Insurance industry trade groups Tuesday urged Congress topromptly pass legislation designed to partly roll back federalauthority to oversee or monitor insurance companies enacted as partof the Dodd-Frank financial reform act.

The hearing on bills aimed at "reforming" domestic insuranceregulatory policy was held by the Subcommittee on Housing andInsurance of the House Financial Services Committee.

Officials of the National Association of Mutual InsuranceCompanies and the Property Casualty Insurers Association of Americatestified in support of the bills. An official of the AmericanCouncil of Life Insurers spoke strongly in favor of enactment ofH.R. 4510, the Insurance Capital Standards Clarification Act of2014.

That bill would clarify Sec. 171 of the Dodd-Frank Act, the"Collins amendment," so that the Federal Reserve Board would beallowed to use separate capital standards for insurers and banksunder its supervision and to provide that insurers can usestatutory accounting principles in filings to the Fed. It has agood chance of passage, and companion legislation has also beenintroduced in the Senate.

The other bills face strong opposition. In fact, one member ofthe committee, Rep. Ed Royce, R-Calif., said he envisions the "newnormal for insurance regulation" being "a hybrid model with layeredregulation by states and the federal government."

Royce concluded that "regulation can take place at the federallevel, but it must be smart and specific to insurance-operatingmodels."

Two bills, H.R. 605, The Insurance Consumer Protection andSolvency Act of 2013, and H.R. 4557, the Policyholder ProtectionAct of 2014, would limit the ability of the Federal DepositInsurance Corporation to assess insurance companies to pay forfailing banks or thrifts, whether they are non-bank SIFIs ortroubled institutions that are owned or controlled by insurancecompanies.

In general, these two bills would require states to agree for aninsurance company to be assessed for the insolvency of any troubledfinancial services company.

Another bill, the Insurance Data Protection Act, proposed byRep. Steve Stivers, R-Ohio, would limit the authority of theFederal Insurance Office (FIO) and the Office of Financial Research(OFR) to subpoena data from insurance companies, requiring that theFIO:

• Obtain approval from the Secretary of the Treasury.
• Verify that such data is not available through the insurancecompany's state regulator, another federal agency, or a publicsource.
• Agree to reimburse insurance companies for the cost ofproducing the data. The bill would also require federal entitiesand state regulators to maintain the confidentiality of nonpublicdata obtained from or shared with other federal and stateregulators.

The Independent Insurance Agents and Brokers of America voicedstrong support for the Insurance Data Protection Act, as well asH.R. 4510 and H.R. 4557. As for the Data Protection Act, the IIABAsaid the FIO and the OFR "possess sweeping subpoena power that canbe abused if suitable safeguards are not put into place, and thisproposal would institute appropriate procedural protections thatmust be satisfied before these entities may demand the productionof information in this manner."

In commenting on the legislation, Thomas Karol, federal affairscounsel for NAMIC, says although every publicly traded company,including insurers, must file GAAP statements with the Securitiesand Exchange Commission, many mutual insurance companies preparefinancial statements using SAP only.

"Forcing such companies to prepare GAAP statements in additionto SAP is a labor intensive, multi-year project that will costcompanies hundreds of millions of dollars without adding anybenefit in regulating the company," Karol says.

As for the Insurance Data Protection Act, Karol says, "Datacalls and document productions are costly and time-consumingendeavors for insurers and raise issues related to theconfidentiality and security of the information," Karol said. Headds, "NAMIC recognizes the need for information at the federallevel, but believes that collection of information should belimited."

Joseph Kohmann, chief financial officer and treasurer of theWestfield Group, testified on behalf of PCI, stating, "PCI andWestfield support strong regulation," but "our growth is beingrestrained by unintended consequences stemming from an expansion ofbanking regulation in the Dodd-Frank Act that conflicts withstate-insurance regulation."

As to H.R. 605, the Insurance Consumer Protection and SolvencyAct, Kohmann said that this legislation ensures that resolution ofinsurance companies and their assets is conducted by insuranceregulators, not by a federal banking agency. "It would also preventthe FDIC, primarily responsible for bank resolutions, from usinginsurance assets to support failing banks." Kohmann says.

He adds, "Insurers are already responsible for resolving theirown failures and pay for guaranty funds in every state to protectconsumers. Don't let insurance policyholder protection funds beused to support risky investment firms and banks."

The American Insurance Association (AIA) said in a statement,"Our members have a strong interest in ensuring that implementationof the Dodd-Frank Act carries out Congressional intent and alignswith the insurance business model and the regulatory system thatflows from that model."

The association said it supports the proposal enabling theFederal Reserve to create capital rules specifically tailored tothe insurance industry. Further, AIA said it welcomes H.R.4557.

"AIA looks forward to working with Congress, our industry'sregulators, and other stakeholders to ensure that insuranceregulatory modernization and implementation of the Dodd-Frank Act,as applied to property and casualty insurers, reflects theinsurance business model and promotes market competition whileprotecting policyholders."

Daniel Schwarcz, an associate professor at the University ofMinnesota Law School and a consumer advocate for the NationalAssociation of Insurance Commissioners, voiced concern over some ofthe proposals.

He said that some of the proposed bills "unwisely interfere"with the federal government's ability to appropriately regulate andmonitor the insurance industry.

"A common theme in the provisions that I identify is that theyunduly limit the ability of federal agencies to regulate, identify,or respond to new and emerging sources of systemic risk ininsurance markets," Schwarcz said.

"Given the importance of insurers to the 2008 financial crisisand the potential for insurers to pose various new types ofsystemic risks in the future, imposing excessive restrictions onfederal agencies charged with regulating or monitoring systemicrisk in insurance is unwise," he added.

And, in a note issued in late 2011, Moody's Investors Servicesaid if a bill rolling back the Federal Insurance Office'sauthority should pass, it would limit financial transparency andthe effectiveness of regulatory supervision.

Additional reporting by Tim Sprinkle.