarly to the dual banking system that regulates commercial banks, thrifts and credit unions and is optional. Does yours apply though your proposal only to life insurance lines or other lines in the insurance industry?
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Mr. GASPER. As I mentioned, I am here representing the life insurance industry as chairman of the ACLI. My own company as a major property/casualty company does support the concept of choice.
Mr. MOORE. You say does?
Mr. GASPER. Does support the concept of choice. But as I think about the issue of life insurance, I am absolutely convinced that it is a national business, it is not a State business, and that Federal regulation would make more sense in terms of efficiency.
Mr. MOORE. To the other two panelists, Mr. Nicely and Dr. Young, I guess my question would be if you would support or not oppose a limited charter for regulation of only life products, and why or why not? How do you see this?
Mr. NICELY. The NAII has not taken a position on the life side. Personally I would not oppose it. I mean, I can certainly see some of the arguments that the life insurers are making, but it is a very different ballgame when it comes to the property/casualty side, Mr. Moore and Dr. Young.
Dr. YOUNG. We also do not have a position. An important question would be, though, the nature and scope of the charter and how it would work. Would the charter be given to a company—if the company is in life and long-term care and medical and a variety of businesses, would that charter apply, in which case health would be drawn in, or long-term care would be drawn in? So an important question is how the charter would work, or, conversely, would the charter work by line of business or by specific product? All those kinds of issues would have to be hammered out before we could really look at that effectively.
Mr. MOORE. Thank you.
Mr. Gasper, does a vote in favor of pursuing an optional Federal charter bill in Congress suggest that most of the members of your association would choose Federal regulation over State regulation?
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Mr. GASPER. I am not in the position to say that. I know there is a large, very large mutual insurance company inside the association that has indicated that it would stay State-regulated, but we have not had any poll. If I were to guess, I would think there would be a lot of companies that would stay State-regulated. These would be regional companies.
Many of our member companies only do business in a handful of States, and the markets they serve are more traditional in terms of life insurance. I would think that the large national companies that are more in the retirement savings business, the long-term savings business, would look with a strong eye towards a national charter.
Mr. MOORE. Thank you, Mr. Chairman.
Chairman BAKER. Thank you, Mr. Moore.
Mr. Royce, you would be next.
Mr. ROYCE. Thank you, Mr. Chairman.
Mr. Gasper, a prominant insurer in my part of the country has described to me a case where one State's onerous product approval process prevented the insurer from offering a life insurance product which had a lower cost and lower insurance rates, due to the bureaucratic costs involved in that State's justification process. Now, from my standpoint, it makes sense if you have got a scenario where regulators would require justification for an increase in rates, but it is a little difficult to see why the administrative process should be prohibitively burdensome for insurers seeking to bring lower-priced insurance products to the consumers in that State. And I believe it is part of an unintended consequence of different States' regulatory processes that allows consumers in one State to benefit from lower rates while the consumers from another State are barred from enjoying those lower rates, when the only justification that I can see for this price differential is the bureaucratic process, not specific underwriting facts. And I wondered if this is the kind of example that your own company has run into, or perhaps you are cognizant of this situation where others in the industry have run into this type of situation? Mr. Gasper, could you respond on that?
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Mr. GASPER. Yes. I could give you many cases for my own company. And when I asked the ACLI member companies, I was literally inundated with cases. The one I remember in addressing the NAIC was we came up with a product which was a combination annuity/long-term care product that we thought was very attractive to help people start to save for long-term care in an annuity format. We had some very large States approve it, and we had some very large States not approve it. And, you know, we were taken aback by it. I mean, it is the same policy.
So, yes, there are many, many instances where we essentially will take a product, file it in a majority of States, and have at least four or five big States with large populations not approve the product or take 2 years to approve the product.
Mr. GASPER. And then when the product is finally approved, you know, something else has become more popular. So it is a problem.
Mr. ROYCE. Well, I thank you, Mr. Chairman. I thank you for calling this hearing, and we will look forward to hearing from the second panel.
Chairman BAKER. Thank you, Mr. Royce.
Mr. Bentsen?
Mr. BENTSEN. Thank you, Mr. Chairman.
Mr. Nicely, you mentioned that in the property and casualty business, it is obviously different in Alaska than it is Texas and New York, et cetera. I guess the problem is, I think everybody has agreed, that in the life insurance market, that there aren't 50 different markets, there is one national market; and—but in the property and casualty market, you are arguing there are still 50 or 51 different markets. But do you all allocate your capital? You are operating in 48 of those 51 markets. Are you allocating your capital to the number of policies that you write based upon the capital that you raise from each of those markets, or do you raise your capital in a national market and then allocate differently?
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I mean, I guess the point is aren't you subsidizing in some cases one State's operations against another State's operations?
Mr. NICELY. No, sir, we don't. That is one of the reasons why we do not operate in New Jersey and Massachusetts, because at one time we were licensed to write in both of those States, and we chose not to allow customers from other States to subsidize those two States. So while our capital is not allocated to the various States, it is certainly sufficient to protect the consumers in all of those States. And of those 48 States and the District of Columbia that we do business in, we want to grow our business in all of those States.
Mr. BENTSEN. Mr. Gasper, in your testimony, you talk broadly about what a Federal charter would look like, and that it would take over the regulatory apparatus of the States, an optional Federal charter. Mr. Nicely in his testimony talks in great length about State guaranty funds and the necessity of them. Is the intention of a Federal charter, for those companies which opted into a Federal charter, that there would be a new guaranty fund that they would also opt into, or would you maintain the State guaranty fund?
Mr. GASPER. Initially the best way to think of all this is you take what you have and you let federally chartered insurers participate in it, and then you give the regulatory authority the opportunity to improve it as things change.
Mr. BENTSEN. So you would have a Federal guaranty fund or not?
Mr. GASPER. I just got a note here; someone is going to help me get a little more specific.
Essentially, we would preserve the State guaranty funds and have federal insurers become part of the State guaranty system.
Mr. BENTSEN. So, Mr. Nicely—or let me ask the entire panel this. Then you really would have a form of dual regulation in the banking system. For instance, you know, if you are a State bank, you are regulated by the Fed, and you are also regulated by the F D I C, and both those entities have regulatory powers theoretically for the benefit of consumers, for the benefit of safety and soundness. Under your proposal for a Federal charter, if an entity opted to take the Federal charter, they still would be under some State regulation for purposes of their membership in the State guaranty fund?
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Mr. GASPER. Essentially the way to think about it is that the insurer is protected by this in the State in which its policyholders live. The national charter system would essentially suggest that national insurers would get the benefit of the existing guaranty system. That is how we would see it playing out.
Mr. BENTSEN. But they would stay within the State, whichever State guaranty fund. If they are in the New Jersey or whatever, they would stay within that, and the New Jersey regulator would oversee their capital adequacy?
Mr. GASPER. Yes. It is about aggregating those funds. But it is essentially, regardless of where you would live, with a federally chartered company you would have the protection, and it would not vary by which State you are in and where you are insured.
Mr. BENTSEN. Thank you.
Thank you, Mr. Chairman.
Chairman BAKER. Thank you, Mr. Bentsen.
Mr. Bachus?
Mr. BACHUS. Thank you, Mr. Baker.
Mr. Gasper—well, I will ask all of the panelists this, anyone that is familiar with this. And what I am talking about is Federal efforts to promote State uniformity in regulations. In Gramm-Leach-Bliley, we adopted the NARAB Licensing Provisions. Has licensing of agents been any easier than, say, it was 3 years ago as a result of those attempts?
Mr. GASPER. I would say that there have been improvements. Have we gotten to what we would think should be sort of the national way of doing it? The answer is no. I think there are still 30 percent of the producers or agents who sell insurance that are not under the system today.
Mr. BACHUS. I think we didn't really go as far as some advocated or as we could have gone in NARAB, and I think several States are still holding back. But maybe do you anticipate when those States get on board that we will?
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Mr. GASPER. It would be difficult for me to say by State. Again, I am giving the States the credit for the progress. But getting 70 percent is not what I think we need to run the business.
Mr. BACHUS. All right.
Mr. NICELY. I certainly would agree. There has been a large improvement, but it is not perfect yet.
