Insurance Information Institute (I.I.I.) President Robert Hartwig testified before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity on Tuesday to make the case that the insurance industry should not suffer the same regulatory wrath of the Dodd-Frank Act (DFA) as the banking industry.
While congress made clear in the regulation that the insurance industry is distinct from banking and should not be held subject to all the same provisions, Hartwig took the stand to express further concern over the DFA.
Although DFA provides insurers with an exemption from the Volcker Rule, there is concern that financial institutions whose primary business is insurance but who have an affiliation with a bank could be adversely impacted by the Rule, said Hartwig, before adding that the Financial Stability Oversight Council (FSOC) has yet to clearly define how these types of associations with banks would affect insurers.
In listing other concerns regarding the insurance industry and the regulation, Hartwig mentioned mission creep by the Consumer Finance Protection Bureau (CFPB); the subpoena authority granted to the Federal Insurance Office; powers held by the Federal Reserve over insurers once they are designated a systemically important financial institution (SIFI); and expanded requirements for GAAP accounting.
In defending the industry, Hartwig not only pointed to the industry's dynamic and essential contributions to the nations economy and infrastructure, but he repeatedly pointed to the industry's strong performance throughout last decade, which contained the two most expensive events in global history the attacks on 9/11 and Hurricane Katrina as well as the Great Recession.
It is important to recognize that in the decade leading up to the passage of the Dodd-Frank Act (DFA) in 2010, the property/casualty insurance industry experienced its largest claim events in history and weathered the worst recession since the Great Depression, Hartwig said. The industry operated throughout this period without interruption and without undue concerns over insolvencies.
Indeed, not a single traditional property/casualty insurer or reinsurer failed as a result of the financial crisis nor did a single legitimate claim go unpaid. In contrast, during the financial crisis and its aftermath, more than 400 banks failed.
After outlining the industry's current, historically high levels of capital assets, Hartwig ended his testimony by lamenting, a number of provisions of Dodd-Frank, when fully implemented or because of potential misinterpretations of the Acts intent, could reduce the ability of insurers to accumulate capital or mitigate risk and there negatively impact the economy overall. These issues remain of concern to many insurers today.