Dodd-Frank Contains Weaker Federal Insurance Office Provision
BY STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets
Insurance carriers will not fall into that group of companies that the so-called Dodd-Frank financial reform bill, created in a House-Senate Conference on June 25, singles out as posing a systemic risk to the nation's economy in the event of failure.
On the one issue that divided the industry, the bill takes sides with those groups that wanted a weaker federal insurance presence in the Treasury Department.
The new Federal Insurance Office does not incorporate the pre-emption powers over state regulation that groups such as the American Insurance Association and American Council of Life Insurers favored.
David Sampson, president of the Property Casualty Insurers Association of America, took special pains to point out the "the conference report also now includes important Federal Insurance Office provisions for appropriate due process to address questions over federal pre-emption."
"FIO determinations will be subject to de novo judicial review," he said.
Sampson also noted that "essential new provisions were added to help reduce duplicative information gathering requests on insurers," namely the office must first request the data from state regulators before seeking them from carriers themselves.
But Sampson expressed concern that "duplicative federal oversight threatens to add costs to the insurance marketplace without corresponding benefits to consumers."
"It also creates potential conflicts with existing state regulatory protections," he said.
NOT SYSTEMATICALLY RISKY
By avoiding the systemically risky categorization, insurers will not be subject to a new pre-event funding pool that would supplant the state-based guaranty system.
"Home, auto and business insurers have been strong and stable throughout the financial crisis are not systemically risky," Sampson said.
Frank Keating, president of the American Council of Life Insurers, expressed concern that "the final legislation reflects a bank-centered approach to regulation that does not always mesh with the life insurance industry, our existing regulatory structure and the way we address consumer needs."
Keating said the bill leaves several questions that will remain unanswered until the formal rule-making process is complete.
Life insurers had expressed concern that new derivatives restrictions would impair their use of those instruments that they believe provide policyholder protection through their hedging capabilities. The legislation will leave the Securities and Exchange Commission, along with the Commodity Futures Trading Commission, as the final arbiters of their concerns.
"ACLI is confident that we can make a strong case to the SEC and CFTC on how life insurers use derivatives to reduce risk and why we should be excluded from the definitions of 'swap participant' and 'major swap participant,' " Keating said.
The Dodd-Frank bill could be up for vote in the Senate as early as the end of this week.
June 29, 2010
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