Industry Leaders Urge Vigilance With Federal Office

By Diana Rosenberg, Senior associate editor
A.M. Best Company, Inc.
January 14, 2011

The insurance industry must be vigilant as it awaits implementation of key parts of the Dodd-Frank financial reform act, including the establishment of the Federal Insurance Office and the Financial Stability Oversight Council, observers said.

David Sampson, president and chief executive officer of the Property Casualty Insurers Association of America, said the industry was largely successful in being "carved out" from most of the provisions of Dodd Frank, but cautioned that it must remain engaged to protect its legislative victories of last year.

"It could have been a lot worse than it ended up being," concurred Jack Salzwedel, president and chief operating officer of American Family Insurance, who spoke during the Property/Casualty Joint Industry Forum. "I think we all feel that we dodged a bit of a bullet ... That being said, with all of the new agencies that are springing up that are a part of this, I think it's critical for us to keep our eye on it and make sure that the scope creep doesn't start or doesn't happen, and when you talk about FIO, and you talk about one of their mandates being to really look at whether state regulation is pertinent and is effective, you can certainly get that camel's nose under the tent very quickly there."

The insurance industry needs to be "very diligent on systemic risk and argue the concept that we are not a systemic risk. The implications of being deemed so might not be favorable to us," said Liam McGee, chairman, president and chief executive officer of Hartford Financial Services Group Inc.

"The Dodd-Frank bill itself was manageable for the industry, but let's not forget that there are hundreds of provisions that have yet to be written, and they'll be written by the very people that are going to run these departments, and there's a high risk of mission creep," said McGee.

McGee also said the industry must ensure that the use of derivatives be viewed as a part of running a business, not as a speculative endeavor, and should advocate that derivatives are well regulated at the state level.

"Our national system of state-based regulation has worked well over the last 160 years, and I think with a director in the Federal Insurance Office that is engaged, that is working collaboratively with us, a lot can be done," said New York Insurance Commissioner James Wrynn.

Leo Grepin, senior partner at McKinsey & Co., said "if the FIO evolves into an entity that is promoting greater data transparency, creating more data for the industry, if it becomes a point agency for international issues I think there will be great benefits from the FIO."

Treasury Secretary Tim Geithner will have the authority to appoint the director of the FIO. Once the office is running, the first of its objectives is "to monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis," though it will steer clear of health, crop and long-term care insurance. But the office also has a number of other roles. They include:

-- Issuing recommendations that the Financial Stability Oversight Council (where the FIO director will serve as an adviser) designate certain insurance companies as needing regulation by the Federal Reserve Board of Governors.

-- Coordinating federal efforts and developing federal policy on prudential aspects of international insurance matters and to determine whether state laws are pre-empted by those covered agreements.

-- Compiling reports, one on the global reinsurance market and one by Jan. 21, 2012, on how to modernize and improve the system of insurance regulation in the United States (BestWire, July 26, 2010).

Kristian Moor, president and chief executive officer of Chartis Inc., also pointed to a benefit of financial-reform legislation.

"The regulation of surplus lines is actually going to lead to more efficiency and cost savings I think for the industry," Moor said. The Nonadmitted and Reinsurance Reform Act, part of the Dodd-Frank package, placed surplus lines taxation, regulatory and licensing authority under the exclusive oversight of the home state of the insured, so that multistate policies would have premiums taxed in just one state. For reinsurers, regulatory authority is to be limited to the state where the company is domiciled (BestWire, Dec. 17, 2010).

Copyright © 2011 FBIC (

Click here to return to FBIC homepage