Insurance Regulation: Issues, Background, and Current Legislation
Insurance Regulation: Issues, Background, and
Updated July 3, 2008
Analyst in Financial Economics
Government and Finance Division
Insurance Regulation: Issues, Background, and Current
The individual states have been acknowledged as the primary regulators of
insurance as far back as 1868. Since the 1945 McCarran-Ferguson Act, this system
has operated with the specific blessing of Congress, but has also been subject to
periodic scrutiny and suggestions that the time may have come for Congress to take
back the regulatory authority that it granted to the states. In the late 1980s and early
1990s, congressional scrutiny was largely driven by the increasing complexities of
the insurance business and concern over whether the states were up to the task of
ensuring consumer protections, particularly insurer solvency.
Congressional interest in insurance regulation in the 107th-109th Congresses
focused on the inefficiencies in the state regulatory system. A major catalyst for
congressional interest has been the aftermath of the Gramm-Leach-Bliley Act of 1999
(GLBA), which modernized the regulatory structure for banks and securities firms,
but left the insurance sector largely untouched. Many larger insurers, and their trade
associations, had previously defended state regulation but consider themselves at a
competitive disadvantage in the current regulatory structure. They are now largely
arguing for an optional federal charter akin to that available to banks. The increased
internationalization of insurance has also brought more pressure on the current U.S.
regulatory system, particularly as the regulatory paradigms being embraced overseas
differ greatly from those in the United States.
The states, particularly working through the National Association of Insurance
Commissioners (NAIC), have not been idle in the face of this increased scrutiny.
They reacted quickly to the GLBA requirements that related to insurance agent
licensing and have embarked on a wider ranging project to modernize insurance
regulation. This includes both regulatory aspects, such as streamlining the process
for rate and form filing, and more basic legal aspects, such as the creation of an
interstate compact to provide uniformity across states for some life insurance
products. Since every state legislature must pass the legal changes suggested by the
NAIC, the process typically does not move rapidly.
Some in Congress and the executive branch have not been content with the
changes being undertaken by the states, and several proposals have been put forth
over the past few years for increased federal involvement in insurance regulation.
In the 110th Congress, S. 40 and H.R. 3200 would create an optional federal charter
(OFC) for insurers modeled roughly after the dual regulatory system for banks. This
call for an OFC was echoed by Secretary of the Treasury Paulson in a recently
released blueprint for regulatory modernization. Several narrower bills addressing
insurance regulation and regulatory requirements have been introduced in the 110th
Congress. These include H.R. 1065 and S. 929, S. 618 and H.R. 1081, H.R. 1746,
S. 1061, S. 1865, H.R. 4041, H.R. 5611, H.R. 5633, H.R. 5792, H.R. 5840, H.R.
6063, and H.R. 6213. The House passed H.R. 1065 on June 25, 2007, but the other
bills have yet to be considered on the floor of either House in this Congress. This
report will be updated as legislative events warrant.
In troduction ......................................................1
Factors Promoting Change...........................................3
The Gramm-Leach-Bliley Act....................................3
The Market after the Gramm-Leach-Bliley Act.......................4
State Regulatory Modernization......................................6
U.S. Treasury Blueprint for a Modernized Financial Regulatory Structure.....8
Recent Legislative Activity..........................................8
The National Insurance Act of 2007 (S. 40 and H.R. 3200).........8
The Nonadmitted and Reinsurance Reform Act of 2007
(H.R. 1065 and S. 929).................................9
The Insurance Industry Competition Act of 2007
(S. 618 and H.R. 1081)................................10
The Holocaust Insurance Accountability Act of 2007 (H.R. 1746)...10
The Homeowners’ Insurance Noncoverage Disclosure Act
The Life Insurance Fairness for Travelers Act of 2007 (S. 1865)....11
The Insurance Non-Discrimination for Survivors Act (H.R. 4014)...11
The National Association of Registered Agents and
Brokers Reform Act of 2008 (H.R. 5611)..................11
The Nondiscriminatory Use of Consumer Reports and
Consumer Information Act of 2008 (H.R. 5633).............12
The Increasing Insurance Coverage Options for Consumers
Act of 2008 (H.R. 5792)...............................12
The Insurance Information Act of 2008 (H.R. 5840)..............12
The Personal Lines of Insurance Fairness Act of 2008 (H.R. 6062)..13
The Reinsurance International Solvency Standards
Evaluation Board Act of 2008 (H.R. 6213).................13thth
Insurance Regulation: Issues, Background,
and Current Legislation
Insurance companies comprise a major segment of the U.S. financial services
industry. Unlike banks and securities firms, however, insurance companies have
been regulated solely by the states for the past 150 years. This stems from an 1868
decision of the U.S. Supreme Court1 that insurance was not interstate commerce and
thus was not subject to regulation by the federal government under the Commerce
Clause of the U.S. Constitution. Courts followed that precedent for the next 75 years.
In 1944, the U.S. Supreme Court effectively reversed its 1868 ruling and held that
insurance was interstate commerce and was subject to federal oversight.2 By that
time, the state insurance regulatory structure was well established, and a joint effort
led by state regulators and insurance industry leaders to overturn the decision3
legislatively led to the passage of the McCarran-Ferguson Act of 1945. That act
relinquished to the states federal authority to regulate insurance, subject to “effective”
insurance regulation by the states, and granted a federal antitrust exemption to the
insurance industry for “the business of insurance,” which has been determined not4
synonymous with the “business of insurers.”
After 1945, the jurisdictional stewardship entrusted to the states under
McCarran-Ferguson was reviewed by Congress on various occasions. Some narrow
exceptions to the 50-state structure of insurance regulation have been enacted such
as that for some types of liability insurance in the Liability Risk Retention Act.5 In
general, however, each time broad proposals were made to transfer insurance
regulatory authority back to the federal government, they were met by successful
opposition from the states as well as from a united insurance industry. Such
proposals for federal oversight usually spurred a series of regulatory reform efforts
at the state level and by the National Association of Insurance Commissioners
(NAIC). Such efforts were directed at correcting perceived deficiencies in state
regulation in order to forestall a federal regulatory takeover. They were generally
accompanied by pledges from state regulators to work for more uniformity and
efficiency in the state regulatory process.
1 Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1868).
2 U.S. v. South-Eastern Underwriters Association, 322 U.S. 533 (1944).
3 15 U.S.C. Sec. 1011 et seq.
4 See, e.g., Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 211 (1979).
5 15 U.S.C. Sec. 3901 et seq. See CRS Report RL32176, The Liability Risk Retention Act:
Background, Issues, and Current Legislation, by Baird Webel.
A major effort to transfer insurance regulatory authority to the federal
government began in the mid-1980s, following insolvencies of several large
insurance companies. Representative John Dingell, who chaired the House Energy
and Commerce Committee that had jurisdiction over insurance at the time,
questioned whether state regulation was up to the task of overseeing such a large and
diversified industry. He conducted several hearings on the state regulatory structure
and also proposed legislation that would have created a federal insurance regulatory
agency modeled on the Securities and Exchange Commission (SEC). State insurance
regulators and the insurance industry opposed his proposal and worked together on
a series of reforms at the state level and at the NAIC, including a new state
accreditation program setting baseline standards for state solvency regulation. Under
those standards, in order to obtain and retain its accreditation, each state must have
adequate statutory and administrative authority to regulate an insurer’s corporate and
financial affairs and the necessary resources to carry out that authority. In spite of
such reforms, however, another breach in the state regulatory system occurred in the
1990s, when Martin Frankel, who had previously been barred from securities dealing
by the SEC, slipped through the oversight of several states’ insurance regulators.
Before being stopped, he had looted a number of small life insurance companies of
some $200 million. Such a breach was a major embarrassment to state regulation,
but it did not bring long-term change to federal policy.
In the middle and latter part of the 1990s, Congress’ attention on insurance
regulatory matters waned. In recent Congresses, however, attention has again
focused on the regulatory structure of insurance. The House Financial Services
Committee in particular held more than a dozen hearings at both the subcommittee
and full committee levels on insurance matters from the 107th through the 109th
Congresses. Representative Michael Oxley, who chaired the committee for this time,
indicated a strong interest in pursuing legislation to change the regulatory structure.
A number of broad proposals for some form of federal chartering or other federal
intervention in insurance regulation were put forward in both houses of Congress, but
none were marked up or reported by the various committees of jurisdiction.
In the first session of the 110th Congress, Senators John Sununu and Tim
Johnson and Representatives Melissa Bean and Edward Royce introduced the
National Insurance Act of 2007 (S. 40 and H.R. 3200) into their respective chambers.
While differing slightly, both bills would create an optional federal charter (OFC) for
property/casualty and life insurance. This legislation was echoed by the U.S.
Department of the Treasury when it released a “Blueprint for a Modernized Financial
Regulatory Structure” on March 31, 2008. As an intermediate step, the Treasury
blueprint also called for an optional federal charter, although it did not specifically
endorse the existing OFC bills.
A number of narrower bills affecting different facets of insurance regulation and
regulatory requirements have also been introduced. These bills include the
Nonadmitted and Reinsurance Reform Act of 2007 (H.R. 1065 and S. 929), the
Insurance Industry Competition Act of 2007 (S. 618 and H.R. 1081), the Holocaust
Insurance Accountability Act of 2007 (H.R. 1746), the Homeowners’ Insurance
Noncoverage Disclosure Act (S. 1061), the Life Insurance Fairness for Travelers Act
of 2007 (S. 1865), the Insurance Non-Discrimination for Survivors Act (H.R. 4041),
the National Association of Registered Agents and Brokers Reform Act of 2008
(H.R. 5611), the Nondiscriminatory Use of Consumer Reports and Consumer
Information Act of 2008 (H.R. 5633), the Increasing Insurance Coverage Options for
Consumers Act of 2008 (H.R. 5792), the Insurance Information Act of 2008 (H.R.
5840) the Personal Lines of Insurance Fairness Act of 2008 (H.R. 6062), and the
Reinsurance International Solvency Standards Evaluation Board Act of 2008 (H.R.
Factors Promoting Change
Three interrelated factors provide impetus for broad change in the insurance
regulatory system. These are (1) previous legislation that revamped regulation for
the banking and securities industries; (2) change in the insurance marketplace; and
(3) the impact of regulatory changes abroad. Taken together, these changes are
having a significant impact on the competitive position of companies both within the
insurance industry and between insurers and other financial service companies.
