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Life Health > Life Insurance

Financial Bill Now In Implementation Phase

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With legislation that would make the most sweeping changes to financial services regulation since the Great Depression now law, the life insurance industry is taking a keen interest in the next step–the crafting of the rules that will implement it.

The legislation is H. 4173, now known as the Dodd-Frank Financial Services Reform Act.

Key provisions include one that industry lawyers say is likely to increase the standard of care that insurance agents and brokers must exercise in sale of investment products.

And, as noted by Eric Arnold, a partner at Sutherland, Asbill & Brennan in Washington, D.C., there is also the potential that this might impose a “ripple effect” down the road on state regulators to tighten standards on sale of fixed products.

The bill creates a Federal Insurance Office and a system to wind down troubled large institutions and impacts industry investment activities through the so-called “Volcker rule,” and hedging activities by forcing the sale of most derivatives onto exchanges.

But the industry won a key amendment that exempts the sale of fixed-indexed annuities from oversight by the Securities and Exchange Commission through Rule 151A. The latter provision became even more important when a panel of the U.S. Court of Appeals for the D.C. Circuit last week vacated 151A. (For more on this, see this issue’s cover story, “The Minutemen.”)

SEC chairman Mary Schapiro reacted to the two events by saying at a congressional oversight hearing last week that while she still has concerns about the way equity-indexed annuities are marketed, the SEC will not be revisiting the issue since the Dodd-Frank reform bill gives the states purview over the products.

As noted by officials at MetLife, the industry was pleased to see that certain considerations were given to what impact the legislation could have on insurers, including such issues as the Volcker rule, derivatives and a Federal Insurance Office.

However, said MetLife spokesman John Calagna, the bill calls for several studies to be completed and regulations to be written, leaving uncertainty as to what impact final rules could have on the industry or policyholders. “We remain committed to staying actively involved in discussions with regulators to help avoid any unintended, adverse impact on the life insurance industry and the many policyholders it protects,” Calagna said.

A critical role in winning carve-outs for insurers from the so-called “Volcker rule” and provisions governing derivatives was played by officials of Massachusetts Mutual.

Mass Mutual was able to play an important role because two key players are from Massachusetts. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, was the primary negotiator for the House on the conference committee that shaped the final bill. And Sen. Scott Brown, R-Mass., was a key to Democrats needing a 60th vote on the Senate floor to clear a major parliamentary roadblock to passage in the wake of united Republican opposition to the legislation.

Ken Cohen, senior vice president and deputy general counsel at MassMutual, said the insurer supports the bill. “We praise the efforts of key members of Congress who worked hard to help ensure this bill struck the right balance of protecting consumers, fostering efficient and competitive markets, and enabling companies like us to best serve our customers,” Cohen said.

Peter Ludgin, executive director of Agents for Change, cautioned that the group will continue its efforts to modernize the state-based insurance regulatory system and create an optional federal charter. That “effort will not slow down due to the recent enactment of the bill,” Ludgin added. “The new law will aid our efforts to shine a light on the shortcomings of the current system and the hoops producers have to jump through to serve their customers.”

In her comments at the oversight hearing, Ms. Schapiro said the SEC plans to publish a request for comment very soon dealing with a study it must conduct within six months on the fiduciary standard issue. The provision in the law dealing with the issue then gives the agency the clear power to draft a new standard-of-care rule based on the findings of the report.

Arnold, who advises insurance clients on securities issues, sees some increase in standard of care owed by broker-dealers and registered representatives in selling variable annuities and variable life products to their clients.

“I think that means two things,” Arnold said. “If you are selling a variable product, this new policy is going to apply to you. That will be the direct impact.” Secondarily, he says, is it might pressure state regulators to raise their own state statutes for standards of care as well.

“To what extent that will have a ripple effect, with state regulators imposing tighter standards of sale of fixed insurance products, is a longer-term, bigger picture issue, but it is out there,” he said.


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