Insurance Space

The timeline on the Financial Reform Bill remains in doubt. Democrats seem to be pushing for a vote to put pressure on the GOP to make compromises. Democrats believe it will be a difficult political move during an election year for those who oppose the bill to be seen as not taking action against Wall Street abuses and forcing banks to reimburse the government for taxpayer funded bailouts. Senate Majority Leader Harry Reid (D-NV) said that he may wait until the beginning of next week to bring the financial reform legislation to the Senate floor. That will allow for more time to try and reach a compromise.

Consumer groups and state insurance commissioners are opposed to measure in the Senate’s financial regulatory bill that gives broad powers to the Treasury Department to negotiate international insurance agreements. They believe that the provisions could undermine consumer protections and would cut Congress out of these international negotiations.

Senator Christopher Dodd, Chairman of the Banking Committee, sponsored the bill that would create an industry-backed Office of National Insurance to coordinate federal policy. This is currently handled by insurance regulators in each and every state. State regulators and consumer groups don’t have a problem with a centralized federal office that would collect data and oversee insurance regulations. However, they find fault with the authority that would be given to them to enter into international agreements without approval from Congress. According to the National Journal, this authority could end up deregulating the insurance industry if an international pact were to contain looser restrictions than state laws have.

Dodd’s bill calls for an Office of National Insurance to be housed in the Treasury to advise the secretary on issues relating to domestic and international insurance policy; this would not include health and crop insurance. Under this legislation, the office would have the ability to subpoena information from insurers—a measure opposed by industry. The office would also be able to pre-empt state laws if they are said to give domestic firms and advantage over foreign ones, or if there is a discrepancy with international insurance pacts. Some state regulations including governing rates and premiums or coverage requirements would not be able to be pre-empted. The national office would be able to overrule state regulations if they result in treating foreign firms unfavorably.

Some say this provision could give foreign firms more access to the U.S. market while overriding regulations that prevent insolvent insurers from shutting down their operations and heading offshore, leaving consumers to bear the burden. The Dodd bill also gives the Treasury authority to negotiate insurance agreements, as opposed to the House bill which gives joint authority to the Treasury and the Office of the U.S. Trade Representative (USTR), though in Dodd’s bill the USTR would be consulted. Further, the House bill calls for the Treasury and the USTR to consult with both the banking and trade committees of the House and Senate and present them with the text of an insurance agreement. The panels would then have 90 days to review the agreement and make changes to it. The Senate bill has no similar provision.

Domestic insurers mostly support the Dodd bill, minus the subpoena language. Foreign insurers and reinsurers, providers of an additional backstop in order to limit losses from disasters also support a strong federal role in insurance regulations and the authority to negotiate international pacts.

In January the White House proposed a $90 million bank tax that they would now like to see included in the legislation. Senator Dodd is trying to keep the tax out of his bill. Under this tax proposal, a 0.15 percent fee would be assessed on a financial institution’s liabilities (not including deposits and certain required capital holdings). This fee would be assessed only on institutions with more than $50 billion in assets. Republicans are opposed to this fee and say it doesn’t address any of the major sources of likely losses from the Troubled Asset Relief Program (TARP) (PL 110-343). The TARP money went to help keep afloat the automotive industry. Republicans say a bank tax is not going to help grow the economy or create jobs; rather it will take money out of the economy that banks could have loaned. GOP members will not support the bank tax as a part of the financial reform bill.

Senator Jim DeMint acknowledged on CNBC’s The Kudlow Report that he, like every Republican he has talked to, would like to see a financial reform bill. He believes there are many issues that Democrats and Republicans can agree on but that the Dodd bill doesn’t address what caused the financial meltdown. He says that “It doesn’t address the lending criteria and the subprime problem” and that it “expands government control of community banks and a lot of businesses that have nothing to do with the collapse of our financial system.”

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Tags: Insurance