Largely because of this impact, significant portions of the insurance industry, which
had previously supported the state regulatory system, are now calling for federal
The Gramm-Leach-Bliley Act6
In 1999, Congress passed the Gramm-Leach-Bliley Act (GLBA), instituting a
massive overhaul of the federal laws governing U.S. financial institutions. Support
for the measure came largely as a result of changes in market forces, frequently
referred to as “convergence.” Convergence in the financial services context refers
to the breakdown of distinctions separating different types of financial products and
services, as well as the providers of once separate products. Drivers of such
convergence are generally considered to be market forces such as globalization, new
technology, e-commerce, deregulation, market liberalization, increased competition,
tighter profit margins, and the growing number of sophisticated consumers. The
goals behind these driving forces, in turn, appear to be the increasing efforts of all
financial services providers to find growth, gain market share, create new revenue
streams, and enter new markets. For example, U.S. banks have looked to adjunct
non-banking products such as insurance and pension products to increase their
profitability, pointing to European “bancassurers” that generate 20% to 30% of their
profits from the sale of insurance and investment products integrated into core retail
GLBA repealed federal laws that seemed inconsistent with the way that
financial services products were actually being delivered, and removed many barriers
that kept banks or securities firms from competing with insurance companies. The
result was the creation of a new competitive paradigm in which insurance companies
now find themselves in direct competition with brokerages, mutual funds, and
commercial banks. GLBA did not, however, change the basic regulatory structure
for insurance or other financial products. Instead, it reaffirmed the McCarran-
Ferguson Act, recognizing state insurance regulators as the “functional” regulators
6 P.L. 106-102, 113 Stat. 1338.
of insurance products and those who sell them. Some insurance companies believe
that in this environment, state regulation places them at a competitive marketplace
disadvantage. They maintain that their non-insurer competitors in certain lines of
products have far more efficient federally based systems of regulation, while they
remain subject to the perceived inefficiencies of state insurance regulation, such as
the regulation of rates and forms as well as other delays in getting their products to
market. For example, life insurers with products aimed at retirement and asset
accumulation must now compete with similar bank products. Banks can roll out such
new products nationwide in a matter of weeks, while some insurers maintain that it
can take as long as two years to obtain all the necessary state approvals for a similar
national insurance product launch.
GLBA also addressed the issue of modernizing state laws dealing with the
licensing of insurance agents and brokers and made provision for a federally backed
licensing association, the National Association of Registered Agents and Brokers
(NARAB), which would have come into existence three years after the date of
enactment if at least 29 states failed to enact the necessary legislation for state
uniformity or reciprocity. Following GLBA, the requisite number of states enacted
this legislation, and thus the NARAB provisions never came into effect. The issue
of insurance producer licensing reciprocity or uniformity continued, however, as
some have continued to see problems in the actions taken by the individual states.
Every state has not passed legislation implementing reciprocity and, even in those
states that did, it has not always been implemented as smoothly as desired,
particularly by the agents and brokers themselves.7
The Market after the Gramm-Leach-Bliley Act
Congress passed the Gramm-Leach-Bliley Act to enhance competition among
financial services providers. Though many observers expected banks and insurers
to converge as institutions after it passed, this has not occurred as expected. In fact,
the major merger between a large bank, Citibank, and a large insurer, Travelers,
which actually spurred the passage of GLBA, has effectively been undone. The
corporation that resulted from the merger, Citigroup, has divested itself of almost all
of its insurance subsidiaries. The property/casualty divisions were sold first, to the
St. Paul’s Companies, and the large majority of the life insurance operations were
sold to Metlife. The only remaining sizeable bank-insurer merger is Chase Insurance,
which is a part of JPMorgan Chase.8
Although large bank-insurer mergers have not occurred as expected, significant
convergence has continued. Instead of merging across sectoral lines, banks began
distributing — but not “manufacturing” — insurance, and insurers began creating
products that closely resembled financing. Consolidation has also continued within
7 See, for example, the April 16, 2008 testimony by Tom Minkler on behalf of the
Independent Insurance Agents and Brokers made before the House Financial Services
Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises at:
[http://www.house.gov/ apps/list/hearing/financialsvcs_dem/ mi nkler041608.pdf].
8 In 2003, Bank One acquired Zurich Life, and then in 2004, Bank One merged into
JPMorgan Chase, and the insurance divisions were renamed.
each sector, as banks merged with banks and insurers with insurers. Also, although
Congress had instituted “functional regulation” in GLBA, regulation has since tended
to track institutional lines.9
Although banking, insurance and other financial services are not an industry that
produces a tangible good to be shipped across borders, the trade in such services
makes up a large amount of international trade. The United States has generally
enjoyed a surplus in trade in financial services, other than insurance, but in insurance
services the United States has consistently run a deficit with the rest of the world.10
Consolidations in the insurance industry are creating larger international entities with
growing market shares, particularly in the reinsurance market. Some have speculated
that the growing “internationalization” of the financial services industry means
governments may find it difficult to reform their regulation in isolation from other
jurisdictions and international developments. The need for a single voice at the
federal level to represent U.S. insurance interests on the international stage is a
frequently heard argument for increased federal involvement in insurance regulation.
The European Union (EU), our biggest trading partner in insurance services,
is continuing with its Financial Services Action Plan (FSAP), a comprehensive
program to transform the EU into a single market for financial services. The EU is
putting forward an updated solvency regime for insurers — known as Solvency 2 —
that is intended to parallel the Basel II capital standards for banks. It is “‘an
ambitious proposal that will completely overhaul the way we ensure the financial
soundness of our insurers. We are setting a world-leading standard that requires
insurers to focus on managing all the risks they face and enables them to operate
much more efficiently.’”11 The EU has also adopted a reinsurance directive that
creates a “single license” or “passport” for EU reinsurers, which would enable
reinsurers licensed under the proposed standards in their home EU country to do
business in all other EU countries without further requirements or collateral.12 The
reinsurance directive is seen as “a useful tool in international trade negotiations as
9 See CRS Report RS21827, Insurance Regulation After the Gramm-Leach-Bliley Act, by
10 U.S. exports of non-insurance financial services were $46 billion in 2007 vs. imports of
$11.5 billion. Insurance exports in 2007 totaled $10.3 billion vs. imports of $42.8 billion.
