In the wake of the deal struck in Congress on June 25 to finalize the shape of the Dodd-Frank financial services reform bill, insurance trade associations evinced greater confidence that the final shape of reform will leave the insurance industry relatively unscathed. The final bill focuses primarily on banking and securities and leaves fears of duplicative federal insurance regulation unrealized.
The insurance industry essentially has been exempted from Financial Services Consumer Protection Agency, and the Federal Insurance Office has emerged as a monitoring and advisory body rather than a regulator, insurance industry-based observers say. Nevertheless, questions remain about how the various provisions of the bill will function in practice.
The American Council of Life Insurers (ACLI; Washington, D.C.) expressed sentiments representative of the insurance industry as a whole, in a statement saying that many of its concerns had been addressed in the Dodd-Frank bill. However, the ACLI also expressed concern about some aspects of the legislation that remain unresolved. For example, the final bill assigns to the SEC and CFTC clearinghouse requirements for derivatives trading. “ACLI is confident it 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 ‘major swap participant’ and ‘major security-based swap participant,” the ACLI statement says.
Despite insurers’ early fears that a federal insurance regulator would be established, either in addition to or replacing the state regulatory regime, the Federal Insurance Office (earlier referred to as an Office of National Insurance or ONI) called for in the Dodd-Frank bill will fall short of such a mission.
“We wanted to make sure that the FIO was not given a fishing license through this subpoena authority, allowing it to make duplicative, expensive data calls in the hopes of finding trouble where none exists,” comments Jimi Grande, senior vice president of federal and political affairs, National Association of Mutual Insurance Companies (Washington, D.C.; NAMIC). “By drawing upon the House legislation for the provision creating FIO, the conferees ensured that it will serve its intended purpose as an information resource for policymakers rather than trying to do the same job being done by state regulators.”
NAMIC has applauded legislators' June 29 removal of a so-called "bank tax" from the Dodd-Frank bill. “As critics have noted, this so-called fee was not a part of either the House or Senate versions of the bill, and was added without any prior consideration,” says NAMIC's Grande. “This fee would have unfairly included some property/casualty insurers in a pre-funding mechanism to fix problems that our industry did not cause, burdening insurers and their customers with the costs of the bill.” Insurers have concern about how the FIO will work, and whether there will be any conflict between the FIO and the existing state system, Howard Mills, chief adviser for Deloitte's national insurance group. “However, there is real potential for the FOI to do some good,” Mills says.
Mills asserts that the body could help to address “mechanical” issues affecting the efficiency of transactions such as uniform rate and form filing and the issuance of product approval. “These are very time-consuming and expensive, and if we could get state regulators to do a better job, it would be a very welcome development,” he says.
The June 25 deal about the final form of the bill, arrived at by legislators after a grueling 21-hour session, was motivated by a desire by the majority party to meet a long-standing goal of the Obama administration to receive a bill by the 4th of July. However, the death of Sen. Robert Byrd (D-W.Va.) makes that unlikely, as his vote was needed to assure passage. “It’s looking doubtful that the Senate will pass it this week,” acknowledges Jim Hamilton, an analyst with Wolters Kluwer Law & Business (New York).
The bill will likely pass the House this week but will be sent to President Obama only after the July 4th recess. From the point of view of the financial services industry, the question of the significance of the bill is more a question of “what” than “when,” Hamilton suggests.
“Once the legislation is signed, that still really is just the beginning,” Hamilton says. “Many of the provisions require the adoption of new regulations to fill in the detail of the legislative framework and create a mosaic of complete financial regulatory reform.’’