STAND. COM. REP. NO. 278-04

Honolulu, Hawaii

, 2004

RE: H.B. No. 2412

H.D. 1

 

 

 

Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Second State Legislature

Regular Session of 2004

State of Hawaii

Sir:

Your Committee on Consumer Protection and Commerce, to which was referred H.B. No. 2412 entitled:

"A BILL FOR AN ACT RELATING TO INTERSTATE INSURANCE COMPACT,"

begs leave to report as follows:

The purpose of this bill is to adopt the National Association of Insurance Commissioners' (NAICs') Interstate Insurance Compact, which outsources insurance product filing and approvals currently conducted within the individual states, by creating standards for insurance products, then establishing an interstate commission to collectively receive, review, and approve insurance product filings. This bill also provides an exemption from the provisions of the compact for long-term care insurance.

Your Committee heard testimony in support of this bill from the State Insurance Commissioner, NAIFA Hawaii, and the American Council of Life Insurers.

Your Committee finds that this bill must be viewed in the context of changes occurring in the insurance industry over the past two decades. Many products sold by life insurers have evolved to become, in significant part, investment products. Consequently, competition among insurers, depository institutions, and securities firms has dramatically increased.

 

Unlike their federally regulated competitors, only insurance companies must run the gauntlet of inconsistent regulation by 50 individual states. This places the industry at a serious competitive disadvantage both within the United States and in the global marketplace, and the result is growing support in Congress for federalization of insurance regulation. In short, state legislatures across the country are being advised that the status quo in insurance regulation is unsustainable.

In response to the threat of being dispossessed of their authority over insurance, the National Association of Insurance Commissioners has proposed an interstate compact to improve insurance regulation and insurers' ability to compete, by increasing consistency of regulation and reducing the regulatory burden on the insurance industry. The interstate compact creates an interstate commission to be overseen by the states that will operationally consolidate insurance product review and approval functions previously conducted in each state. Hawaii joins the interstate compact by enacting this bill.

Your Committee supports the interstate compact alternative to federalization provided by this bill. Your Committee finds that under this bill, state regulation of certain aspects of the insurance industry will be attenuated in the interest of efficient filings and approvals; however, other aspects of local regulation will be retained. This approach is consistent with your Committee's belief that state regulation, to the extent possible, is preferable, because it is more responsive to local conditions and consumer needs.

Your Committee notes that the NAIC proposal has been endorsed by the National Conference of Insurance Legislators and the National Council of State Legislatures.

Your Committee notes further that it received a letter from the Department of the Attorney General (AG) expressing concern that the power delegated by this bill to the interstate commission may not be sufficiently circumscribed by standards and guidelines to meet constitutional requirements for the delegation of legislative authority.

Your Committee appreciates the cautionary missive from the AG. Its utility, however, is limited. As the letter itself notes:

..because this bill involves an interstate compact whose language cannot be changed, we cannot fix this problem by adding standards for the commission.

Finally, your Committee recognizes that there was significant testimony in support of including long-term care insurance within the scope of the compact, but believes that it is prudent to delay including that particular product, which may be added at a later date.

Your Committee has made substantial amendments to this bill to conform the bill to the NAIC model legislation. Technical, nonsubstantive amendments have also been made for purposes of clarity, consistency, and style.

As affirmed by the record of votes of the members of your Committee on Consumer Protection and Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 2412, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 2412, H.D. 1, and be referred to the Committee on Finance.

Respectfully submitted on behalf of the members of the Committee on Consumer Protection and Commerce,

 

____________________________

KENNETH T. HIRAKI, Chair