Paving the way for votes before both houses of Congress next week, House and Senate conferees agreed on a final version of a bill that will significantly alter financial services regulation.
Birthed in the wake of the financial crisis, the legislation is primarily aimed at reigning in systemically risky behavior by banks, but has profound implications for insurance companies. With the bill’s passage and presidential imprimatur widely expected, insurers will soon face a federal insurance regulator for the first time.
Indeed, the ultimate composition and purview of that regulator was one of the issues conferees tussled with this week. While both bills called for a federal insurance office housed within the treasury, one source of contention was over how much authority to grant the office. The House version of the bill limits the ability of the federal regulator to preempt state insurance. The Senate version gives the federal regulator a stronger hand to override state regulations that run contrary to international agreements. The committee ultimately agreed to use the house language, which requires “Congressional consultation and lay over before international insurance agreements can be used to preempt inconsistent state insurance measures.”
The House language also changes the name of the office from "National Insurance Office" to "Federal Insurance Office". Despite the changes, proponents of the Senate language, such as the American Insurance Association (AIA), are still lauding the bill.
“AIA is encouraged that the legislation establishes a federal office of insurance and believes 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,” AIA president and CEO Leigh Ann Pusey said in a statement.
One aspect of the bill still uncertain is whether large insurers will be required to pay into a bailout fund for systemically risky firms. Pusey said the AIA remains opposed to any legislation that subjects insurers to pre-funding obligations. “While many of the final details will not be available until the weekend, to the extent property and casualty insurers have been considered in these reforms, in most instances the legislation appropriately recognizes that our industry does not pose systemic risk,” she said. “The existing state-based resolution mechanism remains in place and policyholders remain protected by the state guaranty fund system.”
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