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Banking and Finance

The Dodd-Frank Wall Street Reform and Consumer Protection Act's Effect on the Insurance Industry

This commentary reviews the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that are pertinent to the insurance industry and opines on what those provisions portend for the regulation of the insurance industry in the future.


On July 21, 2010, President Obama signed into law the "Dodd-Frank Wall Street Reform and Consumer Protection Act" (the "Dodd-Frank Act"), the most comprehensive legislative reform of the financial services industry since the Great Depression. The Dodd-Frank Act will now be sent to President Obama, who likely will sign the bill into law soon. The Act has several provisions that directly or indirectly affect the insurance industry, and may indicate the beginning of greater federal regulation of insurance after decades of nearly exclusive regulation by the states.

Establishment of the Federal Insurance Office. Title V of the Dodd-Frank Act, the "Federal Insurance Office Act of 2010," establishes the Federal Insurance Office ("FIO") within the Department of the Treasury. The FIO has the authority:

(A) to monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system;

(B) to monitor the extent to which traditionally underserved communities and consumers, minorities . . . and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance, except health insurance;

(C) to recommend to the Financial Stability Oversight Council that it designate an insurer, including the affiliates of such insurer, as an entity subject to regulation as a nonbank financial company supervised by the Board of Governors pursuant to title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act;

(D) to assist the Secretary in administering the Terrorism Insurance Program established in the Department of the Treasury . . .;

(E) to coordinate Federal efforts and develop Federal policy on prudential aspects of international insurance matters, including representing the United States, as appropriate, in the International Association of Insurance Supervisors (or a successor entity) and assisting the Secretary in negotiating covered agreements . . .;

(F) to determine, in accordance with subsection (f), whether State insurance measures are preempted by covered agreements;

(G) to consult with the States (including State insurance regulators) regarding insurance matters of national importance and prudential insurance matters of international importance; and

(H) to perform such other related duties and authorities as may be assigned to the Office by the Secretary.

The FIO also will advise the Secretary of the Treasury on major domestic and prudential international insurance policy issues, and the Director of the FIO will serve in an advisory capacity on the Financial Stability Oversight Council.

The FIO has no regulatory authority, and primarily will monitor insurance issues of national importance and give reports to the Treasury Secretary and Congress on such issues. Regulation of insurance in the first instance remains in the hands of the states. However, as discussed in more detail below, the authority to recommend that an insurer be designated as an entity subject to regulation as a nonbank financial company could have the effect of restricting the states' ability to regulate insurance companies so designated. Such insurers would be supervised by the Board of Governors of the Federal Reserve System, which would potentially entail meeting financial stability requirements different from those required under state regulations. [footnotes omitted]

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