See the Bureau of Economic Analysis website at [http://www.bea.gov/bea/international/
11 Charlie McCreevy, European Union Internal Market and Services Commissioner, quoted
in “‘Solvency II’: EU to take global lead in insurance regulation” available at
[http://europa.eu/rapid/pressReleasesAction.do?r e f e r e nce=IP / 07/ 1060&format=HT M L&
aged=0&language=EN&guiLanguage=en]. The general EU website on Solvency 2 is
12 Text of and further information about the directive is available at [http://europa.eu.int/
comm/internal_market/insura nce/reinsurance_en.htm] .
it could help improve access for European reinsurers to foreign markets...” such as
the United States.13
Access to the U.S. market for insurance is a significant issue. Of particular
concern have been the state regulatory requirements that reinsurance issued by alien14
reinsurers must be backed by 100% collateral deposited in the United States. Alien
reinsurers have asked state regulators to reduce this requirement to as low as 50% for
insurers who meet particular criteria, pointing out, among other arguments, that U.S.
reinsurers do not have any collateral requirements in many foreign countries and that
the current regulations do not recognize when an alien reinsurer cedes some of the
risk back to a U.S. reinsurer. In the past, the NAIC has declined to recommend a
collateral reduction, citing fears of unpaid claims from alien reinsurers and an
inability to collect judgments in courts overseas. At recent NAIC national meetings,
however, the NAIC Reinsurance Task Force has advanced a proposal to ease the
collateral requirements somewhat, tying them to the financial strength of alien
reinsurers. A final NAIC decision has not been reached on the issue and it has
provoked significant controversy within the NAIC. In addition to the reinsurance
collateral debate, the overall complexity of the regulatory system in the United States
has been seen by some as a barrier to overseas companies operating in the United
States.15 This complexity may also end up hindering U.S. companies in the EU as
it is not clear that state supervision of U.S. insurers will be sufficient to allow the
same “single passport” access to all EU countries that EU insurers will enjoy.
State Regulatory Modernization
Following the passage of GLBA, state insurance regulators working through the
NAIC embarked on an ambitious regulatory modernization program in response to
both the mounting criticisms of state insurance regulation and the recognition of the
growing convergence of financial services and financial services products. In early
2000, NAIC members signed a Statement of Intent: The Future of Insurance
Regulation, in which they pledged “to modernize insurance regulation to meet the
realities of the new financial services marketplace” and “to work cooperatively with
all our partners — governors, state legislators, federal officials, consumers,
companies, agents and other interested parties — to facilitate and enhance this newst
and evolving market place as we begin the 21 Century.” New NAIC working
groups were formed and charged with addressing the various changes needed to
implement those provisions of GLBA requiring regulatory action such as that needed
13 European Commission, “Commission Proposes a Directive To Create a Real EU-Wide
Market for Reinsurance,” Internal Market: Financial Services: Insurance: Press Release,
[ h t t p : //europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt = gt &d o c = IP / 0 4 / 513|0|RA
PID&l g= E N&di s p l a y= ] .
14 In the United States, the term “foreign” insurer generally denotes an insurer that is
chartered in a different state; those insurers from a different country are called “alien”
15 See, for example, p. 54 of the European Commission’s US Barriers to Trade and
Investment Report for 2007, at [http://trade.ec.europa.eu/doclib/docs/2008/april/
to prevent NARAB from coming into existence, and also to update and modernize
state regulation in other ways not required by GLBA but needed to deter growing
industry support for federal oversight. The NAIC’s new groups addressed such key
issues as state privacy protections, reciprocity of state producer licensing laws,
promotion of “speed to market” of new insurance products, development of state-
based uniform standards for policy form filings, and other proposed improvements
to state rate and form filing requirements.
According to NAIC, the states are now well underway in their efforts to
modernize state regulation. In 2003, they set specific targets and an implementation
schedule for their action plan (entitled: A Reinforced Commitment: Insurance
Regulatory Modernization Action Plan).16 Highlights of the NAIC efforts include:
!Certification of 47 states (as of September 2006) as reciprocal
jurisdictions for producer licensing laws.17 This is substantially
more than the 29 states needed under GLBA to prevent the
establishment of NARAB.
!Continued growth of the System for Electronic Rate and Form Filing
(SERFF), intended to be a single, one-stop point of entry for insurers
to file changes to rates and forms. More than 269,00 filings were
made through SERFF in 2005, up from about 3,700 in 2001.
Twelve states now require insurers to file using SERFF or other
!State approvals of the Interstate Insurance Product Regulation
Compact. This compact is intended to provide increased regulatory
uniformity and a single point of product filing using SERFF for four
insurance lines — life, annuities, disability income, and long-term
care. It came into effect in May 2006.19 Currently, 32 states20 have
joined the compact. Four additional states21 have current legislation
pending to endorse the compact.
