Insurance industry representatives testified in support of several amendments to the Dodd-Frank Act they said will help reduce bureaucratic inefficiencies that were inadvertently created when the law was enacted.
Members of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity are weighing changes to Dodd-Frank that would streamline the Federal Insurance Office's subpoena process, add additional confidentiality protections for data collected by those subpoenas and an insurance company exemption for subpoenas originating from the Office of Financial Research.
Michael Lanza, executive vice president and general counsel of Selective Insurance Group Inc., said the proposed amendments to the Dodd-Frank Act would help insurance companies that weren't responsible for the financial crisis from getting caught up in unnecessarily burdensome regulations.
"Home, auto, and business insurers, while important to our customers in times of need, did not cause the financial crisis and generally are not systemically important to the financial markets. The property/casualty industry is stable and healthy. Most importantly, as a whole, the industry did not need federal assistance during the recent financial crisis," said Lanza, who testified on behalf of the Property Casualty Insurance Association of America.
Lanza added the proposed changes to the law would not curtail the federal government's ability to regulate the types of activities that sparked the financial crisis. "The discussion drafts propose technical amendments that clarify Dodd-Frank’s application to insurers and reduce the potential for unintended intrusions on state regulatory authority and other unintended consequences, such as significant administrative expense and burden," Lanza said.
Lanza's comments before the congressional subcommittee Wednesday were supported by other industry trade organizations. Willem Rijksen, a spokesman for the American Insurance Association, said the amendments would underscore the idea that insurance is fundamentally different from banking and that the industry's solvency regulatory structure has proven to work quite well.
"AIA remains very concerned that regulators, in response to the crisis and through broad interpretations of DFA, could overreach and apply bank-centric standards to the insurance industry with duplicative and often conflicting regulations," Rijksen said. "AIA will continue to actively engage in the implementation process and supports the chairman's efforts to keep regulatory implementation of Dodd-Frank from undermining the industry's competitiveness."
Insurance regulators also testified before the subcommittee about their willingness to participate in the ongoing effort to implement the Dodd-Frank Act in the coming months and years.
Joseph Torti, deputy director and superintendent of insurance and banking at the Rhode Island Department of Business Regulation, testified the National Association of Insurance Commissioners has not taken an official stance on the Dodd-Frank Act, but remains committed to seeing it carried out. Torti also appeared to agree with the industry trade representatives, by saying insurance companies had inherent differences from companies in the banking or financial services sector.
The NAIC, Torti said, "strongly believes that the implementation of Dodd-Frank by the federal financial agencies or any legislative efforts to amend it should be consistent with Dodd-Frank's recognition of the uniqueness of the insurer business model and the strength of the national state-based system of insurance regulation."
The testimony provided by Torti, Lanza and others echoes arguments made by the International Association of Insurance Supervisors in a recent report.
The report said there is "little conceptual reason" to consider the insurance industry a systemic risk to global economies, unless they are engaging in significant activities that go beyond their traditional business models, according to a new report released by the International Association of Insurance Supervisors. Those companies that expand their operations into so-called noninsurance activities could pose a risk for exacerbating the economic impact of a company imploding.
The insurance business model and how insurance liabilities are funded, including claims-settlement practices, are designed to ensure large-scale meltdowns are avoided. "As it is very unlikely for insurance firms, or the whole sector for that matter, to experience rapid cash drains and outright runs, liquidity risk appears to be well contained. And even in the case of insolvency, the long-term nature of insurance liabilities and their extended run-off profiles, along with the authorities and tools available to regulators, typically provide for orderly resolutions of traditional insurance firms," the report said.