House Passes Comprehensive Financial Services Regulatory Reform Package

Today, by a vote of 223-202, the House of Representatives passed sweeping reform of the regulation of the nation’s financial services markets. The legislation, H.R. 4173, the Wall Street Reform and Consumer Protection Act of 2009, includes the creation of a Federal Insurance Office, a new federal Consumer Financial Protection Agency, the creation of a systemic risk regulator with corresponding resolution authority, and more regulations protecting investors.

NAMIC is pleased to report that the Federal Insurance Office that passed today strictly limits the office’s ability to preempt state laws, does not grant the office subpoena authority, and explicitly maintains that the office is not intended to be a regulator. Over the course of the last several months, we have worked closely with lawmakers to narrowly tailor the purpose and authority of the FIO and ensure that it would not create a duplicative regulatory regime for our members. Most importantly, this bill respects the state-based regulatory framework for property/casualty insurance.

The bill passed today also establishes a Financial Services Oversight Council which would be granted the power to designate financial companies it deemed likely to pose a systemic risk to the overall economy and subject them to heightened regulation. The bill would also create a resolution fund to aid the unwinding of troubled firms that would be assessed on a pre-event basis. NAMIC has repeatedly said throughout the past year that there is no metric by which a property/casualty insurer could be considered systemically significant and that our industry is fundamentally different from others in the financial services sector.

Because of our conservative and liquid investment portfolios, low leverage ratios, strong solvency regulation, and a highly competitive and diverse marketplace, the property/casualty insurance industry does not pose a systemic risk and should not be swept up in any new regulatory regime created to address systemic risk. Additionally, a resolution mechanism is already in place for insurers through the state guaranty fund system and forcing them to pay assessments for a federal resolution authority would effectively be asking insurance consumers to foot the bill for any large financial institution failure. We believe we have largely won the argument that the property/casualty insurance industry is not systemically significant and it appears as though the new systemic risk regulatory regime is properly focused on large complex financial institutions. However, it can still impact our industry through the assessments used to pre-fund the resolution fund that can be levied on any company with over $50 billion in assets. We will be working closely with the Senate to mitigate the impact of this new regime on our industry.

In addition to establishing the FIO and a new systemic risk regulator, H.R. 4173 would create an independent Consumer Financial Protection Agency to address consumer protection issues with financial products. By working with Reps. Gwen Moore, D-Wis., and Erik Paulsen, R-Minn., we were able to remove property/casualty insurance from the purview of the CFPA. Upon introduction, the legislation already excluded the majority of property/casualty insurance; however, it did include mortgage, title, and credit insurance. NAMIC spent weeks educating members of Congress about the state system of strong consumer protections already in place for property/casualty insurance. Because of these protections and the nature of property/casualty insurance in general, NAMIC urged that no types of insurance be included within the CFPA mandate – including mortgage, title, and credit insurance. These efforts were successful and property/casualty insurance products have completely been removed from the jurisdiction of the CFPA.

Having finished their comprehensive financial services regulatory reform legislation, the House must now wait for the Senate to pass their version. Although it at first seemed likely that the Senate Banking Committee would be marking up a bill this month, it now appears that this will have to wait until next year and will likely last into the spring. NAMIC will continue its work with the Senate and fight to protect our members and our industry from harmful legislation.