Insurance News

House Passes Finance Bill Creating Federal Insurance Office

Posted on: February 2, 2010

The House passed the wide-ranging Wall Street Reform and Consumer Protection Act of 2009, drawing an immediate and generally favorable reaction from one insurance trade group and a lukewarm response from another.

After the measure that would create a Federal Insurance Office was approved today on vote of 223 to 202, Charles M. Chamness, the National Association of Mutual Insurance Companies president and CEO, said the bill respected the state-based regulatory framework for property and casualty insurance while creating an office to serve as a national information center.

Both NAMIC and the American Insurance Association complained about a provision to make large insurers pay into a fund to cover any failure by an institution large enough to cause a systemic risk

The bill would create a Consumer Financial Protection Agency and a new Federal Insurance Office. It also provides for a new federal systemic risk regulator, and an expansion of the government?s authority to resolve troubled financial institutions.

The Federal Insurance Office would serve as an informational resource for Congressand federal policymakers on insurance issues in addition to assisting the coordination of international trade agreements.

?NAMIC is encouraged by the efforts made to narrowly tailor the purpose and authority of the Federal Insurance Office during the legislative process,? Mr. Chamness said.

In addition to establishing the FIO, H.R. 4173 would create a separate Consumer Financial Protection Agency to address consumer protection issues with financial products, but it specifically excludes property/casualty insurance from the jurisdiction of the new agency.

Mr. Chamness said, ?As insurers, NAMIC members are deeply concerned with the concept of separating consumer protection from soundness and solvency regulation.?

In Mr. Chamness? view, the Consumer Financial Protection Agency carries ?a potentially serious risk of regulatory conflict and confusion, particularly as it relates to the business of insurance. We are pleased that the members of the Financial Services Committee recognized the problems this would cause and exempted the industry from this new agency.?

H.R. 4173 would also establish a Financial Services Oversight Council with the power to designate financial companies it deems as posing a systemic risk to the overall economy for heightened regulation.To address the costs of insolvencies at these designated companies, the bill would create a fund to aid the unwinding of troubled firms that would be assessed on a pre-event basis.

?As NAMIC has said throughout the past year, there?s no metric by which a property/casualty insurer would be considered ?systemically significant,?? Mr. Chamness said, adding, ?Property/casualty insurers are required by state regulators to maintain high reserves, low leverage ratios and to participate in resolution mechanisms to mitigate against insolvencies.

?Forcing them to pay assessments for a federal resolution authority would effectivelybe asking insurance consumers to foot the bill for the failures of other financial institutions.?

Leigh Ann Pusey, president and CEO of the American Insurance Association, said in a statement that her group is ?encouraged that the legislation establishes a federal office of insurance and believe that this provision offers a substantial contribution toward broadening and deepening our nation?s understanding of the critical role of insurance in our financial system.?

However, she said, ?Other provisions in the legislation cause us concern, most notably the structure of the proposed dissolution fund. To the extent property and casualty insurers are considered in these reforms, the nature of our business and regulatory standards, our existing resolution and guaranty processes, and the general risk our industry poses to the broader financial system has to be recognized.

‘AIA opposes legislation that subjects our industry to pre-funding obligations for systemicallyimportant financial companies and assesses insurance companies to pay for the risks presented by the failure of non-insurance institutions.

?Given the importance of these reforms, AIA stands ready to work with Congress to improve the bill as the legislative process moves forward.?

Yesterday prior to the vote on the bill the National Conference of Insurance Legislators President Kentucky State Rep. Robert Damron, D-Nicholasville wrote House Speaker nancy Pelosi, D-Calif. opposing the notion of a federal insurance office saying, ‘If we enhance communication between state and federal regulators there is little need for an FIO.’ He said it would lead to a fedral insurance regulation bureacracy.

Portions of the legislation designed to modernize, coordinate and simplify regulations for reinsurance and the surplus and excess lines businesses drew expressions of support from the National Assocation of Professional Surplus Lines Offices.

The language, part of an amendment offered by Rep. Dennis Moore (D-KS) and Scott Garrett (R-NJ), establishes that the tax policies, licensing and other regulatory requirements of the home state of policyholdersgovern surplus lines transactions.

?NAPSLO and the surplus lines industry have been seeking reform regarding tax remittance and regulation of multistate surplus lines transactions for many years and are pleased to see it as part of the bill,? said NAPSLO President Marshall Kath. Previously the influential Financial Services Roundtable wrote House members telling them passage of the surplus lines language would improve insurance regulation ‘in a narrow but meaningful way.’

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