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.