What Would the Insurance Provisions of Dodd-Frank Look Like Under the Trump Administration?

The incoming Trump Administration has already signaled its intent to repeal, or at the very least reform, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). To date, President-elect Trump has not signaled what changes he would make with respect to the insurance provisions of Dodd-Frank.  However, there is a bill in Congress that provides at least some insight as to what these changes might look like.

In September 2016, Congressman Jed Hensarling (R-TX), Chairman of the House Financial Services Committee, introduced H.R. 5983, the Financial CHOICE Act of 2016 (the FCA or Act).  First unveiled in June of 2016, the FCA does not completely repeal Dodd-Frank. However, it does make some important changes to the insurance components of the law.

First, the Act would retain the Financial Stability Oversight Council (FSOC) but would remove FSOC’s ability to designate nonbank systemically important financial institutions (SIFIs). This includes insurance companies. FSOC has only applied the designation to three insurance companies, AIG, MetLife, and Prudential, and one other nonbank financial services company, GE Capital. Currently, only AIG and GE Capital still have the designation. MetLife’s designation is still working its way through the courts. Regardless, this proposed change would impact relatively few companies in the industry.

Second, the FCA also eliminates the Federal Insurance Office (FIO) and replaces it with the Office of the Independent Insurance Advocate (IIA). This position is a hybrid between the current FIO director and the voting independent insurance expert that sits on the FSOC. The IIA would run a bureau within the Treasury Department that functions like FIO but with some significant differences including but not limited to:

  • The current FIO director is hired and reports directly to the Secretary of the Treasury. The proposed IIA is nominated by the President and confirmed by the Senate for a six-year term and performs his or her duties “under the general direction of the Secretary of the Treasury.” The Secretary also has limited ability to interfere with the activities of the IIA.
  • The IIA does not have the same responsibilities to monitor the industry but is authorized 1) to identify 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 and 2) to consult with the States (including State insurance regulators) regarding insurance matters of national importance and prudential matters of international importance.
  • Unlike the FIO director, the IIA would not have a voting seat on the International Association of Insurance Supervisors (IAIS) but is authorized to coordinate Federal efforts on prudential aspects of international insurance matters, including representing the United States in IAIS;
  • The IIA is also authorized to participate at the Financial Stability Board and the Organization for the Economic Cooperation and Development with other U.S. members; and
  • The IIA replaces the voting-independent insurance expert who currently sits on the FSOC.

The FCA also leaves two relatively major sections of Dodd-Frank untouched with respect to insurance. First, it does not repeal the Nonadmitted and Reinsurance Reform Act (NRRA). It also leaves intact the ability of the Secretary and United States Trade Representative (UNTR) to negotiate covered agreements, such as the one currently being negotiated with the European Union.

Whether the Trump Administration ultimately adopts these or other changes to Dodd-Frank is still unknown. Dodd-Frank was a major piece of legislation that is difficult to unwind in a short period of time. What is relatively clear is that any changes to Dodd-Frank, at least as they relate to the insurance industry, will not have a relatively minor impact on most industry participants. If nothing else, the FCA and other similar Republican proposals appear, at least for the moment, to implicitly recognize the intent of the McCarran-Ferguson Act by leaving most insurance regulation in the hands of the states.

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