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The impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on property/casualty insurers remains murky five years after its enactment, and observers don't expect the 2010 law's effect on insurers to become clear anytime soon.
Dodd-Frank, enacted in the wake of the 2008 financial crisis, established the Federal Insurance Office, the highest-level agency tasked with insurance matters ever established within the federal government. But it also set up a new category of financial institutions —systemically important financial institutions, or SIFIs — that are subject to heightened federal regulation.
Only three insurers — American International Group Inc., Prudential Financial Inc. and MetLife Inc. — have been designated SIFIs by the Financial Stability Oversight Council, which Dodd-Frank also established.
MetLife is the only one of the three to challenge the designation. No oral arguments have been scheduled yet.
Meanwhile, some observers fear that other insurers could be caught up in the SIFI designation.
Insurer trade groups and experts give the law mixed reviews.
“I think it's a challenge to point to any one thing that Dodd-Frank achieved that actually improved insurance regulation,” said Howard Mills, New York-based global insurance regulatory leader at Deloitte Services L.L.P. and a former New York state superintendent of insurance. “The fact is, Dodd-Frank has created a lot of confusion — certainly for those insurers that got sucked into the SIFI/FSOC debate. It's going to create dual regulation.”
“So little has changed as a result of the new law, yet it has already had a profound impact on the way we think about insurance regulation,” said Lawrence Mirel, a former District of Columbia insurance commissioner and now Washington-based vice president of government affairs with The Goldwater Taplin Group, a government relations firm providing services to the insurance industry.
Mr. Mirel said Dodd-Frank has raised numerous questions that have yet to be answered. They include setting enhanced standards for SIFIs and how those standards will affect non-SIFIs; how insurance holding company standards set by the Federal Reserve Board will affect state-enforced prudential standards for operating entities; and how international capital standards, such as Solvency II, will affect U.S.-based cross-border insurers.
“It is amazing that after five years, none of these basic questions has been answered,” Mr. Mirel said.
Dodd-Frank has “matured to the point” where its implementation has been raising questions that have led to legislative proposals, said Laura Foggan, a partner specializing in insurance issues at Washington law firm Wiley Rein L.L.P.
Significant questions remain “about what kind of regulatory authority is going to be exercised and how it will be exercised by the federal government,” Ms. Foggan said.
Legislation to deal with how capital standards should be applied to insurers and what information should be shared with the FIO has been introduced, she said.
Dodd-Frank recognized property/casualty insurance was “already comprehensively and effectively regulated” by the states, said David Snyder, a vice president in the Washington office of the Property Casualty Insurers Association of America.
“Congress is appropriately reviewing the developments since then that all the players” — both federal agencies that have been given limited roles and the states — “are acting consistently with that basic judgment,” he said. Property/casualty insurers globally are “confronted with an unprecedented avalanche of regulatory proposals,” he said.
“It's a mixed story,” said Leigh Ann Pusey, president and CEO of the American Insurance Association in Washington.
Like Mr. Snyder, she noted that Dodd-Frank did not “really challenge” the primacy of state of insurance regulation. “It may have layered it, but it really didn't undermine the primacy of state regulation,” she said.
Still, she said, “we remain concerned about the transparency of the SIFI designation process.” Establishing an “off-ramp” to allow entities deemed SIFIs to shed that designation is “absolutely critical,” she said.
She praised the law's creation of FIO, however: “Having expertise at the federal level is absolutely critical. We continue to believe creation of FIO is a positive.”
“Unquestionably, we believe that FIO has been a good thing,”said Joel Wood, senior vice president at the Council of Insurance Agents and Brokers in Washington.
The Dodd-Frank Wall Street Reform and Consumer Protection Act has had little effect on the directors and officers liability market so far, but future rulemaking could change that.