Mr. BACHUS. Sure. Do you think that was maybe because some States have lagged behind, or do you think that is because we didn't go far enough in Gramm-Bliley-Leach, Gramm-Leach-Bliley? Or do you think that that is just not the right solution?
Mr. GASPER. I think it is the nature of the beast if your objective is uniformity and speed. I think it is the nature of having 51 jurisdictions working with different legislatures which makes it a tremendous uphill battle. The wind is clearly in their face for getting to complete uniformity.
We believe the life insurance industry needs to be regulated to compete with the mutual fund industry, to compete with the banks, to compete with the securities firms. I mean, that is the standard that has been set. Our competitors basically have defined the level playing ground that we must get to. And the idea that we might be able to get to 70 percent or 80 percent of that is essentially unacceptable as we try to compete.
Mr. BACHUS. What you are talking about, when you say securities companies or banks, you are talking about their ability to raise capital as opposed to your ability because of the current regulatory structure?
Mr. GASPER. I think that in terms of the education process for this committee, when we say life insurance, I think we initially think about traditional life insurance.
Our industry has evolved and my company is heavily involved in the retirement savings, long-term savings business. So essentially we are competing for 401(k) business. Okay. Nationwide is the third largest administrator of 401(k)s in the United States. Most of our employers have less than 100 employees. We are not issuing life insurance contracts for those employees; it is the 401(k) business. We are competing with Fidelity, with Schwab, with Citibank, with other mutual funds. That is the market we find ourselves in.
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So that is the point I was trying to make; that if you go back to 1970, we are all trying to sell traditional life insurance. Today the vast majority of the companies are trying to compete in the long-term savings retirement business.
Mr. BACHUS. Do you have a disadvantage over banks and securities companies in raising capital because of the current regulatory structure in insurance?
Mr. GASPER. As a public company I don't think we have any more limitation in terms of raising capital. I don't see it as an issue.
Mr. BACHUS. Do you have limitations?
Mr. GASPER. The only thing inefficiant regulation would bring into it is that it does put our industry at a disadvantage as we try to compete for the retirement savings; and, to the extent that we get a smaller share, we are going to get smaller earnings increases. And that certainly relates to our ability to raise capital.
Mr. BACHUS. Okay. No more questions.
Chairman BAKER. I will just take the balance of that gentleman's time then.
I would also make the point that a bank selling an annuity doesn't have to go through the 50-State approval process that a life insurance company selling a similar product called life insurance has to go through.
Mr. GASPER. Well, that became interesting as the banking industry sort of was manufacturing annuities and not having to go through the State regulatory system. Today they do. In essence, they would have to. We sell a lot of annuities through banks as such.
Chairman BAKER. Thank you, sir.
Mr. Lucas?
Mr. LUCAS OF KENTUCKY. Thank you, Mr. Baker.
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Mr. Gasper, I am wondering, having been in the life insurance business for 30-some years and seeing the companies go through the trials and tribulations of trying to get product approval, I can't think of a reason why we shouldn't modernize under one system, because I would think that the consumer would be so much better off and the products would be much more cost-effective. It is kind of like you are competing against the banks and the mutual funds with one hand tied behind your back maybe for a year or 2 years or 3 years, or with both hands tied behind your back in some cases when you can't get the product approved.
I just can't understand why the life insurance business wouldn't—you know, I am not for bigger government, but, you know, one size fits all here, and I just can't see any good reason why we shouldn't do this on a national basis. Is there any? Am I missing something here?
Mr. GASPER. I think you are right on point. I think, when you step back and look at the business, the nature of the business, it is a national business. It is a business, and it has changed dramatically in the last 30 years. Banks are selling insurance, stock brokers sell insurance. It is—traditional insurance agents are selling insurance. So it just screams for the idea that it is a national product, and it screams for an opportunity for companies to be nationally regulated.
Mr. LUCAS OF KENTUCKY. It just seems like to me that this is a lay-up shot and a no-brainer. I don't know why we would get resistance on this.
Mr. GASPER. Well, that is how I would see it, but I am pretty naive when it comes to—.
Mr. LUCAS OF KENTUCKY. So am I.
Mr. GASPER.—when this is all done.
Mr. LUCAS OF KENTUCKY. So am I. Thank you.
Chairman BAKER. Thank you, Mr. Lucas. I am sure somebody will be around to explain it.
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Mr. Tiberi? Do you have a question, Mr. Tiberi?
Mr. TIBERI. Yeah, I do. I have a couple questions, Mr. Chairman. Thank you.
Chairman BAKER. Sure.
Mr. TIBERI. To Mr. Gasper first off—and I wish my colleague Bob Ney were here, because he was the chairman of the insurance committee in the Ohio Senate. But I think that just over the last 10 years, the life insurance industry has changed significantly. And the point that I am going to make, and I would like you to comment on it because you have touched on it already a bit, and that is the life insurance industry becoming much more different than my dad's life insurance. The point that I am going to make is as a public employee in the State of Ohio, as a State legislator, and as any public employee through the State of Ohio, through the Ohio deferred compensation system which was started in the early 1990s, you get a sheet of different options as a public employee that you can invest in through deferred compensation; and you have what you would expect to have there, and that is banks as options, securities firms as options, and then you suddenly have Nationwide Insurance Company, which I think of today still as a property and casualty company, but yet Nationwide is a huge player in the State of Ohio in that market competing with banks and insurance companies.
Can you touch upon how many States you, as Nationwide Life, today are in with those types of plan?
Mr. GASPER. We are the largest insurance company involved in section 457, public sector plans. We probably now are involved in at least seven or eight States. We are endorsed by the National Association of Counties; we are endorsed by the United States Conference of Mayors. We probably have over six or seven cities and counties throughout the United States, and those are large counties like Cook County in Chicago, but small counties where there might only be 35 or 40 employees, and in most of those large cities and counties, we are doing exactly what you described: We are having to put our options against bank options, credit union options, mutual fund options, and we compete, and the employee gets all those choices. And it is wonderful for employees to have those choices, but when it takes us an enormous amount of time to get products approved to participate in those plans, we are disadvantaged.
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Mr. TIBERI. And so today, Mr. Gasper, you are operating much more like a bank or a securities company as the head of a life company within a larger structure than you are to your sisters within the Nationwide Company that are in the property, casualty, and health business; am I right?
Mr. GASPER. Right. In the past, with traditional life insurance, the main concern was dying too soon. Now, there is still an enormous business there, and Nationwide participates in it. But what Americans are concerned about is living too long, outliving their income, and that is essentially what we are trying to compete in and the business we are trying to compete in. And it's only the industry essentially today that can guarantee you an income for life. You can give an insurance company X amount of dollars, and they can guarantee you an income for life. So it is not like your father's life insurance company, nor my father's; it is—again, I keep calling it the retirement savings, long-term savings business that we are competing in. And we are competing with other insurance companies, but we are also competing with banks, mutual funds, and securities firms.
Mr. TIBERI. Just to switch directions a little bit, you spend most of your time in Ohio. Ohio, like many other States, has struggled with revenues. One of the criticisms that has come from this proposal is that States like Ohio would lose revenue if they optioned into the Federal system. Could you comment on that?
Mr. GASPER. That is a great question, because the proposal as we outlined it, the premium taxes would stay right inside the State, and we would expect the companies, you know, to pay their fair share of taxes in the States. So the premium tax would stay in the States. And if you look at how States tend to regulate insurance, essentially what they do is charge the companies for the regulation that occurs. And my suspicion is essentially States are losing money regulating insurance companies today. So they would keep the premium tax and get out of a business where essentially they are not making money today.
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Mr. TIBERI. Thank you.
And one last question, Mr. Chairman, for Mr. Nicely. From your perspective, as a property and casualty company only, do you have the same competitive issues that banks and securities and health companies do? Or, the issue that somebody touched on earlier, the speed to market issues that life insurance companies have today?
Mr. NICELY. Not really. All insureds are required to go through the same process. So while in some cases it may be onerous and too long, at least there is a level playing field.
Mr. TIBERI. Thank you.
Thank you, Mr. Chairman.
Chairman BAKER. Thank you, Mr. Tiberi.
Gentlemen, we very much appreciate your participation in our hearing today. The record will remain open not only for Members to express further opinions, but for you as well should you have an addendum to your own remarks here today. We certainly appreciate your time and assistance in this difficult matter. Thank you.
