Ex-N.Y. Commissioner Fears New Federal Insurance Intrusion
By STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets
A former New York insurance superintendent raised concerns that an ambitious director of the newly created Federal Insurance Office (FIO) could exploit ambiguities surrounding the new position to create an even greater federal insurance regulatory presence than envisioned in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
That was just one of the many questions raised by Howard Mills as to the impact upon the insurance industry of the sweeping Dodd-Frank financial regulatory reform bill expected to be signed into law this week by President Barack Obama.
The law establishes the Federal Insurance Office with a primarily information-gathering mandate. State insurance regulators succeeded in getting into the law a provision requiring that the FIO check with the National Association of Insurance Commissioners (NAIC) to see if they have the data before going to insurance companies.
Even so, Mills said that carriers may have to beef up information-dispensing capabilities as a result of the new law.
"I don't yet know, and I don't think anybody knows, how they (FIO and state regulators) are going to co-exist," said Mills, director and chief advisor to the Deloitte Insurance Industry Group.
An activist FIO director could seek to take advantage of the fluid situation and start probing into areas that rightfully belong to state insurance departments, such as market conduct and solvency regulation.
In addition, House Financial Services Committee Chairman Barney Frank, D.-Mass., raised the possibility at a recent National Conference of Insurance Legislators meeting of reviving the Optional Federal Charter bill next year, which raises concerns in Mills' mind about even greater federal insurance regulatory muscle on the horizon.
For the past decade, the large multinational insurance carriers have sought the option to be regulated under a federal charter. That would help companies avoid having to deal with the vagaries of 50 state regulators.
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The former commissioner joined trade association representatives in expressing relief, however, that the insurance industry dodged a bullet by not being included as companies that could pose a systemic risk to the financial stability of the national economy.
American Insurance Association President Leigh Ann Pusey said, "The (Dodd-Frank) bill also takes necessary steps to prevent insurers from being lumped into many of the new 'bank-focused' provisions. This, too, is a substantial recognition of the insurance business model."
David Sampson, president of the Property Casualty Insurers Association of America, said that the bill contains significant improvements that could minimize conflict between the new federal presence and state regulators.
Judicial review served as a bone of contention between industry factions divided over just how a strong a role the new federal office would play in insurance regulation, and over efforts to present a unified front in negotiations with foreign regulatory bodies looking to avoid dealing with 50 state regulators.
The American Council of Life Insurers and the AIA, who have backed the OFC, lined up behind a more powerful FIO with greater powers to pre-empt state regulation not subject to judicial review. Meanwhile, the property/casualty trade groups, either opposed or agnostic on OFC, sought a more limited role for the FIO with its preemption powers subject to judicial review.
The ACLI expressed support for the FIO and like other groups will remain vigilant during the rule-making process.
For example, ACLI wants to gain an exemption from the new clearinghouse requirement for trading derivatives, noting that life carriers must prepare for claims that may not arise for 40 years.
"Derivatives are indispensable to this process," a spokesman said. "These activities do not create systemic risk to the economy and are strictly and conservatively regulated under state insurance laws and regulations."
In addition, the group will monitor the Securities and Exchange study looking at differing fiduciary standards of care for investment advisors and broker-dealers.
And while noting that life insurance products have been largely exempted from the newly created Consumer Financial Protection Agency, the ACLI noted, "we will closely monitor and if necessary participate in the rule-making process to assure that are products are not inadvertently affected."
July 21, 2010
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