NAIC maintains that states are better positioned than the federal government to
serve the interests of U.S. insurance consumers, emphasizing that state regulators are
more able to make sure that the personal interests of consumers are not lost in the
arena of commercial competition. To support this position, the NAIC points out that
16 See [http://www.naic.org/topics/topic_regulatory_mod_plan.htm].
17 See [http://www.naic.org/urtt_utlr.htm].
18 See [http://www.serff.org].
19 See [http://www.insurancecompact.org].
20 AK, CO, GA, HI, IA, ID, IN, KS, KY, LA, MA, MD, ME, MI, MN, NC, NE, NH, OH,
OK, PA, RI, SC, TN, TX, UT, VA, VT, WA, WI, WV, and WY. Puerto Rico is also a
21 CA, IL, NJ, and NY. The District of Columbia also has legislation pending.
the total budget for the state insurance departments in 2007 was nearly $1.4 billion.
In 2006, the states handled nearly 394,000 official consumer complaints and more
than 2.5 million consumer inquiries regarding their policies and their treatment by
insurance companies and agents. In 2006, the states employed more than 13,600
employees to handle these complaints and perform the other functions of the state
U.S. Treasury Blueprint for a Modernized Financial
On March 31, 2008, the U.S. Treasury Department released a blueprint for
revamping the financial regulatory structure in the United States.23 A wide-ranging
document, the blueprint foresees a completely revamped regulatory structure for all
financial services. As an intermediate step, it makes two specific recommendations
on insurance regulation. First, it calls for the creation of a federal insurance regulator
to oversee an optional federal charter for insurers as well as federal licensing for
agents and brokers. Second, recognizing that the debate over an optional federal
charter is ongoing in Congress, it recommends the creation of an “Office of Insurance
Oversight” in the Department of the Treasury as an interim step. This office would
be charged with two primary functions: (1) dealing with international regulatory
issues, including the power to preempt inconsistent state laws, and (2) collecting
information on the insurance industry and advising the Secretary of the Treasury on
Recent Legislative Activity
The National Insurance Act of 2007 (S. 40 and H.R. 3200). Senators
John Sununu and Tim Johnson introduced S. 40 on May 24, 2007, and
Representatives Melissa Bean and Edward Royce introduced a very similar, but not
identical version of the bill (H.R. 3200) in the House on July 26, 2007. These bills
would create the option of a federal charter for the insurance industry, including
insurers, insurance agencies, and independent insurance producers. They would
create a federal regulatory apparatus inside the Department of the Treasury and would
preempt most state insurance laws. Thus, nationally licensed insurers, agencies, and
producers would be able to operate in the entire United States without fulfilling the
requirements of each individual 50 states’ insurance laws. S. 40 and H.R. 3200 also
would reduce substantially the rate and form regulation applicable to national
insurers. Similar, but not identical, bills of the same name were introduced in the
22 Statistics provided by the NAIC.
23 See [http://www.treas.gov/press/releases/reports/Blueprint.pdf].
versions is the inclusion of surplus lines insurance24 in the bill. The current bills
would allow only the state in which the insured resides or does business to tax
surplus lines insurance and would allow national insurance producers to sell surplus
lines insurance. The previous versions of the National Insurance Act did not
specifically address surplus lines insurance.25
H.R. 3200 was referred to the House Financial Services Committee. Hearings
or markups specifically on it have yet to be scheduled. The bill was discussed in a
Subcommittee on Capital Markets, Insurance, and Government Sponsored
Enterprises hearing on April 16, with one witness, Alastair Shore, testifying on behalf
of the American Council of Life Insurance and the American Insurance Association
in support of the bill. S. 40 was referred to the Senate Banking Committee, which
has yet to take action on the bill.
The Nonadmitted and Reinsurance Reform Act of 2007 (H.R. 1065
and S. 929). Representative Dennis Moore and 44 cosponsors introduced H.R.
1065 on February 15, 2007. H.R. 1065 is nearly identical to H.R. 5637, which
passed the 109th Congress as is discussed below. Senators Mel Martinez and Bill
Nelson introduced S. 929 on March 20, 2007. S. 929 is identical to H.R. 5637 from
the 109th Congress as that bill passed the House. In the 110th Congress, the House
again acted on this bill, passing it under Suspension of the Rules by voice vote on
June 25, 2007. After being received by the Senate, H.R. 1065 was referred to the
Committee on Banking, Housing, and Urban Affairs, as S. 929 was after
introduction. At the time of this report, no committee action was scheduled on either
These bills would address a relatively narrow set of insurance regulatory issues
where currently some see overlapping regulation by multiple states. In the area of
nonadmitted ,or surplus lines, insurance, the bills would harmonize, and in some
cases reduce, regulation and taxation of this insurance by investing the “home state”
of the insured with the sole authority to regulate and collect the taxes on a surplus
lines transaction. Those taxes that would be collected may be distributed according
to a future interstate compact, but absent such a compact their distribution would be
up to the home state. These bills also would preempt any state laws on surplus lines
eligibility that conflict with the NAIC model law and would implement “streamlined”
federal standards allowing a commercial purchaser to access surplus lines insurance.
For reinsurance transactions, they would invest the home state of the insurer
purchasing the reinsurance with the authority over the transaction while investing the
home state of the reinsurer with the sole authority to regulate the solvency of the
24 This is insurance written by companies who do not hold a license in a particular state. In
general, it is used to insure unusual risks which no licensed, or admitted, insurer wishes to
25 See CRS Report RL34286, Insurance Regulation: Optional Federal Charter Legislation,
by Baird Webel.
26 See CRS Report RS22506, Surplus Lines Insurance: Background and Current
Legislation, by Baird Webel.