Chairman BAKER. And I would ask at this time if our panelists are available for the second panel to come on forward, please.
I would like to welcome each of you to our hearing this afternoon. As you know, we request that your testimony, as best can, be contained to 5 minutes. That would be helpful. And, of course, your entire testimony will be made part of our official record.
With that, I would like to first introduce Mr. Robert Restrepo, Jr., President and CEO of Allmerica Property and Casualty. Welcome, Mr. Restrepo.
STATEMENT OF ROBERT P. RESTREPO, JR., PRESIDENT AND CEO, ALLMERICA PROPERTY & CASUALTY COMPANIES, INC., CHAIRMAN-ELECT, AMERICAN INSURANCE ASSOCIATION
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Mr. RESTREPO. Thank you very much, Mr. Chairman. As you mentioned, my name is Robert Restrepo, and I am President and CEO of Allmerica Property and Casualty Companies, located in Worcester, Massachusetts. Our two flagship property/casualty insurance companies are Hanover Insurance, which operates primarily in the eastern part of the country, and Citizens Insurance Company of America, based, as Congressman Rogers mentioned, in Howell, Michigan.
Allmerica ranks 23rd among all property and casualty insurers in the United States. Although we are certainly not among the largest insurance companies, we are strong advocates and supporters of comprehensive insurance regulatory modernization, including optional Federal chartering.
I am here today on behalf of the American Insurance Association, where I am incoming chairman. I appreciate the opportunity to testify this afternoon about the insurance regulatory system both in the U.S. and abroad, and, in particular, AIA's support for optional Federal chartering as a way to make the current State regulatory system more effective and more efficient for all stakeholders.
Mergers and acquisitions, changes in the various financial industry sectors, globalization, technology, and, most recently, the tragic terrorist attack of September 11th, each of these have had a tremendous and very different impact on our industry. Yet with all this change, the insurance regulatory environment has remained largely unchanged since 1945 when the McCarran-Ferguson Act established the principle of congressional deference to State insurance regulation.
For every incremental movement towards greater State regulatory efficiency or uniformity, there are many new State-specific regulatory requirements that result in cost, delay, and frustration for insurers, with little, if any, consumer benefit. AIA fully supports modernizing and improving the State regulatory system, and we continue to work toward that end. However, we also believe that Federal regulation is a more appropriate choice for certain insurers and their customers. Regulatory reform, including optional Federal chartering, will benefit the insurance mechanism as a whole. In particular, it will help the individuals, families, and businesses who rely on property and casualty insurance products for their short- and long-term financial security.
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We commend the subcommittee's focus on this topic as part of your broader examination of insurance regulation in the post-Gramm-Leach-Bliley era. The current State regulatory system imposes significant costs on insurers and, ultimately, our customers as well as the economy at large. Statutes and regulations are not uniform, and in many States regulatory actions prohibit insurers from responding effectively to marketplace changes.
Meanwhile, the legal and economic environment in which we operate is changing at a breakneck speed. The bottom line is that consumers ultimately pay more for less adequate risk protection than they would under a more dynamic and fluid regulatory system.
The National Association of Insurance Commissioners has acknowledged the need for a more efficient regulatory system, focusing in on what it has called speed to market. The NAIC's recommendations move in the right direction, but ultimately fall short of a true market-based approach. AIA remains committed to the State reform process, but we urge Congress to move forward with the creation of an optional Federal charter.
There are a number of compelling reasons for Congress to move forward with optional Federal chartering. First, a level playing field is critical to the long-term viability of the insurance industry. The Gramm-Leach-Bliley Financial Modernization Act changed the rules of competition for insurers, banks, and securities firms.
Second, new technologies do not recognize State-specific regulatory barriers. Those barriers make it harder for insurers, agents, and policyholders to get full access to these technologies.
Third, the insurance business is increasingly national and international in its customer-focused and regulatory needs. Optional Federal chartering would let companies and customers choose the regulatory approach that is most suitable for their size and scope of operations.
Fourth, the challenges facing the property and casualty insurance industry are also increasingly national and international in scope. Terrorism, natural catastrophies, fraud, and asbestos litigation are just some of the major issues that our industry faces, but the current decentralized regulatory system lacks the tools to effectively address these issues in a comprehensive manner.
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I note this committee's interest in addressing the role of the United States in seeking insurance reforms around the world. The U.S. should continue to play that role, but we also must address our own shortcomings in our current system. Insurers and consumers alike all over the world will benefit from open and competitive markets that give consumers ready access to needed products at competitive prices.
We believe that optional Federal chartering will help achieve that goal. Working with other sectors of the financial services industry through the Financial Services Coordinating Council, AIA has developed a set of principles for an optional Federal charter that would accommodate all lines of insurance. You have in my prepared text an outline of each of these principles. Taken together, these principles assure that the new regulatory system is responsive to the needs of customers and claimants, taxpayers, and the public at large. Through the FSCC, our organizations are also working to develop a single legislative proposal which we hope to release shortly. We recognize that this will be a long legislative process, but we look forward to working with you to advance a bill that would result in a safe, sound, and solid regulatory system.
Optional Federal chartering will bring numerous benefits to consumers and to the public at large. Consumers will save money as the market becomes more efficient and competitive. They will also have more product options. Optional Federal chartering will also enhance the U.S.'s position as a trading partner and address criticisms that we have received from abroad that the current system is protectionist. The changing marketplace at home and abroad makes comprehensive insurance regulatory reform imperative. A new structure will assure a healthy consumer-oriented U.S. property and casualty insurance industry for the 21st century.
We appreciate the subcommittee's attention to this important issue, and later on I will be happy to answer any questions that you all have. Thank you.
Chairman BAKER. Thank you, sir.
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[The prepared statement of Robert P. Restrepo Jr., can be found on page 300 in the appendix.]
Chairman BAKER. Our next witness is Mr. Paul Mattera, who is the Senior Vice President and Chief Public Affairs Officer for Liberty Mutual Group on behalf of Liberty International. Welcome, sir.
STATEMENT OF PAUL MATTERA, SENIOR VICE PRESIDENT AND CHIEF PUBLIC AFFAIRS OFFICER, LIBERTY MUTUAL GROUP, ON BEHALF OF LIBERTY INTERNATIONAL
Mr. MATTERA. Thank you, Mr. Chairman.
Mr. Chairman, Mr. Kanjorski, members of the subcommittee, my name is Paul Mattera, Senior Vice President and Chief Public Affairs Officer for Liberty Mutual Group.
Liberty Mutual is primarily a property and casualty insurance company based in Boston with $14 billion in revenue and over 37,000 employees in the United States and in 15 countries. Liberty is the leading provider of workers' compensation insurance in the world. The fifth largest P&C insurer in the United States, and the second largest U.S. based international insurer.
I am here today to express the company's long-held belief that State-based insurance regulation is fundamentally sound and should not be abandoned in favor of a Federal model or dual charter model of regulation.
I have also been asked to discuss the EU model of insurance regulation and to consider what lessons might be learned from the European experience. Let me start by describing the EU model. The EU has significantly liberalized company licensing so that a company licensed in one member country can operate as a branch or a subsidiary in other countries without additional licenses. This so-called passport system is the key feature that sets the EU apart from the U.S. However, like the U.S., the EU has strong preference for so-called host control; that is, the country in which the business is conducted retains regulatory authority.
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Even where uniform rules exist, local interpretation can vary widely. Now, the EU has recently abolished rate and product regulation, but financial, accounting, tax, market conduct, and other requirements continue to be applied by the host country. So, the notion of on a single unified regulatory structure has not yet come to pass. Some aspects of the company's operations are regulated by the home country, some by the host country, and both subject to the directives of the E C.
Mr. Chairman, I would like now to make just a few quick points about the EU model and about the U.S. system in contrast. First, the EU model is not a panacea. While there are lessons for the U.S., streamlined licensing, reliance on competitive markets, it is too simple to say that it should be the model for the U.S.
Second, we don't need the EU model to promote global competition. The U.S. system is neither a trade barrier for foreign competitors seeking to do business in the U.S., nor does it prevent U.S. companies from entering foreign markets.
Three, reform takes time. The EU system has taken nearly three decades to get where it is, and it is still changing. Before we abandon the U.S. model, the Congress should send a clear message to the NAIC and to the States that they must accelerate the modernization agenda and complete it within a reasonable time frame or risk Federal takeover.
