WASHINGTON — New laws and tight budgets could make the coming year a challenging period for insurers – but insurers will enter the fray with well-placed allies.
Scott Sinder, a partner at Steptoe & Johnson L.L.P., Washington, who serves as outside counsel at the National Association of Insurance and Finance Advisors (NAIFA), Falls Church, Va., talked about key industry appointments while running down a list of recent insurance industry victories during a general session here at NAIFA’s annual meeting.
Sinder said the victories should help the industry limit the damage that can be done by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.
Sinder said one major victory is the move by Treasury Secretary Timothy Geithner to appoint Michael McRaith, the former Illinois insurance director, to be the director of the new Federal Insurance Office at the Treasury Department.
McRaith is a friend of the insurance industry, and he can be counted on to convey industry positions on issues that may come before the FIO, Sinder said.
Sinder said Terry Headley’s upcoming career move should be another industry victory. Headley, the outgoing NAIFA president, has been nominated to serve on a federal insurance advisory committee at the Treasury Department.
The insurance industry also won an important Dodd-Frank Act victory when Congress agreed to encourage states to use model consumer protection laws approved by the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., as a model for their own consumer protection laws, Sinder said.
Finally, Sinder said the insurance industry will benefit from Dodd-Frank Act provisions that limit the scope of activity of the new Consumer Financial Protection Bureau (CFPB) — a Dodd-Frank-created entity whose oversight extends to banks but not insurers. But he warned that the industry needs to remain vigilant in guarding against an expansion of CFPB powers.
“The challenge is to ensure that the bureau doesn’t creep into our space,” Sinder said. “The insurance industry doesn’t need another layer of regulation guiding its day-to-day activities.”
Sinder said he thinks another Dodd-Frank entity — the Financial Stability Oversight Council (FSOC) –
likely will creep into the life insurance industry’s space. The FSOC is supposed to help federal agencies monitor companies and trends that could treaten the stability of the U.S. financial system. Some life insurers “will almost certainly be deemed systemically significant” and thus subject to federal oversight, Sinder said.
“Our challenge will be to ensure that they limit their purview to the solvency of [insurers] and not drift into the sales process, which would again impose another layer of regulation on top of state regulation,” Sinder said.
Another speaker, Dani Kehoe, a Washington consultant, noted that Congress is considering a proposal to reduce “tax expenditures,” or tax revenue lost due to tax breaks.
An attack on tax expenditures could lead to restrictions on, or elimination of, provisions that let life insurers distribute death benefits free of federal income taxes and provisions that let policyholders defer paying taxes on the growth of the cash values that build up inside permanent life insurance policies.
Kehoe said federal budget cutters see tax expenditures costing the government about $4 trillion in revenue over 10 years, with about $1 trillion of the expenditures involving products sold by the life insurance industry.
“Don’t expect a tax proposal that says, ‘Let’s tax the inside build-up of life insurance,’” Kehoe said. “Instead, expect a tax proposal that says, ‘Let’s tax everything that hasn’t been taxed,’ which would affect inside buildup…. The good news is that we can and will defend the current tax rules. We as an industry have a compelling case to make in so far as how the tax rules impact sales of life insurance, annuities, pensions, long-term care insurance and employer-provided tax benefits.”