Senate Banking Committee Chairman Chris Dodd (D-CT) introduced a discussion draft of the committee’s Restoring American Financial Stability Act of 2009 that reforms regulation of the financial industry. The proposed bill joins one already introduced in the House by Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee.
“It is the job of this Congress to restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them,” Dodd said at a press conference. “We must create a sound foundation to grow the economy and create jobs.”
Among the provisions of the bill is a new independent watchdog body, the Consumer Financial Protection Agency, protecting consumers from fraud and abuse regarding financial and some insurance products. The bill also creates the Agency for Financial Stability, an independent agency responsible for identifying, monitoring and addressing systemic risks by large, complex companies as well as products and activities that can spread risks across firms, according to the bill.
The bill also includes provisions of the Nonadmitted and Reinsurance Reform Act, addressing surplus lines, and establishing uniformity in allocating and remitting surplus lines premium taxes.
Similar to previous proposals, the Senate bill also calls for the creation of an Office of National Insurance within the U.S. Treasury Department assigned to monitor the industry, coordinate international insurance issues and require a study on ways to modernize insurance regulation for Congress to consider.
Industry reaction
Following the introduction of the bill, the American Insurance Association said upon initial review, it found “a number of concerns that if not addressed in the coming weeks would cause our organization to oppose the bill.”
Leigh Ann Pusey, president of the organization, said in a statement the bill’s establishment of a new systemic risk regulator “does not recognize the financial regulatory framework applicable to insurance companies and the treatment of their holding companies.
“This differs fundamentally from the bank-centric approach to heightened prudential supervision, which the Dodd discussion draft embraces,” she said in a statement.
Pusey noted that the AIA was “disappointed” with the new Consumer Financial Protection Agency addressing credit, title and mortgage insurance when the group feels all lines of insurance should be excluded.
Regarding the proposed Office of National Insurance, AIA saw the benefit of bringing expertise on the industry and its public policy issues to the federal level, but felt there was a void in the discussion draft for the office “to be an authoritative national voice in international discussions” or engage in important insurance matters, like Solvency II.
“As the European Union continues to move forward with harmonizing regulatory requirements, the U.S. insurance regulatory system would likely not be considered ‘equivalent’ unless the Dodd draft is strengthened,” Pusey noted.
Meanwhile, the National Association of Mutual Insurance Companies (NAMIC) said it too had concerns, but also “understands that the economic crisis of the past year was the result of complex problems that will require complex solutions.
“However, virtually every examination of what happened last year has found that property-casualty insurance played no significant role in the crisis and that property-casualty insurers inherently pose no systemic risk to the economy,” Jimi Grande, senior vice president of federal and political affairs for NAMIC.
Grande reiterated NAMIC’s support to a reformed state-based regulatory system which is already protecting consumers during the economic downturn and voiced concern over powers granted to the ONI in the bill that “could have unintended negative consequences for consumers.”
NAMIC applauded the inclusion of legislation clarifying regulation of surplus lines for multi-state risks, establishing the home state of risk as the primary regulator governing a multi-state risk, providing regulatory clarity and simpler taxation.
“If enacted, this provision would provide much needed clarity to the surplus lines market that would benefit insurers, their policyholders and the economy,” Grande said.