Insurance companies are calling for Congress to ensure state-based insurance regulation remains protected from federal or international “regulatory encroachment.”
“Congress must now increase its oversight regarding the unprecedented federal and international intrusion into state insurance regulation,” Kurt Bock, CEO of Country Financial, said in written testimony last week before the Senate Banking Subcommittee on Securities, Insurance and Investment. He spoke on behalf of the Property Casualty Insurers Association and the National Association of Mutual Insurance Companies
“Clarity regarding the intended outcomes of federal and international involvement is necessary,” Bock said. “Such action should include a clear statement of policy, applicable to federal and international negotiations, that reaffirms and defends the existing state-based system of regulation for all U.S. insurers and insurance groups.”
He said that such an effort should encourage “greater collaboration and unity among our U.S. agencies that supports more transparency and accountability.”
What’s more, Bock urged Congress to make sure any new regulations in this regard are “rare” and only cover “documented gaps in protecting U.S. consumers, rather than just a forced compromise between state insurance and federal banking or global standards.”
The insurance industry is wary about federal and international regulatory momentum. One area of concern: the Federal Reserve and Department of Treasury’s involvement (through the Federal Insurance Office and the Financial Stability Oversight Council) in overseeing “too-big-to-fail” insurers as part of the Dodd-Frank financial reform law. There’s also an ongoing effort through the International Association of Insurance Supervisors (IAIS) to apply global capital requirements to large U.S. insurers who have significant international operations. Efforts in the E.U. to apply standardization through Solvency II have also drawn critical and cautious industry response.
Robert Falzon, executive vice president and CFO of Prudential Financial, who spoke on behalf of the American Insurance Association (AIA) and The American Council of Life Insurers, and whose company is designated by the FSOC as “systemically important,” said U.S. insurers are worried that international capital standards are being developed through the IAIS too quickly.
He said that process isn’t necessarily taking into account a law passed in late 2014 that clarifies the Federal U.S. Reserve Board can develop unique capital standards for insurers rather than defaulting to “inappropriate” policies typically applied to banks.
Falzon said that the IAIS timeline, which will be stretched out incrementally over several years, should accommodate U.S. implementation of this new law.
He also urged Congress to consider that the U.S regulations are equal in outcome to Solvency II, a new measure in Europe designed to give unilateral recognition to insurers and reinsurers that conduct business in the European Union but are headquartered somewhere else.
Fazon said that the U.S. federal and state regulators have been productive in their interactions with the European Commission and E.U. regulators in the Solvency II process. But he called for continued, expanded cooperation between the U.S. and E.U. regulators to make sure that both processes, particularly the international capital standard through the IAIS, ensure “markets where all competitors are held to the same high standards of solvency, market conduct and consumer protection.”
On the U.S. federal regulatory level, Fazon said that insurers support reform of the Financial Stability Oversight Council process to allow it to more broadly consider views of primary state insurance regulators and also de-designate systemically important insurers.
- State v. Federal Regulation Debate a ‘Relic,’ Says FIO Chief McRaith
FSOC’s Woodall Warns of ‘Inappropriate’ Global Influence On U.S. Policy
- G20 Urges U.S. to Centralize Insurance Regulation
- Federal Insurance Office Releases Long-Awaited Modernization Report
- Solvency II Staggers Towards Finish Line: a Retrospective Analysis
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