Fourth, State-based insurance regulation is fundamentally sound. The State system has served consumers and providers well over the last century; however, considerable improvements are needed for the system to meet the challenges of the 21st century. One of those challenges is the expansion of class action and asbestos liability and its impact on the solvency of our industry. State regulators have not been effective advocates in this regard, and their performance will have to improve or the calls for Federal regulation will get louder.
Fifth, Federal or dual charter models are deceptively simple. By promoting uniformity, they imply that all regulatory functions can be managed by a single regulator. But dual regulation, as in the EU, may be closer to the reality where residual markets, guaranteed funds, rate regulation perhaps, market conduct are all left to the States.
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Sixth, and last, insurance regulation is inextricably tied to State law. States have the constitutional prerogative to establish liability laws and other reparation systems. Since insurance is so closely tied to these laws, it follows that insurance regulation should remain State-based. Move insurance regulation to Washington, and the underlying reparations laws, workers' compensation, automobile reparations, and so on will inevitably follow.
Finally, Mr. Chairman, I urge the subcommittee to move cautiously as it considers the best model for regulating the property and casualty markets and promoting competition in the 21st century. Thank you.
Chairman BAKER. Thank you, sir.
[The prepared statement of Paul Mattera can be found on page 249 in the appendix.]
Chairman BAKER. Our next witness is Mr. Franklin Nutter, President of the Reinsurance Association of America. Welcome, Mr. Nutter.
STATEMENT OF FRANKLIN W. NUTTER, PRESIDENT, REINSURANCE ASSOCIATION OF AMERICA
Mr. NUTTER. Mr. Chairman, members of the committee, thank you very much. Reinsurance is certainly the most global of the insurance businesses that you will address as part of your oversight hearings regarding insurance regulation. All of the members of our association are either licensed, authorized, or accredited in all U.S. jurisdictions. I am not here today to endorse one system of regulation over another, but, as the committee requested, to address some issues that have arisen in the context of reinsurance regulation.
Reinsurance is effectively the insurance of insurance companies. It serves the purpose of reducing an insurance company's volatility; it has the effect of spreading the risk across the capital markets of the world, and, as this committee is well aware, addresses catastrophe exposures that insurance companies have.
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To put reinsurance in its proper perspective, the net reinsurance recoverables by all U.S. property/casualty insurers represents 144 percent of the total property and casualty surplus of all U.S. insurance companies. The NAIC's own statistics show that in the year 2000, there were 3,300 foreign reinsurers that did some business in the United States, although it is clearly heavily concentrated among a smaller number of companies.
Reinsurance is regulated differently than you hear from other parts of the industry. A reinsurance company that chooses to be licensed in the United States is subject to all of the same regulatory requirements for solvency regulation as an insurance company, but reinsurers are not regulated with regard to the rates that they charge or the coverages that they write, largely because those contracts are deemed as written between sophisticated commercial parties. Reinsurers do not have any direct relationship with insurance consumers.
For those companies who choose not to be licensed in the United States, reinsurance is regulated on an indirect basis largely through credit for reinsurance laws, which effectively provide the accounting treatment that is given to insurance companies for their use of reinsurance. Reinsurance companies that are not licensed in the United States and choose to do business on that basis, collateralize their obligations through trust funds, letters of credit or other forms of security to make certain that reinsurance is collected.
The issues that I would like to comment on include credit for reinsurance. There have been some at the National Association of Insurance Commissioners forums suggesting that the collateral requirements imposed upon nonauthorized reinsurers should be reduced. The U.S. insurance market is heavily dependent on a global reinsurance market, and yet insurance regulators cannot be expected to understand the accounting or the regulatory schemes throughout the world. Regulators have confidence in the collectability of reinsurance largely through the requirement for collateralization of the non-U.S. reinsurance obligations. It is difficult to comprehend how the U.S. system could impede competition based upon the statistics that I gave you earlier; and, indeed, if the Congress is to consider an optional Federal charter or minimum Federal standards, our association would urge the Congress to incorporate a strong credit for reinsurance regulatory system similar to the NAIC's model and regulation.
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I have commented in the text of my testimony on the inconsistencies among the State systems, often referred to by other panelists, regarding the costs and inefficiencies of dealing with a multi-state system. When you are dealing with a multi-state, indeed global, insurance part of the system, such as reinsurance, there is particular concern about the extraterritorial application that some States apply their laws to insurance and reinsurance. It is important that the difficulty in complying with States is recognized in a system where States do not respect the laws and regulations of the other States.
We have also commented in the written testimony about an issue that is referred generally as mutual recognition. The laws addressing regulation of reinsurance in various countries are quite varied. There is no globally recognized method of conducting reinsurance regulation, yet some have suggested that the States of the United States should recognize other countries' regulatory systems, and thereby relieve insurance companies who do business in the United States from the licensing or collateral requirements that would be imposed upon them in the United States. We have opposed that initiative largely because we feel that it cannot proceed until there is a more uniform international accounting system; until the States recognize the regulatory system among themselves; and, third, that judgments entered into in the United States are recognized and enforced abroad.
The last issue that I did want to raise is receivership. Insurance companies that are insolvent or have financial problems are not subject to U.S. bankruptcy laws; they are subject to insolvency laws and receiverships on a State-by-State basis. Generally we find those laws to be archaic and inefficient. Often reinsurance recoverables are the principal asset in those receiverships. We have participated in the drafting of a uniform national receivership law. If the Congress were to consider a national system or minimum standards, we would strongly encourage a uniform national receivership system be implemented.
And, lastly, I am not here to endorse one system over the other, but to say that there are a number of alternatives available for the future structure of insurance and reinsurance regulation, including minimum Federal standards, and that we believe that it is incumbent to find that critical balance between the cost and efficiencies of the system and a competitive and secure regulatory environment for reinsurance. Thank you very much.
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Chairman BAKER. Thank you, Mr. Nutter.
[The prepared statement of Franklin W. Nutter can be found on page 286 in the appendix.]
Chairman BAKER. Mr. Mattera, in a portion of your written testimony you submitted, you made a comment with regard to the system and its effectiveness in Illinois that I read as being a favorable view of that system. Is there legitimate reason, in your mind, for the Congress not to act on some Illinois-like model, given the length of delay we have encountered with State-to-State regulatory enhancements? Can you comment?
Mr. MATTERA. I would be happy to comment, Mr. Chairman. The Illinois system certainly is probably the best example among the States of one which promotes open and competitive—an open and competitive market. We think the Illinois system as it relates to the commercial lines is one that is achievable through a State-by-State attempt at reform. And, indeed, both through NAIC leadership and hard decisions made by State legislators in a great number of States over the last 2 or 3 years, a great deal of progress has been made in opening up, if you will, the commercial lines to a more competitive market.
Our sense—our company's sense is that there is resistance to the notion of the Illinois model as it relates to the personal lines. I question whether—and, with all due respect, whether an open and competitive rating system like Illinois is one that is achievable in Federal law, which is what has led us to question, you know, the utility and the viability of either a Federal or an optional charter approach. A significant reason for one's support for either of those approaches, it seems to me, is the opportunity to engage in a more competitive market, and we have some serious misgivings that it is unlikely to be achieved at least with regard to the personal lines.
Chairman BAKER. Commercial lines, possibly; personal lines, probably not.
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Mr. MATTERA. Is probably not.
Chairman BAKER. Is your view? Thank you.
Mr. Restrepo, you also have made comments about the Illinois model. Do you have a different view, or do you think that it is an advisable direction for us to explore?
Mr. RESTREPO. We clearly think the Illinois model is the best practice and clearly one of the best State regulatory systems that we have encountered, both within my company and representing the AIA. To the extent that that kind of model is adopted nationally, it would certainly be an improvement, but it really doesn't get us where we would like to see the regulatory system move eventually. And we think, given the changes in the industry as companies become more focused on regional sectors, on specific lines of business, workers' compensation, let's say, as companies become more specialized, they are going to want choices regarding the regulatory system that would best meet the needs of their shareholders and their customers, and which is why we are strong advocates of the Federal option, Federal charter option.
Chairman. BAKER. In exploring this, I don't know if you are in a position to answer this particular question, but as it relates to your company's marketing in Illinois and the competitive environment in which you operate, is it your opinion that Illinois consumers enjoy a broader array of product at a better price as a result?
