Insurance Associations Express Concerns About Financial Reform Bill

Debate continues over the final form of Sen. Christopher Dodd's financial reform bill, but the larger picture of what it means for insurance companies is at least roughly defined. Fears — or hopes — that the financial crisis could mean radical reform of the state-based regulation of insurance have not been realized, but concerns remain about the so-called resolution mechanism to liquidate failed financial institutions, and about the powers of a proposed Office of National Insurance (ONI).

The mere delay of Congress in producing a legislative proposal for financial reform has been good for the insurance industry, suggests Jimi Grande, senior vice president, federal and political affairs, National Association of Mutual Insurance Companies (NAMIC). "The fact that the process got slowed down is good for the country, and certainly good for insurance companies and consumers," he comments. "It took time to understand and define systemic risk, it took time to understand that AIG was not an insurance company but rather a giant holding company."

More protracted analysis made clear that the P&C industry weathered the financial crisis well, relative to banks, especially as more banks failed during the time that Congress researched and deliberated over legislative proposals, Grande asserts. As a result, he adds, "the main components [of the Dodd bill] don't affect most of our industry, whether in terms of resolution, consumer protection or ONI."

NAMIC's remaining concerns about the Dodd bill reflect the P&C industry's viewpoint, and the insurance industry's position more generally, that legislators' should take an "if it aint broke, don't fix it" approach to the insurance industry.

The American Council of Life Insurers (ACLI) expressed approval of the Dodd bill's provision for ONI, a well as a proposed SEC study on the effectiveness of legal and regulatory requirements governing the standard of care application to brokers, dealers and investment advisors. However, an ACLI statement expressed reservations:

"We remain concerned with a provision of the bill that relates to the creation of a pre-funded systemic risk resolution plan. Life insurers already are subject to a state-based, post-event assessment and represent a poor fit for a new resolution fund. In addition, a recent report by Promontory Financial that was commissioned by ACLI noted that a pre-funded resolution plan would drain tens of billions of dollars out of the financial system as our nation is still experiencing a liquidity crunch. Among other things, it also could create incentives for lenders to extend credit to financially shaky enterprises under the belief that if an enterprise fails, the authority would bail it out."

The Property Casualty Insurers Association of America (PCI) expressed appreciation for Sen. Dodd's efforts, in a statement by the Association's president and CEO David A. Sampson. However, Sampson expressed concerns about what he called a duplicative federal resolution and assessment authority, as well as potentially duplicative authority within the ONI.

"Property casualty insurance is not systemically risky, and has been strong and stable throughout the financial crisis," Sampson said. "The proposed duplicative regulation for the property casualty industry would only add red tape, kill more jobs and hurt our customers."

NAMIC has expressed concerns about what it characterizes as the broad subpoena authority granted to the ONI.

"Although the legislation states specifically that the ONI would not serve in any regulatory or supervisory capacity with regards to the industry, it would still grant it the subpoena authority to compel companies to produce data," NAMIC's Grande says. "Insurance is the most regulated industry in the country, and there is no shortage of data that would be available to the ONI either publicly or through the National Association of Insurance Commissioners [NAIC]. The use of subpoena authority in this context could have unintended negative consequences by creating a duplicate and excessive process that would ultimately harm the consumer it seeks to protect."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio