Insurer Exec, Consumer Advocate Debate Dodd-Frank Provisions Before Congress

President Barack Obama, left, stands with Sen. Chris Dodd, D-Conn., center, and Rep. Barney Frank, D-Mass., right, after he signed the Dodd-Frank Wall Street Reform and Consumer Protection financial reform bill, Wednesday, July 21, 2010. (AP Photo/Charles Dharapak) President Barack Obama, left, stands with Sen. Chris Dodd, D-Conn., center, and Rep. Barney Frank, D-Mass., right, after he signed the Dodd-Frank Wall Street Reform and Consumer Protection financial reform bill, Wednesday, July 21, 2010. (AP Photo/Charles Dharapak)

NU Online News Service, Nov. 16, 11:15 a.m. EST

Dodd-Frank Act provisions should be “clarified” to ensure that federal regulators do not impose conflicting or duplicative regulatory requirements, an executive of a property and casualty insurer tells Congress today.

Michael Lanza, executive vice president and general counsel of Selective Insurance Group, Inc., Branchville, N.J., makes his comments in support of three legislative proposals being considered by the Housing and Community Opportunity Subcommittee of the House Financial Services Committee.

He represents the Property and Casualty Insurers Association of America, as well as Selective.

But Daniel Schwarcz, an associate Professor at the University of Minnesota Law School and a funded consumer representative to the National Association of Insurance Commissioners, disagrees.

He says, “Collectively, the proposed amendments limit the authority of federal entities to regulate and monitor insurers that may pose systemic risks.”

Schwarcz adds that “the rationale for these amendments is simply not convincing: the existing provisions of [the Dodd-Frank Act] that the legislation targets create only minimal costs and uncertainty for the insurance industry.

“Ultimately, it is simply premature to embrace a regulatory approach to systemic risk that defines away the domain of insurance,” Schwarcz says.

One of the legislative proposals being considered would revoke the authority of the Federal Insurance Office and the Office of Financial Research within the Treasury to subpoena information from insurance companies.

The second would “explicitly and entirely” exclude insurance companies, including mutual insurance holding companies, from the Federal Deposit Insurance Corporation’s “orderly liquidation authority” for troubled large non-banks.

The third would preclude the Federal Reserve from establishing higher prudential financial standards to troubled insurance companies it would oversee as ordered by the Financial Stability Oversight Council.

Regarding the second legislative proposal, Lanza says, “While Dodd-Frank (DFA) properly reserved to the states the authority to resolve failing insurance companies, the DFA needs tightening in several ways to ensure that federal regulators do not have the power to intrude on state authority to resolve insurers.”

Lanza says Selective and PCI also believe that Dodd-Frank “unfairly” asks insurers to help defray the costs of federal resolutions of other non-insurer financial firms.

He said insurers are already required to pay into state-insurance resolution funds to help ensure that policyholders of other failed insurers are honored.

“The imposition of a federal resolution assessment on insurers by the DFA imposes the potential for double assessment on insurers,” Lanza says.

Lanza states, “We do not believe that the proposals—in any way—scale back any powers that Dodd-Frank granted federal agencies to regulate the types of risky activities that gave rise to the financial crisis.”

He says, “Home, auto, and business insurers, while important to our customers in times of need, did not cause the financial crisis and generally are not systemically important to the financial markets.”

Schwarcz, meanwhile, says, “Accepting a core premise of Dodd-Frank—that systemic threats must be monitored and managed in a unified manner at the federal level—the proposed legislation implicitly embraces the assumption that insurance companies do not pose systemic risks.”

He says the proposals also limit the tools available to the FIO to assess the state of the insurance industry with respect to issues extending beyond systemic risk, including the adequacy of state-based consumer protections.

He said the proposed legislation “seems to ignore one of the central lessons of the 2008 Global Financial Crisis: “that we do not always know what we do not know when it comes to systemic risk.”

He says that in his view, the proposed legislation “ensconces the traditional view that insurance activities pose limited systemic risk and restricts the capacity of federal regulators to learn as they go and adapt to evolving research and knowledge.”

Reacting to the hearing, William Rijksen, American Insurance Association vice president of public affairs, says the hearing underscores the fact “that insurance is fundamentally different from banking and that our solvency regulatory structure has proven to work quite well.”

He says AIA remains “very concerned”  that regulators, in response to the crisis and through broad interpretations of DFA, could overreach and apply bank-centric standards to the insurance industry with duplicative and often conflicting regulations.

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