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How Financial Reform Package Affects Insurance, Surplus Lines

State: 
FED

The Senate has passed the Dodd-Frank financial services reform package that will have some impact on the insurance industry and add involvement by the federal government in the state-based insurance regulatory system.

The 2,300-page bill, which passed the Senate by a 60 to 39 margin yesterday, aims to address regulatory weaknesses blamed for the 2008 financial crisis. It gives regulators broad authority to rein in banks, limit risk-taking by financial firms and supervise previously unregulated trading. It also makes it easier to liquidate large, financially interconnected institutions, and it creates a new consumer protection bureau to guard against lending abuses.

The National Association of Surplus Lines Offices (NAPSLO) hailed the passage of the bill as a "big win," after several provisions were included to modernize the surplus lines industry.

Those changes would speed up and ease access to the surplus lines markets by consumers, and reduce administrative compliance issues by establishing that only the home state of the insurer can regulate multi-state transactions.

"These surplus lines reforms represent a nearly decade-long industry effort spearheaded by NAPSLO to modernize and reform surplus lines regulation. With the legislation now approved by Congress, we look to the states to implement its provisions in the way Congress intends and bring about, on a nationwide basis, the anticipated efficiencies in surplus lines regulation and tax payment mechanisms the legislation promises," NAPSLO President Marshall Kath said.

Ken A. Crerar, president of The Council of Insurance Agents & Brokers, echoed those statements, adding "passage of this bill is important not only for (agents) but also for their commercial clients… Now that multi-state surplus lines placements will be subject to regulatory oversight by a single state, a substantively streamlined process will be created for commercial consumers, regulators, insurers and brokers. This change will provide for a uniform approach to regulating the surplus lines market and once signed into law, will go a long way to addressing long-time marketplace problems."

The bill also establishes a federal office of insurance (FIO), which will increase the federal government's role in addressing insurance-related issues.

David A. Sampson, president and CEO of the Property Casualty Insurers Association of America (PCIAA), said that the final version of the bill contained a number of changes that would lessen the impact of federal oversight of the state-regulated insurance system, but also said "deep concern(s)" remained over the impact of the legislation.

"It is important to note that this is still only the midpoint for financial services reform. We have a long road ahead of us as we move into the rule development phase," Sampson said. "We look forward to working with regulators to preserve a strong and stable insurance marketplace to protect home, auto and business owners."

Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), said the completed bill "largely recognizes that property and casualty insurers do not pose systemic risk," which she called "a meaningful acknowledgment for the many policyholders that rely upon our low-risk business model to provide them security in times of uncertainty."

Pusey also said the bill "takes necessary steps to prevent insurers from being lumped into many of the new 'bank-focused' provisions. This, too, is a substantial recognition of the insurance business model."

President Obama is expected to sign the bill.