Last Tuesday’s election will generate substantive changes in who makes the decisions affecting the insurance industry in Washington. Here is a look at the key people certain to be impacted by the change.
Timothy Geithner, Treasury secretary. Geithner has made clear he will not serve a second term as Treasury secretary. Initial speculation is that he will be replaced by Jacob Lew, currently President Obama’s chief of staff. Geithner is a key player in Washington on insurance issues. He helped draft the initial versions of the Dodd-Frank financial services reform law, helped steer it through Congress, and now heads, amongst other jobs, the Financial Stability Oversight Council, which could designate such non-banks as AIG as systemically significant and therefore subject to federal regulation as earlier as December.
Other potential replacements cited by SNR Denton, a law firm, are Erskine Bowles, Gene Sperling, and Lael Brainard, currently Under Secretary of the Treasury for International Affairs. Earlier this year, she was forced to field tough questions on insurance regulatory issues from hostile House Financial Services Committee members.
Michael McRaith, director of the Federal Office of Insurance. The former Illinois insurance director is likely to stay after President Obama's re-election. He was the key drafter of a report on how insurance regulation should be modernized going forward mandated under the Dodd-Frank financial services reform law. The report has likely been in the can for six months and its release is expected to be imminent. He has strong bipartisan support in Congress, as well as support from the industry and state regulators.
Rep. Jeb Hensarling, R-Texas, will succeed Rep. Spencer Bachus, R-Ala., as chairman of the House Financial Services Committee because of party term limits. He is a former aide to Sen. Phil Gramm, R-Texas, and helped write the Gramm-Leach-Bliley Act. He will likely work to limit federal regulation of insurance, but current federal initiatives, such as consolidated regulation of insurance companies which own thrifts as well as designation of non-banks as systemically significant, are probably here to stay.
Rep. Maxine Waters, D-Calif. With the decision of Rep. Barney Frank, D-Mass., to retire, she will join Hensarling as part of a new leadership team for the House Financial Services Committee, a critical venue for insurance interests. The two new leaders are already being described by industry officials as the “odd couple.” Waters is an avowed liberal firebrand, and her interests are likely to be focused in the insurance area on credit scoring. Insurance-industry members say they are concerned about “disparate impact” regulations regarding housing costs being considered by the federal Department of Housing and Urban Development. Personal-lines insurers worry that “disparities” in inner city insurance costs may provoke HUD to issue regulations aimed at eliminating perceived “redlining,” which would bring the industry under a new layer of federal oversight.
Rep. Judy Biggert, R-Ill. Biggert was defeated for re-election in Illinois. Joel Wood, senior vice president of congressional affairs for the Council of Insurance Agents and Brokers called her defeat “extremely disappointing to the insurance industry.” As chair of the Subcommittee on Insurance, Housing and Community Opportunity of the House Financial Services Committee, she worked across the aisle and with the Senate to ensure passage of legislation providing for a 5-year extension of the National Flood Insurance Program after a 5-year tortuous legislative path. Industry members were counting on her to use the same skills in the coming Congress to guide legislation extending the Terrorism Risk Insurance Act through a hyper-partisan Congress. It is unclear who will succeed her.
Sen. John Tester, D-Mont. Tester won re-election, with strong insurance industry support, in a very red state. He was a key supporter of critical insurance-industry issues, such as the legislation extending the National Flood Insurance Program. He has also taken the lead on insurance-regulatory issues, such as uniform agent/broker licensure standards. He could be a key ally on the Senate Banking Committee for passage of an extension of TRIA.
Daniel Tarullo, a member of the Board of Governors of the Federal Reserve System, who specializes in solvency issues of financial institutions. He has sat in on FSOC meetings where such issues as designation of non-banks such as insurers as systemically significant are discussed, and he is a key player on international capital issues. Tarullo is also a key link between the Fed banks who will actually oversee insurers which operate thrifts and the Fed Board on this issue.
Kathleen Sebelius, HHS Secretary. This former Kansas insurance commissioner and governor has suffered some defending the healthcare-reform law. However, with the defeat of Mitt Romney and his vow to “repeal and replace” the law no longer a threat, everyone on both sides of the debate is now scrambling to implement the reforms.
Industry officials say they see no pressure from the Obama administration to replace Sebelius, but her own plans are unclear.
SNR Denton projects that possible candidates to replace Sebelius if she leaves include Nancy-Ann DeParle, currently deputy White House chief of staff for health issues, or Lois Quam, executive director of the Global Health Initiative at the State Department. Another possible candidate cited by SNR Denton is Deval Patrick, Massachusetts governor.
Sen. Elizabeth Warren, D-Mass. Warren’s election ensures that a strong consumer advocate will have a prominent place at the Washington table. She was the prime architect of the Consumer Financial Protection Bureau under the Dodd-Frank Act. While the insurance industry was somewhat protected through DFA provisions from the agency’s authority, one industry official “shudders at potential mission creep.” Moreover. One area where the CFPB has authority that could involve insurance is mortgages. It has scrutiny over force-placed or lender-placed insurance, and state insurance regulators, aware of that power, have already moved strongly to reduce premiums paid for this coverage. Insurance analysts have projected that mandated cost cuts in California and potentially nine other states could reduce earnings of one player in the business by two-thirds annually.
Reps. David Camp, R-Mich., and Sander Levin, D-Mich., chairman and ranking minority member of the House Ways and Means Committee. The fiscal cliff looms Jan. 1, and President Obama made clear Friday that any compromise would have to include higher taxes levied on wealthier Americans.
Certain to be on the table is a proposal aimed at curbing the ability of foreign insurers with U.S. insurers to cede premiums to offshore affiliates. Several reiterations of such legislation have been introduced in the House and Senate, and the Obama administration has proposed through its recent budgets to deny any deduction for reinsurance ceded to a foreign affiliate or its parent to the extent that the foreign parent is not subject to U.S. income taxation on the premium.
Camp is a moderate, as is Levin, and they have worked well together. Given the recent heightened storm activity, that Congress would determine to raise taxes on P&C insurers as part of any global deficit reduction package negotiated next year appears unlikely. But the issue is certain to be on the table.