Mr. RESTREPO. They clearly enjoy a better price. And probably one of the single greatest or single—probably the best characteristic of the regulatory system in Illinois is it is pretty free; companies are free to charge what they think they need to charge to both compete and make a profit. So, clearly, from a rate regulation standpoint it is very attractive, and the consumers in Illinois benefited, contrasted with States that we do business with, unlike GEICO in New Jersey and Massachusetts where, combined, New Jersey and Massachusetts represent almost 15 percent of our premium volumes, and those two States probably have the highest automobile insurance rates in the country.
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Chairman BAKER. I had an omission on my part. I meant to ask the prior panel if it would be advisable, in light of the decision to withdraw from offering product in New Jersey, if there were an alternative method to allow you to enter the New Jersey market, wouldn't that really be beneficial to New Jersey automobile drivers? It seems to me that the solution there is more competition and less regulation.
Mr. RESTREPO. I agree 100 percent.
Chairman BAKER. And, however we can provide access to product is generally beneficial to consumers.
Mr. RESTREPO. Consumers in both States are suffering not only from a lack of markets, but a decreasing number of markets as companies either go bankrupt or decide to exit the State. And any kind of regulatory system that will promote more competition would make New Jersey, and Massachusetts a more attractive place to do business.
Chairman BAKER. Thank you.
And one last quick one. Mr. Mattera, given your perspective on this, the NAIC has—I can say, I have sent some telegrams—independently indicated an interest in seeing a time line, you know, a direction toward uniformity, not necessarily just reciprocity. But even with our best effort, they have some areas where they have enjoyed more success than others; but when it comes to market conduct examination reform, they really lag behind there more so than anywhere else. Why do you think that is? What is the problem?
Mr. MATTERA. I think the short answer with regard to market conduct is that they have simply taken it up later in the process. It has been I don't want to say a lower priority, but in terms of trying to tee up issues in some sequence, it has been the third or fourth issue in that sequence. So I don't know that it has been the most difficult problem to deal with; I think it is one that they have simply chosen to deal with a little bit later on.
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Chairman BAKER. If that is the case and it is only a timing issue, if we are going to get through the entire list, and let's just assume we agree on what the list is, how many years are we talking in order to get the job done?
Mr. MATTERA. Of course, I don't know the answer to that. I would like to make this comment, though: I mean, we have seen, and there has been some questioning to this effect, that when the States—when their collective feet are held to the fire, when the Congress is forceful with respect to the—you know, the accountabilities—and I think agent licensing is a perfect example of that—there has been good response. Now, some can argue about—I think someone said 70 percent of the market is—you know, is there, but 30 percent isn't, and we can argue about how you define success, but I think objectively, you know, 45, 46, 47 of the States have come in line.
I mean, there is a—and not to pander—there is a very important role for this committee and for the Congress in identifying the kinds of change that need to be made so that insurance markets in this country across all 50 States operate more smoothly, more openly, with more transparency, competitively to identify what those areas of change are and then establish some time line within which the States have got to act. And if they don't act in that time, then I think, you know, the gloves come off. And there are steps—and I don't presume to suggest to you what they may be, but then there is perhaps—there are actions that the Congress can take, whether it is Federal standards or preemption or otherwise.
But as I said earlier in my opening remarks, the EU has arrived at what some have described as, you know, a good example of open market regulation. I would say they are not quite there yet; but even so, it has taken them nearly three decades.
So how much time, Mr. Chairman? I don't know. But I think without some kind of fixed date in the future, we may not have the kind of change that all of us, I think, at this table would want to see.
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Chairman. BAKER. Thank you, sir. My time has expired.
Mr. Kanjorski?
Mr. KANJORSKI. That would be about 2032? I don't think many members of the committee will still be here, and I am not sure how much interest the Congress will have in insurance at that point.
Since both of you have your principal headquarters in Massachusetts and you differ so widely on this issue, do you want to tell me why? What is the distinguishing reason? Why are you so much in favor, and why are you so much opposed to it?
Mr. RESTREPO. Well, maybe I will go first. Even though we are only separated by 50 miles, we have two very different companies, two very different marketing plans. And I can't speak for Liberty Mutual's plans. We compete with them in some markets, but they are a much bigger company than we are. So we have different—.
Mr. KANJORSKI. But you sell the same type of insurance.
Mr. RESTREPO. But we have different markets. One of the markets that we are looking to get into, our traditional market is, as a regional company, in Michigan and the Upper Midwest and then New England primarily. We do some business in the Southeast. But increasingly we are looking to enter a market that we define as sponsored, where we go to large employers or associations, like the American Automobile Association, to sponsor our product to their employees or members.
So one of the restrictions we have as a regional player is trying to enter new States. And so we would like to have the option—to support our marketing plans as we venture into that market, we would like to have the option of considering a different regulatory environment that would make it easier for us to enter that kind of a market and also to enter new States if we choose to expand our regional presence.
Mr. KANJORSKI. And you are almost nationwide at Liberty, and you say it is easier to stay at a State level.
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Mr. MATTERA. Well, we are. We are countrywide—I hate to use the word nationwide. We are countrywide.
I guess there are three reasons that I can offer. One is philosophical. And it is hard to sort of back away from what is a philosophical belief; that because the underlying reparation system is State-based, the regulatory system must itself remain State-based. There is that philosophy that guides a lot of our thinking. That is first.
Second, perhaps more practically, Liberty is primarily a large-risk underwriter. I mean, we are one of a handful of insurance companies in this country who insure the Fortune 500 risks, AIG, Travelers, Liberty. There aren't very many who really play in the market. That is essentially a deregulated market. And even in the middle commercial market, there has been significant movement over the last 2 or 3 years, as I commented earlier, in the direction of more competition in price and product.
So there is—we see on the commercial side more progress being made. That may not be as visible to some companies; it is quite visible to us.
And then, thirdly, we are a substantial player in the personal lines market. Now, not like Mr. Nicely, who I think said that GEICO has 5 percent of the personal lines premium revenue in the country, Liberty is at 1 or 1-1/2 percent. So, we are significantly smaller, but we are substantial, and in that area we feel as though we have been reasonably successful, sort of slugging it out in States, regulator by regulator, forcing the issue, getting the rate level, getting the policy changes, able to conduct our business. It takes time, it is inefficient, it adds cost, but at the end of the day we have managed to get through that process reasonably well.
And so those are the best answers that I can give you, Mr. Kanjorski, as to why we are rooted in the notion that the State-based system ought to remain as such.
Mr. KANJORSKI. And both of your companies are writing both in Massachusetts and New Jersey, unlike some of the others?
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Mr. MATTERA. Well, we are writing in New Jersey, and we are certainly writing in Massachusetts, and we are writing in all of those States that are held out as the parade of horribles. And I am not here to tell you that it is just hunky dory for us. It is not. We lost $100 million in the year 2000 in New Jersey, it is a lot of money, but we think we are turning the corner in that State.
Mr. KANJORSKI. Is that being subsidized by—.
Mr. MATTERA. It is a fair question.
Mr. KANJORSKI. —Pennsylvania payers?
Mr. MATTERA. At the end of the day, there are implicit subsidies in the insurance business. I don't think one can walk away from that. So the answer to your question, I suppose, is yes.
Mr. KANJORSKI. What happens if the Congress takes no action, and the State insurance commissioners feel the pressure is off of them, and we are here again 5 or 8 years from now?
Mr. MATTERA. I mean, you are asking me. I think that is the absolute worst possible result.
Mr. KANJORSKI. Someone said it should have been done 15 years ago; Mr. Gasper, in his testimony. And I don't know how long Mr. Baker is here, but I am here 18 years, and it is the first time that I recall testimony regarding any Federal involvement with the charters. As a matter of fact, it used to be considered a poison pill on the Hill to mention Federal charter and insurance in the same sentence, but now we are being inundated by some companies.
Mr. MATTERA. But if you go back to, I am thinking, the 103rd Congress, Mr. Dingell, the notion of failed promises and the need for rejuvenated solvency regulation within the insurance industry, the result of that cajoling, the result of that effort was, you know, an accreditation program developed at the NAIC, sold to the States, enacted by the States, which did elevate considerably—and I don't know if there are many people who would argue against this notion—considerably elevated both the tools by which State regulators measure financial condition and act on companies that are failing, and also the standards, through risk-based capital standards and otherwise. And so if there is a success of State regulation, I think it is fair to say it was—it is the accreditation process, and that was a direct result of Federal threats to take over that aspect of the insurance regulatory structure.
