Some companies would be required to pay into a federal fund from which the potential expenses of future company failures would be paid for, according to the bill.
"Penalizing insurers for the mistakes of riskier financial firms is not the appropriate public policy response," Leigh Ann Pusey, president and chief executive officer of the American Insurance Association, said in a statement. "The property/casualty industry didn't cause the financial crisis and hasn't benefited from the bailout."
Large companies would also have to submit "funeral plans," detailing how they could be broken up and liquidated quickly in the event of failure.
The "Restoring American Financial Stability Act of 2010," will now be debated in the Senate's Banking, Housing and Urban Affairs Committee that Dodd chairs. The bill establishes a Financial Stability Oversight Council for the regulation of systemic risk, a consumer protection agency and a national insurance office.
The companies to be supervised under the systemic-risk regulations could include some larger insurers because qualifying companies are "any bank holding company with total consolidated assets equal to or greater than $50 billion," according to the legislation.
Pusey pointed out that even in the case of American International Group Inc., where problems from risky financial activities outside its regulated property/casualty subsidiaries led to its troubles, "we believe our industry could have withstood the collapse of its property/casualty insurance operations."
Dodd's proposal would also start a Bureau of Consumer Financial Protection with a president-appointed director, but unlike in the Obama administration's proposal for this agency, insurance seems to have been excluded. The proposed bill listed the agency's limitations of authority regarding insurance: "The bureau shall have no authority to exercise any power to enforce this title with respect to a person regulated by a state insurance regulator"; and "the bureau may not define as a financial product or service, by regulation or otherwise, engaging in the business of insurance."
The version that passed in the House's financial reform bill also excluded insurance, after committee debate resulted in its removal.
Also, Dodd's bill would establish the Office of National Insurance under the U.S. Department of the Treasury. It would be led by a director appointed by the secretary of the Treasury. The bill's language is similar to what's been seen before, with the office monitoring all U.S. insurance except health insurance, and being able to demand delivery of data from insurers. "The office may require an insurer, or any affiliate of an insurer, to submit such data or information that the office may reasonably require," the bill says, though it exempts smaller insurers. The director would have subpoena power for information gathering.
As expected, Dodd's pitch does include many of the points hashed out between the parties in the long negotiation, though its release went against the wishes of Republicans who were working with Democrats to write a bipartisan version. Dodd had been working most directly with a Republican from his committee, Sen. Bob Corker of Tennessee. Corker had said he was disappointed that Dodd was announcing his proposal before the two had ironed out all their differences.
The bill will now face debate and markup in Dodd's committee before receiving a vote that could send it to the Senate floor.
Dodd's proposal also includes a provision welcomed by the National Association of Professional Surplus Lines Offices. Dodd's bill would include language from the Nonadmitted and Reinsurance Reform Act that would reform tax remittance and regulation of multi-state surplus lines transactions. "The NRRA provisions will enable the surplus lines industry to operate more efficiently and effectively," said NAPSLO President Marshall Kath in a statement. This legislation would give the surplus lines industry a single set of consistent rules for transactions. The NRRA had already passed the House as a stand-alone bill in 2009 but hadn't seen Senate action.