The Insurance Industry Competition Act of 2007 (S. 618 and H.R.
1081). Senator Patrick Leahy and four cosponsors introduced S. 618 in the Senate
on February 15, 2007, while Representative Peter DeFazio and five cosponsors
introduced H.R. 1081 in the House on the same day. The two bills are identical.
Both would abolish the current exemption from federal antitrust laws for the
“business of insurance” that dates to the McCarran-Ferguson Act of 1945 and remove
a prohibition on investigations of insurance companies by the Federal Trade
Commission. Neither bill would change the sections of the McCarran-Ferguson Act
that give preeminence to state insurance regulators. The Senate Judiciary Committee
held a hearing on S. 618 on March 7, 2007, but hearings have not been scheduled in27
the House on H.R. 1081.
The Holocaust Insurance Accountability Act of 2007 (H.R. 1746).
Representative Ileana Ros-Lehtinen and four cosponsors introduce H.R. 1746 on
March 28, 2007. This bill would create a publically available registry of insurance
polices issued between January 30, 1933, and December 31, 1945, to persons
domiciled in an area controlled by or allied with Nazi Germany, and require insurers
to file information on these policies with the Secretary of Commerce within 90 days
of the bill’s enactment. H.R. 1746 would also create a federal civil cause of action
for any claim arising out of such a policy. It specifically indicates that nothing in the
act would preempt state laws requiring disclosure or providing for rights or remedies
available to a claimant on such a policy. The House Foreign Affairs Committee
marked up the bill with minor amendments and ordered it reported on October 23,
The House Financial Services Committee, the primary committee of
jurisdiction, held a hearing on February 7, 2008, and marked up the bill on June 25,
2008. At this markup, Chairman Barney Frank began with an amendment in the
nature of a substitute significantly different than the original bill text. Chairman
Frank’s amendment would require insurers to respond to written inquiries regarding
Holocaust-era policies within 90 days and provide, within a reasonable amount of
time, all information regarding this request. It provides for monitoring of insurer
compliance by the New York Holocaust Claims Processing Office and a $5,000-per-
day civil penalty on insurers for non-compliance. The Frank amendment retains a
federal cause of action for Holocaust-era claims, but substantially limits this cause
of action. In the markup, a Sherman amendment relating to subsidiary liability was
agreed to, subject to modification of the precise language, while another Sherman
amendment establishing a registry of insurance policies from the Holocaust-era was
not agreed to. The committee ordered the bill to be reported by voice vote.
H.R. 1746 has also been referred to the House Oversight and Government
Reform Committee, where it is still pending.28
27 See CRS Report RS22639, Impact of the Abolition of McCarran-Ferguson Antitrust
Exemption for the ‘Business of Insurance’, by Janice E. Rubin and Baird Webel, and CRS
Report RL33683, Courts Narrow McCarran-Ferguson Antitrust Exemption for ‘Business
of Insurance’: Viability of ‘State Action’ Doctrine as an Alternative, by Janice E. Rubin.
28 See CRS Report RL34348, Holocaust-Era Insurance Claims: Background and Proposed
The Homeowners’ Insurance Noncoverage Disclosure Act (S. 1061).
Senator Trent Lott introduced S. 1061 on March 29, 2007. This bill would require
a “plain English” disclosure box at the front of the insurance policy restating “all
conditions, exclusions, and other limitations” of the policy. Such requirements are
typically a part of the policy form approval process that is done by state insurance
regulators. S. 1061, however, would not create a federal insurance regulator; instead,
the Federal Trade Commission would enforce this requirement pursuant to its
The Life Insurance Fairness for Travelers Act of 2007 (S. 1865).
Senator Charles Schumer introduced S. 1865 on July 24, 2007. This bill would limit
the ability of life insurers to consider foreign travel in their underwriting decisions,
preventing them from declining coverage due to travel and requiring any increase in
premium be based on good faith actuarial evidence. It would do this by amending
the Terrorism Risk Insurance Act of 2002 (TRIA, 15 U.S.C. 6701 note) and is similar
to language included in H.R. 2761 and H.R. 4299, bills considered by the House to
extend and expand the TRIA. Such language was not included in H.R. 2761 as it was
signed into law by the President. S. 1865 does not indicate a specific enforcement
mechanism for the requirements it contains, nor grant a specific right of private
The Insurance Non-Discrimination for Survivors Act (H.R. 4014).
Representatives Lucille Roybal-Allard and Ted Poe introduced H.R. 4014 on October
31, 2007. This bill would forbid insurers from discriminating against survivors of
domestic abuse by canceling an insurance policy, limiting insurance coverage, or
increasing insurance premiums on the basis of this abuse. Such actions would be
considered an unfair or deceptive trade practice under the Federal Trade Commission
Act and individuals would be granted a private cause of action in state or federal
court against insurers in violation of the act.
The National Association of Registered Agents and Brokers Reform
Act of 2008 (H.R. 5611). This bill was introduced by Representative David Scott
along with 14 cosponsors on March 13, 2008. H.R. 5611 would establish a National
Association of Registered Agents and Brokers (NARAB). NARAB would be a
private, nonprofit corporation, whose members, once licensed as an insurance
producer in a single state, would be able to operate in any other state subject only to
payment of the licensing fee in that state. The NARAB member would still be
subject to each state’s consumer protection and market conduct regulation, but
individual state laws that treated out of state insurance producers differentially than
in-state producers would be preempted. NARAB would be overseen by a board
made up of five appointees from the insurance industry and four from the state
insurance commissioners. The appointments would be made by the President and the
President could dissolve the board as whole or suspend the effectiveness of any
action taken by NARAB. The language in this bill is similar to the provisions on
insurance producer licensing in GLBA discussed previously in this report.