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Mr. KANJORSKI. I just have one additional question. Mr. Nutter talked about the national scope of receiverships or conservatory operations. Do you two gentlemen agree that we should have a national standard on that, or should we leave that to the States, if we come out of nothing else, to a national standard on the receiverships?
Mr. RESTREPO. You are asking me? I think that would be a step in the right direction, sir.
Mr. MATTERA. I guess it would be inconsistent for me to sort of hold the view that a national standard is something that Congress should jump to at this time. I think, consistent with my earlier statement, I know we would prefer to see the Congress's other means to achieve the same result.
Mr. KANJORSKI. Okay.
Mr. Chairman, my time has expired.
Chairman BAKER. Thank you, Mr. Kanjorski.
Mr. Ney?
Mr. NEY. Thank you, Mr. Chairman.
I wanted to pose the question, Mr. Restrepo, to the AIA. Looking at State insurance guaranty funds that exist, I think we can recognize that most of those funds have done a good job over a period of time. Now, either in your proposal or the gentleman from New York, I think that it would be the hope that even if an entity goes in a State charter or Federal charter, it could still have the backing, inclusion of those State-guaranteed funds; is that correct?
Mr. RESTREPO. That is correct. Our proposal requires no change to State-guaranteed funds, to State premium taxes, or to State residual market mechanisms.
Mr. NEY. Let me pose a question based on that. So, let's say that I am the head of a State guaranty fund, and for some reason, the new Federal regulatory system is set up, I feel that it is inadequate, or just so choose to say that you are chartered with the Feds, now you are on your own, you are out of our guaranty fund. Now, I understand the repercussions of that for a State; but what if that scenario happened, and that happened in several States? Would the Federal then have to set up a guaranty fund?
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Mr. RESTREPO. Not necessarily, sir. I think that is a detail, obviously, that would —.
Mr. NEY. That is a big one.
Mr. RESTREPO. That is a big detail that needs to be addressed in the legislation. I think, from our standpoint right now, we feel that the State guaranty funds should continue to operate as they are currently operating.
Mr. NEY. I am just trying to think of—you know, we can think of any scenarios. I am just trying to think of a scenario from a State regulator's point of view, and they can't regulate you, but you are in the guaranty fund, and they feel something just didn't go as it should, and then they could kick you out of that. And I just wonder where that leaves us. It is a very valid item, I think, that has to be looked at.
Mr. RESTREPO. I agree.
Mr. NEY. The other question I have that I think is interesting for Mr. Nutter, isn't it true that reinsurers are largely unregulated under State laws?
Mr. NUTTER. Reinsurance rates and the forms or the coverages, the contracts written between insurers and reinsurers are generally not regulated by the States; but an insurance company or a reinsurance company that is licensed in the United States is subject to all the same solvency standards, laws, holding company statutes as insurance companies.
Mr. NEY. So wouldn't a Federal—if we created a Federal regulator—be able to tighten the regulations then nationwide on, for example, you know, your type of industry?
Mr. NUTTER. We have no position in favor of a Federal national system, but it is quite clear that reinsurance tends to be—because of the global nature of it, tends to have issues that transcend State borders and, in many cases, transcend national borders. The State system is an awkward system, if you will, to deal with a business that is writing contracts on a multistate and often a multinational basis.
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Mr. NEY. So you basically are disputing, then, that you are not—that you are free from State regulation?
Mr. NUTTER. There is no question that a reinsurance company licensed pursuant to State law is subject to all of the same solvency regulatory standards other than rate and form regulation. Much of the U.S. reinsurance market is written by non-U.S. reinsurers who are subject to regulation only through the collateral requirements. They fund their obligations through letters of credit or trust funds or other funds withheld.
Mr. NEY. One other question I had real quick. What is the angle of the WTO? I saw that in one of the testimonies. I understand what Europeans have been talking about. Am I to gather that there will be eventual filings against us at the WTO? Somebody mentioned WTO in their testimony.
Mr. MATTERA. I don't know that I did, but I did make some references, I was asked to, to the EU and the regulatory model there. And I did make some further comment. Maybe I can just expand on it.
Some have suggested that the 50-State regulatory system is a trade barrier because it is inefficient. Now, as ugly as what I am about to say next sounds, I think it is the truth. An inefficient system per se is not a trade barrier so long as it applies equally to all who seek to do business in that market. That is not to apologize for what is admittedly an inefficient system in the U.S., but I don't see the argument that somehow, unless we create a single regulatory structure, either an optional charter or pure Federal regulatory structure, somehow we are going to be in violation of WTO or imposed trade barriers. I don't see that argument at all, if that is where you are going.
Mr. NEY. I just read it.
Mr. NUTTER. It was in my testimony that the WTO was mentioned because some of these issues about collateral requirements have been considered by the International Association of Insurance Supervisors, by the NAIC, and there have been references at the WTO for these kinds of things; nothing in the trade barrier level, but in the context of questions about whether or not any of our regulatory requirements in the reinsurance area would be considered anticompetitive or create barriers, as Mr. Mattera says.
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Mr. NEY. Thank you.
Chairman BAKER. Thank you, Mr. Ney.
But that inefficiency does create a higher premium cost if you can get product. And in some cases where the regulatory barrier is so bad—New Jersey—some people don't even go. So I think that is the economic reality.
Mr. Bachus?
Mr. BACHUS. Thank you.
First of all, Mr. Restrepo, what Mr. Ney was saying about the LaFalce—all these proposals I have seen don't allow a State to regulate a federally chartered property and casualty insurance company. And I think it is sort of Pollyanna to think that the States are going to allow a federally chartered company to participate in their State insurance guaranty fund. I think clearly constitutionally they can say, you can't participate; we can't regulate you, you can't participate. And in that case I don't see any alternative to having a Federal guaranty fund.
Now, do you believe that constitutionally we can take the States out of the regulatory business and at the same time require the States to supply an insurance guaranty fund?
Mr. RESTREPO. I think, number one, we are—a company that chooses the Federal charter as an option is still controlled by State laws.
Mr. BACHUS. But not—.
Mr. RESTREPO. Regulatory, as it relates to market conduct and financial solvency, would change, but we would still be using—a company that chooses that option would still be using the same statutory accounting principles that most insurance companies operate under.
Mr. BACHUS. But I think clearly the State could say, you can't participate if you are not subject to market conduct rules.
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Mr. RESTREPO. As I understand it, that would be a State's prerogative.
Mr. BACHUS. That is what I am saying, it would be their prerogative.
Mr. RESTREPO. But as a practical matter, even though a State—from my perspective, even though a State wouldn't be regulating, let's say, the financial solvency, they would still have access to the information to make an informed decision whether or not they want an individual company to participate in it.
Mr. BACHUS. They would. And if they decided that the Federal regulation was loose, whatever —.
Mr. RESTREPO. But in the best interest of the consumers in that State, I think most informed State regulators would want to have the maximum amount.
Mr. BACHUS. I think they want the fees that are generated, too.
Mr. RESTREPO. Well, and they want the participation in the fund. And if they had a solvent company —.
Mr. BACHUS. But they wouldn't be able to regulate; so how would they be able to determine?
Mr. RESTREPO. They would be able—.
Mr. BACHUS. I am just saying—.
Mr. RESTREPO. —to have access to the information to make a decision whether or not they wanted company A or B.
Mr. BACHUS. But would they have any power to do anything about it when they got the material?
Mr. RESTREPO. I imagine they could kick the company out.
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Mr. BACHUS. Well, that would be State regulation now.
Let me go on to something else. How many people are employed in the various States in regulating insurance companies? Do you know how many? How many employees of the State insurance regulators?
Mr. RESTREPO. I do not know.
Mr. BACHUS. Anybody got a figure?
Mr. MATTERA. Well, I mean, it varies wildly from State to State. You know, whether there are sort of relativities associated with size of population or not I can't say. But Texas probably has in excess of a thousand employees regulating insurance. California probably well over that. Massachusetts probably a fewer than a hundred. So it varies widely.
