P&C Industry Wary Of Senate Reform Bill, But Hail Inclusion Of Surplus Lines Rules

Washington

Property and casualty insurance groups raised a number of objections to sweeping financial services regulatory reform legislation unveiled in the U.S. Senate last week, but are lauding the decision of Senate Democrats to include provisions modernizing oversight of surplus lines and reinsurance.

The "Restoring American Financial Stability Act" was rolled out by Sen. Chris Dodd, D-Conn., chair of the Senate Banking Committee, and several other committee Democrats. The bill would incorporate the Nonadmitted and Reinsurance Reform Act of 2009.

That means the bill would put surplus lines transactions under a single set of regulations–those of an insured's home state or principal place of business–regardless of the risk's location. It would also assign primary responsibility for regulation of a reinsurance transaction to the insured's home state and forbid application of other state laws.

Officials of the National Association of Professional Surplus Lines Offices "applauded" the decision of Senate Democrats to include legislation modernizing and reforming oversight of their industry.

"The Senate Banking Committee's action is a giant step toward realizing the goal of a more efficient process for transacting surplus lines business for both consumers and insurance professionals," said NAPSLO President Marshall Kath.

NAPSLO Executive Director Richard Bouhan added that "NAPSLO has been in the forefront of the effort to streamline the surplus lines marketplace for a number of years, and we are beginning to see the 'light at the end of the tunnel' from this effort with today's Banking Committee action."

Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, said his organization is gratified that Sen. Dodd put the surplus lines provisions in the draft.

He said placement of surplus lines products on a multistate basis is "a process fraught with conflicts and unnecessary duplication. Over the last five years, we've worked hard to help build a consensus among all of the major stakeholders that this legislation needs to be approved."

He said that key stakeholders–including the National Association of Insurance Commissioners and the Risk and Insurance Management Society–have been "extremely constructive in getting us to the point where the surplus lines provisions can be seriously considered by members on both sides of the aisle in the Senate Banking Committee."

OTHER PROVISIONS

The bill would also launch a broader examination of "how to modernize and improve the system of insurance regulation in the United States" that would be conducted by the National Insurance Office, which would make recommendations to Congress.

In conducting the study, the Treasury Department would be required to "consult with the National Association of Insurance Commissioners, consumer organizations, representatives of the insurance industry and policyholders, and other organizations and experts, as appropriate."

Other aspects of the bill are raising major concerns within the industry, specifically regarding language requiring large insurers to contribute to the resolution of large insolvent financial institutions, whether they are insurers or other institutions.

A similar provision is contained in legislation that the House Financial Services Committee will be working on this week.

The bill also includes language similar to the House plan, explicitly stating that a proposed National Insurance Office would not be a regulator and would be without authority to preempt any state laws or actions by other federal agencies dealing with insurance.

The provision creating a National Insurance Office is similar to the draft language submitted to Congress by the Treasury Department, but adds subpoena and enforcement provisions removed from the House bill.

The American Insurance Association said its officials have "identified a number of concerns that if not addressed in the coming weeks would cause our organization to oppose the bill." AIA's president and chief executive officer, Leigh Ann Pusey, voiced particular worries about provisions establishing a new systemic risk regulator.

Ms. Pusey said the discussion draft "does not recognize the financial regulatory framework applicable to insurance companies and the treatment of their holding companies. This differs fundamentally from the bank-centric approach to heightened prudential supervision, which the Dodd discussion draft embraces."

David A. Sampson, president and CEO of the Property Casualty Insurers Association of America, said that "as the bill moves forward, we would reiterate that home, auto and business insurers are not systemically risky and did not contribute to the existing crisis."

He added that "we believe financial services regulatory reform legislation should be carefully and precisely targeted to industries that do present a clear systemic risk, and we look forward to working with the chairman, his colleagues and his staff toward that end."

The AIA is also concerned that a section of the bill creating a new Consumer Financial Protection Agency specifically includes credit, title and mortgage insurance, and that another section creating a National Insurance Office does not provide that agency with "adequate ability to be an authoritative national voice in international discussions, or to effectively engage in negotiations on important prudential insurance matters, such as Solvency II, that will determine the future global competitiveness of the U.S. insurance industry."

But Charles Symington, senior vice president of government affairs for the Independent Insurance Agents and Brokers of America, said his members want the NIO office authority narrowed to remove its subpoena and enforcement provisions.

"We are currently analyzing the legislation and its impact on our members. At first blush, we do see some areas where it can be improved, particularly the Office of National Insurance provisions," Mr. Symington said.

"We look forward to working with the chairman and other members of the Senate Banking Committee to make the bill acceptable to our 300,000 agents and their employees," he added.

Besides insurance provisions, the Dodd bill would call for far more sweeping changes in financial services regulation than proposed by either the Obama administration or House Democrats.

Specifically, it would create a new super-regulator, to be called the Financial Institutions Regulatory Administration. This would consolidate the bank supervisory powers of four current regulators and abolish the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The Federal Deposit Insurance Corp. and the Federal Reserve would lose their roles as direct bank supervisors.

Sen. Dodd's bill also calls for creating a financial stability agency. Previous proposals have focused on establishing a council of existing regulators to police systemic risks. It would also create a Consumer Financial Protection Agency.

An insurance industry lobbyist with knowledge of the senator's timetable said a discussion draft would be updated this week based on comments on the draft, and that Sen. Dodd hopes to start the drafting markup process for the bill this week as well.