Legislation, by Paul Belkin, David H. Carpenter, Janice E. Rubin, and Baird Webel.
H.R. 5611 was referred to the House Financial Services Committee. Hearings
or markups specifically on it have yet to be scheduled. The bill was discussed in the
House Financial Services Committee’s Subcommittee on Capital Markets, Insurance,
and Government Sponsored Enterprises hearing on April 16, 2008, with one witness,
Thomas Minkler, testifying on behalf of the Independent Insurance Agents and
Brokers of America in support of the bill.
The Nondiscriminatory Use of Consumer Reports and Consumer
Information Act of 2008 (H.R. 5633). This bill was introduced by
Representative Luis Gutierrez along with two cosponsors on March 13, 2008. H.R.
5633 would amend the Fair Credit Reporting Act to prohibit the use of consumer
information in connection with the underwriting of insurance when the Federal Trade
Commission determines that this usage results in racial or ethnic discrimination or
represents a proxy for race or ethnicity. The bill specifically exempts information on
property loss data, driver history, and medical history subject to other requirements
in the law. It also specifies that any state laws on the use of consumer information
in insurance would not be limited or superseded. This bill followed a hearing entitled
“Credit-Based Insurance Scores: Are They Fair?” that Chairman Melvin Watt held
in the House Financial Services Committee’s Oversight Subcommittee on October
2, 2007. The subcommittee held another hearing on “The Impact of Credit-Based
Insurance Scoring on the Availability and Affordability of Insurance,” on May 21,
2008, where H.R. 5633 was discussed, but there have been no hearings or markups
specifically on the bill.
The Increasing Insurance Coverage Options for Consumers Act of
2008 (H.R. 5792). This bill was introduced by Representative Dennis Moore, along
with Representatives Deborah Pryce, John Campbell, and Ron Klein, on April 15,
2008. H.R. 5792 would amend the Liability Risk Retention Act (15 U.S.C 3901 et
seq.) to allow risk retention groups and risk purchasing groups to expand into
commercial property insurance, while adding requirements on corporate governance
including the addition of independent directors on risk retention group boards and a
fiduciary duty requirement for group directors. The bill would require risk retention
groups be chartered in a state that has adopted “appropriate” or “minimum” financial
and solvency standards. It would also strengthen the current preemption from state
laws enjoyed by risk retention and risk purchasing groups.29
H.R. 5792 was referred to the House Financial Services Committee. Hearings
or markups specifically on it have yet to be scheduled; however, the bill was
discussed in the House Financial Services Committee’s Subcommittee on Capital
Markets, Insurance, and Government Sponsored Enterprises hearing on April 16,
2008, with one witness, Lawrence Mirel, testifying on behalf of the Self Insurance
Institute of America in support of the bill.
The Insurance Information Act of 2008 (H.R. 5840). Representative
Paul Kanjorski and four cosponsors introduced H.R. 5480 on April 17, 2008. This
bill would create an “Office of Insurance Information” for non-health insurance in
29 See CRS Report RL32176, The Liability Risk Retention Act: Background, Issues, and
Current Legislation, by Baird Webel.
the Department of the Treasury. The Deputy Assistant Secretary heading this office
would be charged with collecting and analyzing publicly available insurance
information and establishing federal policy on international insurance issues, as well
as advising the Secretary of the Treasury on major insurance policy issues. State
laws or regulations that the head of the office finds to be inconsistent with the federal
policy on international insurance issues would be preempted, subject to an appeal to
H.R. 5840 was announced on April 16, 2008, at a hearing “Examining Proposals
on Insurance Regulatory Reform,” held by Chairman Kanjorski in the House
Financial Services Committee’s Subcommittee on Capital Markets, Insurance, and
Government Sponsored Enterprises and was the specific subject of a hearing in the
same subcommittee on June 10, 2008. Chairman Kanjorski indicated at the June
hearing that he hoped to move further on the bill in “weeks, not months,” but a
markup has not been scheduled.
The Personal Lines of Insurance Fairness Act of 2008 (H.R. 6062).
Representative Maxine Waters (along with three cosponsors) introduced this bill on
May 15, 2008. H.R. 6062 would amend the Fair Credit Reporting Act to prohibit a
consumer reporting agency from furnishing credit information for usage in
underwriting personal lines of insurance. It specifically exempts consumer databases
containing insurance information, such as property loss data, driving history, and
medical history, from this prohibition. H.R. 6062 followed a hearing entitled
“Credit-Based Insurance Scores: Are They Fair?” that Chairman Melvin Watt held
in the House Financial Services Committee’s Oversight Subcommittee on October
2, 2007. The subcommittee held another hearing on “The Impact of Credit-Based
Insurance Scoring on the Availability and Affordability of Insurance,” on May 21,
2008, where the bill was discussed, but there have been no hearings or markups
specifically on H.R. 6062.
The Reinsurance International Solvency Standards Evaluation
Board Act of 2008 (H.R. 6213). Representative Tom Feeney introduced this bill
on June 9, 2008. This bill would establish a non-profit board, whose members would
be appointed by, and serve at the pleasure of, the President for terms up to seven
years. This board’s primary tasks would be establishing standards for reinsurance
supervisory systems, evaluating the supervisory systems of both U.S. states and
foreign jurisdictions, and certifying whether these systems met the board’s standards.
