Dodd-Frank Anniversary: What About Insurance?

The Dodd-Frank Wall Street Reform and Consumer Protection Act rewrote the landscape of the financial markets and it has permeated all sectors of the global economy.

A year after the Dodd-Frank Act was signed, there continues to be uncertainty over how the legislation will ultimately be implemented and that is affecting investment and hiring. Federal and state regulators are trying to work through an enormous number of required new rules. Regulatory mission creep and the extent to which insurers are swept into the regulation of banks will directly impact insurance job creation and consumer costs.

Congress appropriately distinguished insurers as very different from banks in the Dodd-Frank Act. Lawmakers correctly acknowledged the strong state-based insurance regulatory system that already exists, providing consumer protections and strict solvency standards. However, the signing of the Dodd-Frank Act one year ago only marked the first half of the overall financial overhaul process. As such, the Property Casualty Insurers Association of America (PCI) is now heavily engaged in the rule development stage and systemic risk designation process, which are equally as important for identifying and addressing overly broad regulation.

Our top federal priority is preventing non-insurance regulators from imposing new standards for insurance activities.

Financial Stability Oversight Council

The Financial Stability Oversight Council (FSOC) is comprised of the nation’s top financial regulators and will monitor systemic risk in the financial services sectors. Three insurance representatives sit on the FSOC, including: Missouri Insurance Director John Huff as the representative of National Association of Insurance Commissioners as a non-voting member; Michael McRaith, the new Federal Insurance Office (FIO) director as a non-voting member; and former Kentucky insurance regulator Roy Woodall was nominated by Treasury to serve as the voting insurance expert, but still awaits confirmation by the Senate.

On one-year anniversary of the Dodd-Frank Act, we still do not have an insurance expert who is able to vote on critical regulatory decisions such as whether special rules for systemically important financial institutions will be imposed on any property/casualty insurers.

P/C insurance companies by nature are not systemically risky. Home, auto and business insurance companies remained strong and stable throughout the financial crisis due to our unique regulatory structure that enforces strict solvency standards and consumer protections. P/C insurers are not highly leveraged or interconnected and have a fundamentally different business model than banks, a fact that warrants different regulatory treatment.

Federal and Global Regulation

Last month, Illinois Director of Insurance Michael McRaith took the lead of the newly created Federal Insurance Office (FIO) in Washington, which will play an important role in leading international negotiations on insurance issues.

The FIO was created in the Dodd-Frank Act and will operate from within the U.S. Department of Treasury. FIO will be required to monitor the insurance industry, advise Congress on insurance issues, help lead U.S. efforts on international insurance issues, and advise various federal entities on insurers’ systemic risk exposure.

The new insurance office does not have regulatory power. Congress explicitly protected the state insurance regulatory system, which is different from other sectors of the financial services industry, and determined that the FIO will not serve as a duplicative federal insurance regulator.

As an outgrowth of the financial crisis and the Dodd-Frank Act, international regulatory initiatives have gained momentum as well and are beginning to shape the agenda for U.S. regulators at both the state and federal levels. It’s especially significant for insurers when considering the U.S. writes almost 40 percent of the global insurance market. International issues continue to take on greater prominence for insurers as international regulatory bodies and forums develop new standards following the 2008 financial crisis. These international standards can affect all insurers in the U.S., regardless of size or the number of states in which they do business.

PCI will continue to actively engage to produce a more effective and efficient regulatory system and avoid duplicative regulatory authority and unnecessary burdens on U.S. companies and their customers.