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

Dodd-Frank Act provisions should be “clarified” to ensure thatfederal regulators do not impose conflicting or duplicativeregulatory requirements, an executive of a property and casualtyinsurer tells Congress today.

Michael Lanza, executive vice president and general counsel ofSelective Insurance Group, Inc., Branchville, N.J., makes hiscomments in support of three legislative proposals being consideredby the Housing and Community Opportunity Subcommittee of the HouseFinancial Services Committee.

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

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

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

Schwarcz adds that “the rationale for these amendments is simplynot convincing: the existing provisions of [the Dodd-Frank Act]that the legislation targets create only minimal costs anduncertainty for the insurance industry.

“Ultimately, it is simply premature to embrace a regulatoryapproach to systemic risk that defines away the domain ofinsurance,” Schwarcz says.

One of the legislative proposals being considered would revokethe authority of the Federal Insurance Office and the Office ofFinancial Research within the Treasury to subpoena information frominsurance companies.

The second would “explicitly and entirely” exclude insurancecompanies, including mutual insurance holding companies, from theFederal Deposit Insurance Corporation's “orderly liquidationauthority” for troubled large non-banks.

The third would preclude the Federal Reserve from establishinghigher prudential financial standards to troubled insurancecompanies it would oversee as ordered by the Financial StabilityOversight Council.

Regarding the second legislative proposal, Lanza says, “WhileDodd-Frank (DFA) properly reserved to the states the authority toresolve failing insurance companies, the DFA needs tightening inseveral ways to ensure that federal regulators do not have thepower 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 federalresolutions of other non-insurer financial firms.

He said insurers are already required to pay intostate-insurance resolution funds to help ensure that policyholdersof other failed insurers are honored.

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

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

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

Schwarcz, meanwhile, says, “Accepting a core premise ofDodd-Frank—that systemic threats must be monitored and managed in aunified manner at the federal level—the proposed legislationimplicitly embraces the assumption that insurance companies do notpose systemic risks.”

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

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

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

Reacting to the hearing, William Rijksen, AmericanInsurance Association vice president of public affairs, says thehearing underscores the fact “that insurance is fundamentallydifferent from banking and that our solvency regulatory structurehas proven to work quite well.”

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