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Senate Passes Financial Reform Bill, State Insurance Regulation Preserved

On May 20, the United States Senate passed a sweeping overhaul of the financial-services industry. The key elements of the Wall Street Reform and Consumer...
May 26, 2010

On May 20, the United States Senate passed a sweeping overhaul of the financial-services industry. The key elements of the Wall Street Reform and Consumer Protection ACT (H.R. 4173) include provisions giving the Federal Reserve Board the authority to regulate insurers under certain extraordinary circumstances and the establishment of an Office of National Insurance (ONI) with power to preempt state law in negotiating bilateral trade pacts regarding insurance with foreign countries.

Both the Senate and previously-passed House version of the financial reform bill retain state regulation of insurance. In addition, insurance activities are exempt from oversight by the new Consumer Financial Protection Agency.

"The most important aspect of H.R. 4173 is that it affirms that the states will continue to regulate the business of insurance," said PIA National Executive Vice President & CEO Leonard C. Brevik. "While not perfect, this bill recognizes that the insurance industry did not cause the financial crisis and it appropriately directs reforms to the sectors of our economy that did cause the crisis."

Regarding the ONI, an amendment backed by PIA and introduced by Sen. Jeff Merkley (D-Ore.) was not brought up for a vote in the Senate; as a result it was not included in the final bill that passed. However, PIA has learned that contrary to initial reports, the ONI provision will be among those addressed in a conference to reconcile House and Senate versions. In addition to placing more restrictions on preemptions, the Merkley amendment switched the assignment of a study on insurance from the new ONI to the non-partisan Government Accountability Office (GAO). PIA suggested this language, because having the ONI study itself and make recommendations to Congress would produce a biased result in favor of federal regulation.

"We remain concerned with the scope of the ONI and are also hopeful that in conference, the GAO will be substituted for the ONI as the entity conducting the study of insurance regulation," Brevik said. That conference could begin as early as this week.

What It Means to Agents: The financial reform bill preserves state regulation of insurance.