Big “I” Wins Big Victory on Insurance Regulation

The regulation of insurance: it’s an issue we have brought to Capitol Hill year after year during the Big “I” Legislative Conference & Convention. Members from across the country, as well as your national Big “I” government affairs staff, have worked tirelessly to educate members of Congress on the importance of keeping the regulation of insurance at the state level. And we have some good news to report. After three weeks of debate, the Senate finally overcame a major procedural hurdle late last month and passed S. 3217, the “Restoring America’s Financial Stability Act,” by a vote of 59 to 39, largely along partisan lines. This legislation, similar to the financial reform bill that passed the House of Representatives on Dec.11, 2009, aims to address the perceived loopholes in financial regulation that contributed to the recent economic crisis. The Big “I” has long supported improving financial services regulation to prevent systemic risk, protect consumers and promote market efficiency.

The main components of the bill focus on unwinding failing financial firms through an orderly liquidation process funded by assessments on only the largest financial institutions, reining in trading of over-the-counter derivatives, identifying systemically-risky financial institutions (including very large insurers) and creating a Consumer Financial Protection Bureau to regulate certain financial products and services (specifically excluding insurance).

In a big victory for the Big “I,” the bill left the day-to-day regulation of insurance in the hands of the states. The legislation does create an Office of National Insurance (ONI) within the Department of Treasury that would have no regulatory authority, but would serve as an insurance information resource for Congress and the administration and improve the ability of the United States to negotiate international insurance agreements. This office is largely similar to the Federal Insurance Office (FIO) which was created in the House bill; however, the Senate version provides ONI with somewhat broader authority to preempt certain state laws that conflict with international agreements.

During the Senate Banking Committee markup process, the Big “I” Capitol Hill team successfully worked to ensure that insurance agents and brokers were excluded from any mandatory data collection requests from the ONI. This language was maintained in the final version. Also of note is the inclusion of a bill long advocated for by the Big “I” to modernize the surplus lines market.

The Big “I” is grateful that the Senate financial services regulatory reform legislation leaves day-to-day regulation of the insurance market at the state level. Property-casualty insurers played no role in creating the crisis and pose no systemic risk to the overall economy. In fact, the state regulatory system, while in need of more uniformity and efficiency, has a proven track record of ensuring insurer solvency, industry competition and growth, and consumer protection, and we believe the House and Senate have both made the correct decision in recognizing the strength of the state regulatory system for insurance.

Hundreds of amendments were filed during consideration of the Senate bill, but very few were actually brought up for a vote. Some of the more controversial amendments focused on derivatives regulation, breaking up large financial institutions, and the Consumer Financial Protection Bureau’s authority to preempt state law.

Most of the amendments did not pertain to insurance, but one of the more controversial amendments which was filed by Senators Merkley (D-Ore.) and Levin (D-Mich.), would reinstate a regulation called the “Volcker Rule” and prohibit financial institutions, including insurance companies, from engaging in proprietary trading. Proprietary trading is when a financial firm uses its own capital to make speculative market bets. Amongst others, large insurers voiced opposition to this amendment, which ultimately did not come up for a vote due to a procedural rule. However, the underlying bill contains language that calls for a study and directs regulators to address proprietary trading. It is unclear whether this will language will survive in the final bill. Another amendment offered by Senators Cantwell (D-Wash.) and McCain (R-Ariz.) would have reinstated the Glass-Steagall Act, which prohibits banks and bank employees from engaging in any nonbanking activity, including insurance. This amendment was not allowed for consideration, but would have required banks to shed any insurance-related business activity.

Now that the House and Senate have passed their respective bills on financial regulatory reform, the task of coming up with one final work product remains. Chairmen Barney Frank (D-Mass.) and Christopher Dodd (D-Conn.) have stated that they will hold a conference to reconcile the two bills and hope to have a final version to the president’s desk by July 4.

Your national Big “I” federal affairs team does an outstanding job of carrying the perspective of agents and brokers to the Hill each day. We will continue to advocate on your behalf as Congress nears the fi nal stages of considering financial services regulatory reform.

—David Daniel, Chairman