Insurers Urging Changes In Financial Reform Legislation

The Senate is expected to spend two weeks debating the measure, which is regarded as imposing the most comprehensive changes in financial services regulation since the various bills enacted as a result of the Great Depression.

According to Blain Rethmeier, an official with the American Insurance Association, as presently drafted, insurers remain concerned that the bill continues to reflect a "very bank-centric approach to reform."

He explained that, while it recognizes that insurers should be left in the state-based resolution system and financing the state-based guaranty programs, it also includes insurers in payments for a post-event assessment mechanism.

Specifically, a provision in the Senate bill would have federal regulators functioning as a Systemic Risk Council able to levy a fee against large insurers for use in winding down any firm put into receivership after the Council determined it posed a systemic risk to the financial system.

Mr. Rethmeier said insurers will argue that they "should not be forced to pay for a resolution system that won't even be applied to the industry."

Other bank restrictions that adversely and inadvertently impact insurers include the Volcker rule prohibition on proprietary trading, Mr. Rethmeier said. "This provision needs to be modified to reflect unique nature of insurers," he said.

At the same time, the Council of Insurance Agents and Brokers issued an alert to members calling attention to provisions in the legislation dealing with surplus lines or non-admitted products and reinsurance.

Language currently in both the House and Senate bills would establish that in multi-state placements, the only rules governing access to surplus lines products (and premium tax allocations) are the rules of the state in which the transaction is placed.

In its alert to members, the CIAB noted that the provision have had their detractors "in some specific states and among a couple of state surplus lines organizations."

The CIAB was alerted that the insurance title includes a provision creating an Office of National Insurance in the Treasury Department.

The organization noted that the ONI would only be an information clearinghouse on insurance issues, and would have very limited preemptive powers over states – only able to trump any state insurance laws that interfere with international obligations.

CIAB warned that one of the big problems in insurance regulation with different regulators for every state is the lack of a "national voice" or seat at the table on the international stage.

The National Association of Professional Insurance Agents issued a statement indicating that it believes the ONI provision should be deleted from the legislation as written.

"As currently written, the bill creates an Office of National Insurance (ONI) within the Treasury Department that is overly broad in scope and that undermines state-based insurance regulation, which has proven effective in largely insulating the insurance industry from the recent financial crisis," said Leonard Brevik, PIA executive vice president and CEO.

"This is a federal government solution that – like many federal solutions – is being proposed for a problem that does not exist," he said. "This federal insurance office is too expansive, too expensive and counterproductive," he concluded.

David Sampson, chief executive officer of the Property Casualty Insures Association of America, said the proposals for an ONI and Office of Financial Research "would add layers of duplicative information and data gathering for insurance that could result in inefficiencies in the marketplace, without benefit to the consumer.

"To require, as the bill would do, three layers of duplicative data collection (state insurance commissioners, ONI and OFR) is an inefficient and costly use of resources for state regulators, the federal government, and insurance companies who should be focused on job growth. The ONI would also raise major concerns about state preemption regarding what types of information can be collected from insurance policyholders," he added.

Mr. Sampson said further that "insurers could also face duplicative and costly data collection requests from the proposed Office of National Insurance and the proposed Office of Financial Research in addition to state insurance departments," said Sampson. "This would result in insurance companies paying for three layers of duplicative information reporting that would increase costs to customers without any corresponding consumer benefit. Insurers already comply with stringent data and information reporting requirements from state regulators in all 50 states."