The Waiting Game

The latest interest in regulatory change was contained in the Dodd-Frank financial services modernization law, which mandated that a study of how the system should be modernized and made uniform should be written by the FIO and Treasury. Under the DFA, the study was  due Jan. 21.

But industry officials say the report must be approved by the Office of Management and Budget, and speculated that its release could up to three weeks away.

These sources expect that the report will acknowledge that the federal government will have to play a stronger role in international regulation, which even advocates of continued state regulation support.

They cite recent protectionist policies in certain countries, as well as demand for much higher capital standards for financial companies with global businesses.

According to several industry officials, they also expect the report to outline proposed ways of dealing with important consumer issues, including the affordability and availability of both life insurance and property and casualty insurance products.

By using the SMART Act as a starting point for modernization, the administration would be able to say that it didn’t shy away from acting in taxpayer’s interest in proposing changes in insurance regulation in the wake of the American International Group debacle, industry officials said.

But, at the same time, the administration could deflect criticism by noting that the proposal has bipartisan roots.

The administration could also point to comment letters by groups who assert federal insurance regulation constitutes a government takeover, such as insurance agents.

In its comment letter to the FIO on insurance modernization, officials of the Independent Insurance Agents and Brokers of America said that, “Obtaining and maintaining the necessary licenses is often a costly, burdensome and time-consuming endeavor, and the need to focus on these administrative matters hinders the ability of insurance agents and brokers to effectively address the needs of consumers.”

In its letter, the IIABA said it did not support federal insurance regulation, but said it did support targeted legislation “that would create true agent-licensing reciprocity across the country.”

Both property and casualty and life insurance agents support such legislation, a key component of the SMART Act proposed in 2004.

Calls for the FIO and its parent Treasury Department to play a strong role in international insurance issues would also have strong political support within the industry.

For example, in comment letters to the FIO, the Property Casualty Insurers Association of America and one of its members, Liberty Mutual, note that only the federal government has the power to prevent imposition of “bank-centric” international-financial regulation by Europeans.

The PCI and Liberty Mutual letters appear to acknowledge that only the federal government has the power to slow or moderate the demands of European regulators for high capital and rigid accounting rules for financial firms doing business in the international marketplace.

For example, the PCI letter says, “In particular, FIO’s leadership is necessary in ongoing international discussions where theU.S .marketplace faces both opportunities and threat of bank-centric Eurocratic regulation that could impose harmful standards or at best significant transition costs as we head towards global convergence.”