Mr. BACHUS. From maybe 100,000 nationally—.
Mr. MATTERA. Oh, I see. In total, I don't know. But—I don't know.
Mr. BACHUS. When we have Federal regulation, have a Federal—we have Federal employees regulating. That would be in addition to the State, to the employees at the State regulators. Now, somebody has to pay for that regulation.
Mr. MATTERA. That is right.
Mr. BACHUS. Doesn't that add to the cost or couldn't that?
Mr. RESTREPO. Well, under our proposal, companies that would choose a Federal option would be paying the freight of the new regulatory system, so the taxpayers would not be hurt.
Mr. BACHUS. So they would actually pay for the Federal regulations.
Mr. RESTREPO. That is correct. They would pay for their choice.
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Mr. BACHUS. You know, for property and casualty insurance particularly, don't State regulators often play a big role in seeing that claims are paid? I mean, that has always been my observation.
Mr. RESTREPO. State regulators are responsible for market conduct. One of the areas that they get involved with is, obviously, responding to complaints about—from consumers who don't like the way a claim was—.
Mr. BACHUS. So you would—the Federal regulator that would be formed would actually insure that claims were paid properly?
Mr. RESTREPO. That they—yes, that they—that claims were being handled in compliance with—.
Mr. BACHUS. With State law?
Mr. RESTREPO. —with State law or according to the Federal regulations.
Mr. BACHUS. So you would have a Federal regulator that would be interpreting insurance contracts under the law of the pertinent State. So the Federal regulators would have to interpret the law of 50 different States and the territories?
Mr. RESTREPO. No. They could be handling the complaint. A claim rep would be settling a claim in compliance with the local—. Mr. BACHUS. Well, you know, even to determine whether a valid claim is being asserted, you have to go to State law to see whether that is a valid claim.
Mr. RESTREPO. That is correct.
Mr. BACHUS. So they would—you would have a Federal regulator that would be having to interpret the law of all 50 States, and if there were a dispute it would have to be resolved in the State court. So your Federal regulator could be involved in litigation in all 50 States and yet the federally chartered insurance companies would have to pay all the freight for that?
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Mr. RESTREPO. Yes.
Mr. BACHUS. It could be pretty expensive.
Mr. RESTREPO. For the companies that exercise that choice, yes.
Mr. BACHUS. I have never had a—I have never—of course, I am a Congressman, but I have never had a constituent complain to me about the lack of claims being paid, so I don't see that there is a problem. So, you know, from my standpoint I have got to wonder why I want to fix a system, at least in payment of claims, that seems to be functioning well.
Mr. RESTREPO. Well, we are in the business, obviously, sir, of paying claims; and that is good to know.
Mr. BACHUS. That is sort of—when the public deals with you, that is—basically, their interest is seeing that their claims are paid, paid properly and adequately paid.
Mr. RESTREPO. That is correct.
On the other hand, though, there are consumers that are looking or would like to entertain new products, and they see new risks that they would like to insure. The thrust of our proposal is really to accelerate our ability to respond to those emerging needs.
Mr. BACHUS. I am just saying I don't hear customers out there saying their claims aren't being paid.
Mr. RESTREPO. That is good to hear.
Mr. BACHUS. And you agree, I think.
Mr. RESTREPO. I think we have a pretty good reputation.
Mr. BACHUS. That is not a big problem. In a nation full of problems, that doesn't seem to be a problem. Yet we are going to create a national regulator charged with—one of their duties is to see that claims are paid and replace a system that apparently is working quite well.
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Mr. RESTREPO. That is one aspect of the regulatory authority. Another, though, would be rate regulation and product regulation, I think, as we have mentioned.
Mr. BACHUS. I understand the product part. I understand that. But couldn't we fix that by having Federal mandates to the States for uniformity with regard to approval of products and et cetera?
Mr. RESTREPO. We could.
Mr. BACHUS. That could take a much smaller federal bureaucracy than one that has to monitor every claim, has to interpret every contract.
Mr. RESTREPO. We could, but our most recent experience even with the NARAB is, as we have heard, only 70 percent of the people are really—the consumers have been affected.
Mr. BACHUS. Well, some of those deadlines aren't here yet, though. So with NARAB—.
Chairman BAKER. Thank you, Mr. Bachus.
Dr. Weldon.
Dr. WELDON. Thank you, Mr. Chairman.
Mr. Restrepo, how do you think Florida could benefit from an optional charter, Federal charter, particularly with the States' increased risk for natural disasters, specifically hurricanes?
Mr. RESTREPO. Well, one of the biggest risks, obviously, are natural catastrophes. Natural catastrophes, as you are intimating, don't know State boundaries.
There have been efforts under way over the past couple of years, both on a national and a regional basis, particularly in the Southeast, to establish pools, risk pools; and one of the biggest impediments is getting the agreement of State regulators who have differences in the statutory authority that is granted them, differences politically. Some are elected. Some are appointed. Being able to get States with common interests, such as States bordering Florida and the Southeast, to come up with alternative risk transfer mechanisms that certainly Florida consumers have, they are very difficult to move through a State-regulated process.
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I think having a Federal charter as an option would allow States—would allow new companies to come into Florida and not be subject, obviously, to Florida regulatory restrictions and be able to offer products that perhaps aren't offered right now. Certainly under different terms and conditions as well.
Dr. WELDON. Thank you.
Mr. Nutter, earlier in the year we heard a lot from the insurance companies about the post-9/11 status of their industry. I don't know if we have heard anything about the reinsurance market. If we did, I don't recall. Did that adversely affect the reinsurance industry? And what is the status of the reinsurance industry right now, post 9/11?
Mr. NUTTER. Thank you for the question, Dr. Weldon.
It is estimated the reinsurance market, both domestic and foreign market that serves the U.S. Market, will probably pay two-thirds of the claims that arise out of the September 11 disaster. If the loss estimates are between 40 and $70 billion, you can make your own calculations. So you can see it was an enormous financial impact on the reinsurance markets.
Having said that, I am not aware of any reinsurer that has been threatened for its solvency for that; and indeed I think the market has responded extremely well to pay for the catastrophe loss associated with September 11th.
Dr. WELDON. Has there been any impact on capacity, or are the demands of insurers for reinsurance being adequately met?
Mr. NUTTER. The impact on capacity has largely been limited to issues about coverage for acts of terrorism.
With respect to capacity for other kinds of risks, such as natural catastrophe risk, it does not appear that that has affected the capacity. Indeed, there were a number of new insurers and reinsurers that were begun after September 11 believing that there was a market opportunity and capital wanted to be in the market. Reinsurance rates have risen fairly dramatically. Capacity appears to be plentiful, with the exception of acts of terrorism where there clearly are some limitations in the reinsurance market.
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Dr. WELDON. So insurance companies wanting to get reinsurance to cover natural disasters are not facing any kind of difficulty in obtaining reinsurance.
Mr. NUTTER. Perhaps you have two primary companies sitting here who probably should answer the question.
I would say that, indeed, property catastrophe reinsurance rates have risen.
Dr. WELDON. So there is plenty of capacity, but rates have gone up. Is that what you are saying?
Mr. NUTTER. Rates have certainly gone up.
Dr. WELDON. But aren't those two things related? As there is more capacity, rates tend to come down.
Mr. NUTTER. Generally, that has been true. If you look at Hurricane Andrew and the subsequent Northridge earthquake, indeed insurance rates rose. Capacity seemed limited at the time. The market responded over time. Indeed, you now have a highly competitive market with a reasonable amount of capacity.
As you know, Dr. Weldon, we believe that there still is a need for a Federal role with respect to catastrophe capacity dealing with both natural disasters and for acts of terrorism; and we commend you for your leadership in that regard. There is not sufficient capacity to deal with costs associated with acts of terrorism. There is no question about that. Indeed, for major catastrophic events there are limitations in the reinsurance market to deal with the kind of hurricane or earthquakes that might hit a major metropolitan area. A Federal role in both areas would be very important.
Dr. WELDON. Do either of you, Mr. Mattera or Mr. Restrepo, want to add to that at all?
Mr. RESTREPO. The only thing I—go ahead.