For reinsurers domiciled in certified jurisdictions, H.R. 6213 would preempt any state
collateral requirements placed on these reinsurers.
In the 109th Congress, the National Insurance Act of 2006, S. 2509, was
introduced by Senators John Sununu and Tim Johnson on April 5, 2006.
Representative Ed Royce introduced a House version of the bill, H.R. 6225, on
September 28, 2006. While not identical, the two versions were nearly so and shared
the same basic structure and intent. These bills, modeled to some degree after the
state/federal regulation in the banking industry, would have provided for an optional
federal charter for the insurance industry. They were similar to the bill of the sameth
title introduced in the 110 Congress and discussed above.
Also in the 109th Congress, the Financial Services Subcommittee on Capital
Markets, Insurance and Government Sponsored Enterprises held a June 16, 2005
hearing on the State Modernization and Regulatory Transparency (SMART) Act, a
draft bill that had originally circulated among interested parties in the latter part of
2004. One draft of the SMART Act encompasses 17 titles and more than 300
pages.30 This draft would set up a number of uniform standards in different areas,
including market conduct, product and producer licensing, life insurance,
property/casualty insurance, and reinsurance. While establishing that there should
be uniform standards, and threatening federal preemption if the standards are not
followed, the draft often leaves the exact standards to be followed to the state
regulators and NAIC. One aspect of the proposal, however, that is not up to the
states is a federal preemption of state laws requiring prior approval of insurance rates.
At a June 21, 2006 subcommittee hearing, then-Chairman Richard Baker indicated
that the SMART Act’s comprehensive approach might be superseded by a number
of smaller bills addressing particular problems in state regulation. As an example,
he held up H.R. 5637, which was a primary focus of this hearing.
H.R. 5637, the Nonadmitted and Reinsurance Reform Act of 2006, was
introduced by Representative Ginny Brown-Waite along with 16 bipartisan
cosponsors on June 16, 2006. This bill as introduced was substantially similar to the
two bills of the same name discussed above. After relatively minor amendments at
subcommittee and full committee markups, the House Financial Services Committee
ordered H.R. 5637 reported favorably by voice vote on July 26, 2006, and reported
the bill (H.Rept. 109-649, Part I) on September 12. The House Judiciary Committee,
which was jointly referred the bill, held a subcommittee hearing on September 19 and
H.R. 5637 was discharged from that committee on September 22. It was brought to
the House floor under Suspension of the Rules and passed 417-0 on September 27.
The Senate received the bill but did not act on H.R. 5637 during the 109th Congress.
During the 108th Congress, Senator Ernest Hollings introduced S. 1373, “A bill
to authorize and direct the Secretary of Commerce, through an independent
commission within the Department of Commerce, to protect consumers by regulating
the interstate sale of insurance, and for other purposes.” S. 1373 would have created
a federal commission within the Department of Commerce to regulate the interstate
business of property/casualty and life insurance and would have required federal
regulation of all interstate insurers. It thus would have preempted most current state
regulation of insurance, except that of single state insurance companies. The federal
commission would have had full regulatory powers, including licensure, rate and
form approval, regulation of solvency, and regulation of market conduct. S. 1373
also would have repealed the antitrust exemptions in the McCarran-Ferguson Act and
created a federal guaranty fund. S. 1373 was referred to the Commerce Committee;
no hearings or markups on the bill were held. Senator Hollings retired following the
During the 107th Congress, two formal proposals were advanced providing for
an optional federal charter for insurers. Senator Charles Schumer presented
legislation in December 2001, which was not assigned a number, while
30 See [http://www.aba.com/ABIA/ABIA_Reg_Mod_Page.htm] for one copy of the bill.
Representative John LaFalce introduced a bill in February 2002, which was
designated H.R. 3766. As with the current National Insurance Act of 2006, they both
were roughly modeled after the current dual state/federal regulatory system that exists
for the banking industry. Such a system allows institutions to be chartered at either
a state or a federal level and would have enabled insurance companies to choose
between state and federal regulation. There were no hearings or markups on either
proposal during the 107th Congress. Senator Schumer has not introduced such a bill
since, while Representative LaFalce retired following the 107th Congress.
In addition to the legislation taking general aim at the current insurance
regulatory system, other proposals have had a more limited impact on the system.
For example, the Terrorism Risk Insurance Act of 200231 (TRIA) specifically
endorsed state regulation of insurance, while it included provisions preempting state
definitions of “terrorism” and previous state approvals of terrorism exclusions. In
considering the Fair and Accurate Credit Transactions (FACT) Act of 2003,32 some
would have included provisions to regulate insurer usage of credit information;
however, the final bill included only a study of this usage. This study was to be
completed in late 2005, but was only delivered to Congress in July 2007. TRIA had
been set to expire at the end of 2005, and this pending expiration provoked
significant legislative and lobbying activity on a bill to extend TRIA. Such a bill, S.
467, was passed in early December 2005 and signed into P.L. 109-144 on December
22, 2005. S. 467 extended TRIA two years and changed little in TRIA’s relatively
minimal intrusion into the state insurance regulatory system. The 110th Congress
passed another TRIA extension bill, H.R. 2671, in December 2007, and it was signed
into P.L. 110-160 on December 26, 2007. This bill extended TRIA seven years and
again did not substantially change TRIA’s minimal intrusion into the state regulatory
31 P.L. 107-297, 116 Stat. 2322.
32 P.L. 108-159, 117 Stat. 1953.