Dodd-Frank and the Future of Federal Insurance Regulation

In the early days of President Trump presidency, it has become increasingly likely that the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) will be revisited by the Republican Congress and administration. President Trump was quoted on January 30th as referring to Dodd-Frank as a “disaster” and insisting that his administration would do a “big number” on the legislation. While many of the proposed changes will likely focus on bank regulation, there are portions of Dodd-Frank directly applicable to the insurance industry which could potentially drastically alter both the power dynamic between, and the regulatory authority of the federal government and the states.

The insurance component of Dodd-Frank most likely under direct threat is the Federal Insurance Office (the “FIO”). While Dodd-Frank does not explicitly grant the FIO regulatory authority, the FIO does have broad powers to collect data and initiate research efforts. The FIO has at times instituted data calls as well as other procedures that have been viewed by some as duplicative of efforts conducted by the NAIC as well as state regulatory bodies. Critics of the FIO traditionally advocate for a state-controlled insurance regime which has prevailed since the 1940s. Proponents, by contrast, believe that the FIO’s research efforts help aid the states in promulgating new statutes and regulations and, furthermore, that it is important to have a federal insurance body to act as a representative for the industry on the international level.

Other potential insurance targets of Dodd-Frank include scaling back the systemically important financial institution designation to explicitly exclude insurance companies, as well as revisiting the Federal Reserve’s roll in overseeing certain classes of insurance companies. Many insurance experts do not believe that insurers, by their very nature, are “systematically risky” and therefore should not be subjected to the additional burdens of such designation.

In addition, while not recently directly identified as a target of President Trump administration, the Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”) is also part of Dodd-Frank, and a repeal of NRRA would have tremendous and immediate implications nationwide. NRRA, among other things, affords surplus lines insurers the right to write coverage on a surplus lines basis nationwide as long as they meet specific requirements and taxes are paid to the home state of the insured. Any repeal of NRRA could potentially return the process to the pre-NRRA days whereby surplus lines insurers would need to become uniquely eligible in each state through satisfying trust requirements, deposits and other state-specific requirements. While less likely to become a casualty of a potential Dodd-Frank overhaul than the FIO, it is worth watching what happens to NRRA in the upcoming months.

We will continue to report on any proposed changes to Dodd-Frank as applicable to the insurance industry.