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Mr. MATTERA. No, I would just like to maybe underscore an issue which has perhaps recently become more apparent; and that is the very urgent need for buyers of worker's compensation insurance and providers of worker's compensation insurance to have in place—for the Congress to put in place a Federal backstop at a high level for a short period of time. Because it is becoming increasingly apparent that those employers with large concentrations of employees, particularly in the urban core of this country, it is—the providers are exposed. Those who are self-insuring that risk are exposed. Ultimately, the economy is exposed.
Certainly, the House has done its part; and we are all focusing our attention, of course, now to the Senate.
Mr. RESTREPO. Two examples, Congressman, that I would cite regarding the impact of reinsurance on the U.S.
Number one, from the capacity standpoint, we got the same limits, but we don't have terrorism coverage, and we are paying 30 percent more. That is just a microcosm. I can't say that is an average of everybody.
On the second issue, I would raise, just to support what Mr. Mattera just mentioned, we have also changed our underwriting attitudes about larger companies. We don't write many of them, but people that employ more than a hundred people or in our case even 50 people at one site, we are withdrawing capacity because we don't—we are not able to find reinsurance for that kind of exposure as a result of the lack of Federal backstop.
Dr. WELDON. I just had one quick follow-up for you, Mr. Mattera. In your opening statement you defended the State regulatory system, and then in response to I think it might have been Mr. Ney's questioning you acknowledged that it was inefficient. Those are the words that you used.
Mr. MATTERA. Uh-huh.
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Dr. WELDON. I am sorry.
Mr. MATTERA. And you think there is a contradiction in there some place, do you?
Dr. WELDON. Yes. Can you kind of explain to me why you would come before our committee and defend an inefficient system?
Mr. MATTERA. I am not defending.
Dr. WELDON. I am not trying to put you on the spot. It is just you said it.
Mr. MATTERA. No, it is a fair question. We prepared—the company prepared a white paper some months ago called, The Case for State Regulation, and when it was first drafted it had a different title. It was called, In Defense of State Regulation. We thought about that, and we thought that there was actually a subtle but important distinction between defending the State system and trying to make the case for the State system.
Fundamentally, the State insurance—the State-based insurance regulatory system is sound. But it is inefficient. There is a great deal of change that must occur.
I don't think I need to elaborate all of those points unless we have got another hour, and I would be more than happy to do that.
Dr. WELDON. Well, the impression I get is that it is an inefficient system but that carriers like you have adapted well to that inefficient system and that there is really no gain to changing the system because you have already accommodated to it.
Mr. MATTERA. That would be a large overstatement.
The number of truth in there I think, though, is that the system is solvable to some degree. That is not to say that there aren't significant changes.
You see, there has been a lot of discussion in the first panel and this one about uniformity, the notion that, you know, we are not going to get to where we want to go unless we have a set of regulations across the 50 States that are uniform one to the other. We don't believe that uniformity is the Holy Grail in insurance regulation.
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Dr. WELDON. Uniformity doesn't necessarily mean greater profitability, correct?
Mr. MATTERA. Put profitability aside. I mean, just conceptually, philosophically. I mean, uniformity —I mean, obviously, profitability is the end game for a provider of insurance. But service to customers, staying in business, I mean, all of that is equally important.
My point is only that one can have what is, you know, sort of inherently inefficient systems that are effective and don't need to be replaced. Where the inefficiencies become so great as to sort of thwart the proper carrying out of the business and service to customers, then change needs to take place.
I think we are there today. We need to make changes. The system is too inefficient. But I don't think that inefficiencies, per se, are the reason for change, so long as the rules are effective. They are not effective across the vast number of States, and change does need to be made. So I am not defending the system. I am defending the notion of a State-based regulatory structure.
Dr. WELDON. Well, my time has expired. It has been a very interesting hearing. Thank you, Mr. Chairman.
Chairman BAKER. Sure.
Mr. Bachus, you had an additional question.
Mr. BACHUS. Thank you.
I think I would also endorse, you know, Federal promotion of State efficiency and, in some cases, I would say uniformity, too. But let me—Mr. Restrepo, let me ask you this question. What is your projection for the number of people that would be employed by the Federal insurance regulator that you want to create, number of people that would be employed?
Mr. RESTREPO. Sir, I wouldn't hazard a guess. I don't know.
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Mr. BACHUS. It could be any number, couldn't it?
Mr. RESTREPO. Yes.
Mr. BACHUS. I wonder if anybody, you know, in proposing this if they have thought through how many employees would be created, how big this agency would have to be. Do you know of anybody that has done any study on that?
Mr. RESTREPO. No, we haven't.
Mr. BACHUS. And whether those employees would be in addition to or in lieu of those folks back there in the States that are regulators?
Mr. RESTREPO. I think it would be certainly a company choosing a Federal option, since they are paying the freight, would have an incentive to encourage a system that wasn't only effective but obviously efficient and—.
Mr. BACHUS. But you—it wouldn't be the companies that would be in charge of how many people worked at the regulator.
Mr. RESTREPO. No, that is true. But to the extent that—.
Mr. BACHUS. You know—.
Mr. RESTREPO. Obviously, in the company's best interest to have a system that was not overstaffed.
Mr. BACHUS. I would be interested in that.
Mr. LaFalce has brought forth this legislation. I would be interested—he is not here. I would be interested in asking him what he envisions as far as the number of employees that would be needed.
Mr. Nutter, let me—.
Mr. KANJORSKI. Maybe I should take a little opportunity on that. Probably no additional employees like the Department of Homeland Security will cause now additional employees.
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Mr. BACHUS. Let me ask just the one final—.
Chairman BAKER. I am sensing meltdown, but go for it one more time.
Mr. BACHUS. Mr. Nutter, I mean, am I right that reinsurers are largely unregulated by the States today, right?
Mr. NUTTER. Mr. Bachus, a reinsurance company, including all the members of my association, are licensed in the United States by a State or are accredited. They are all subject to all the same financial reporting solvency standards and the holding company statutes as any other insurance company.
Mr. BACHUS. Do they have separate rules for reinsurers?
Mr. NUTTER. With regard to licensing and solvency regulation, none whatsoever. With the respect to a non-U.S. reinsurer, access to the reinsurance market in the United States is achieved through collateral requirements, trust funds, letters of credit. It is an optional system.
Mr. BACHUS. I just don't—I have never known of much State regulation of reinsurers, I mean, other than your licensing; and I am not saying that is bad.
Mr. NUTTER. No, I understand that.
Just to clarify that, Mr. Bachus, the real distinction between the insurance market served by these two companies and the reinsurance market is that the reinsurance market is a competitive market with respect to rates and the coverages because it is a market between commercial entities. You don't have a regulatory structure that looks at rates and forms as you would in the primary insurance industry.
Mr. BACHUS. But, you know, I guess what I am saying, if you created a Federal regulator, then there would at least be potential there to tighten regulatory oversight on reinsurers, which I am not sure is needed, but I certainly—.
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Mr. NUTTER. Well, certainly you would want a system in place that had a solvency oversight system, much as you have at the State regulatory level, and a system that dealt with the credit.
Mr. BACHUS. Are the States doing a good job of that today?
Mr. NUTTER. The States have actually done a very credible job with regard to credit for reinsurance. I think Mr. Mattera referenced the House Commerce Committee hearings of the late 1980s, early 1990s that did, in fact, generate an enormous amount of State legislative activity dealing with credit for reinsurance statutes; and indeed there have not been the kind of solvency issues that we saw in the 1980s that gave rise to these hearings.
Mr. BACHUS. So you don't see any need for any additional regulatory oversight?
Mr. NUTTER. At the Federal level?
Mr. BACHUS. Yes.
Mr. NUTTER. Mr. Bachus, our testimony really has been if you are going to create the option, here are issues that should be addressed.
Mr. BACHUS. But you don't see a need for any, do you?
Mr. NUTTER. We are not here to promote either system. If the Congress chooses to do that or to create national standards for State regulation—there are just certain features we think are important.
Mr. BACHUS. Thank you.
Chairman BAKER. Thank you Mr. Bachus.
Mr. Kanjorski.
With that, I want to express my appreciation to you. It has been a productive hearing today. We certainly do appreciate your comments.
The record will remain open should you choose to make additional comment or forward further information for the committee's consideration.
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Thank you very much, and our meeting stands adjourned.
[Whereupon, at 4:26 p.m., the subcommittee was adjourned.]
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