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 S.B. No. 2887, S.D. 2, entitled:

begs leave to report as follows:

The purpose of this bill is to adopt the National Association of Insurance Commissioners (NAIC) Interstate Insurance Compact, while exempting long-term care insurance from the provisions of the compact.

Testimony in support of this bill was received from the Department of Commerce and Consumer Affairs. NAIFA Hawaii and the American Council of Life Insurers supported the bill and requested amendments. The Department of the Attorney General provided comments and concerns.

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 NAIC 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. Moreover, this bill will promote high product standards, while giving consumers quicker access to a broader choice of investment products.

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 has amended this bill:

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 S.B. No. 2887, S.D. 2, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2887, S.D. 2, H.D. 1, and be referred to the Committee on Finance.