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OPINION: Insurers pose no systemic risk


It could have been far, far worse. That sums up the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the property/ casualty insurance industry two years after the law's enactment.

With the near-collapse and federal rescue of American International Group Inc. fresh in everyone's—especially lawmakers'—minds, the property/casualty insurance sector had every reason to think that it would be in for heavy-handed regulation as Congress began considering financial reform legislation.

Fortunately, that hasn't happened—at least not yet. And there are good reasons to believe not only that it won't happen, but that the law itself has benefited insurers in some ways.

Establishment of the Federal Insurance Office and the reform of surplus lines marketplace regulation are examples of how the law improved the lot of insurers. Although we wish the FIO had been given greater regulatory authority, the office provides the U.S. insurance industry with an advocate in international regulatory matters.

The surplus lines reforms streamline the regulation of nonadmitted insurers and require that premium taxes be paid only to the home state of the policyholder. It's up to the states to decide how to allocate premium taxes. The fact that the states haven't figured that out yet is their problem, not the policyholders'.

There remains, however, one major concern—and that is whether property/casualty insurers can present a systemic risk to the economy as a whole, and whether they thus should be subject to heightened regulation. We agree with insurers that they do not present a systemic risk. After all, AIG's problems did not stem from the holding company's property/casualty operations, but rather from a financial products unit. The insolvency of even the biggest insurer wouldn't bring down the economy; instead, it would lead its erstwhile competitors to scramble for its business.

We hope the intent of the law's drafters prevails and that property/casualty insurers avoid additional costly and unnecessary regulation, particularly regulation appropriate for banks and not underwriters. That would be in keeping with the law's relatively benign effect on the industry in the two years since it took effect, and that's to be desired.