The Senate may now be deciding the future of the U.S. financial system, and the American Insurance Association is trying to get a say in that.
"I think most people would like to see a bill get done," said AIA's President and Chief Executive Officer Leigh Ann Pusey, but getting financial reforms done right is key, she said. "I'm not anxious to have a bad bill pushed through for the sake of getting something done. I think there could be harm done to the financial system broadly and I think particularly to the insurance industry."
The financial reform debate has many components. The massive bill that passed the House included nine parts, though the Senate's elements are still moving targets. But the chief items under insurer scrutiny are the systemic risk regulations, the potential Consumer Financial Protection Agency and the national insurance office.
Pusey acknowledges regulatory gaps that need to be filled, but the AIA is concerned about big property/casualty companies getting roped in with other financial institutions into a federal regulatory system.
"If you're designing a system to look at the activities that you deem to be risky activities ... that may make sense." But using broad criteria to judge whether a company is risky -- such as all companies with more than $50 billion in assets and a banking function -- doesn't acknowledge the unique nature of insurers, she said. "'You're big; you must be bad.' That's crazy," Pusey said, pointing out that property/casualty companies are "highly regulated, highly capitalized, low leveraged."
Property/casualty insurers have pleaded their own stability for months, though they still fall under American International Group Inc.'s shadow of failure. "AIG certainly reminds them that insurance is out there," Pusey said, but "the activities that led to the downfall of that company were clearly not in the insurance business."
The House bill took insurance out of the consumer agency and aimed for an inter-agency group to police systemic risk, including among insurers. Sen. Chris Dodd, chairman of the Banking, Housing and Urban Development Committee, introduced a bill in November that was similar -- though keeping insurers within the oversight of the consumer agency -- but its provisions met with heavy resistance. Since then, committee members have negotiated. Though Dodd originally worked with ranking Republican Sen. Richard Shelby of Alabama, they couldn't agree on the consumer agency, so Dodd began talks with Sen. Bob Corker, R-Tenn.
On that agency for protecting consumers, Pusey likes the House's conclusion. "We feel really very strongly that the House approach was the right approach. Insurance really ought not to be brought in."
It was a "good process in the House side," Pusey said. And the senators on Dodd's committee have heard even more months of insurance views. "We're getting a lot of assurances that people were starting to appreciate these differences" between insurers and other financial institutions. "Many on the committee would acknowledge privately that that makes sense."
In general, though, Pusey thinks the Senate's final version will be "scaled back," because of the Senate's need for a bipartisan deal. Even if the Senate musters bipartisan support for reform legislation, it's sure to be dramatically different than the House package. So, as with the health reform bill, the two chambers would face some major work to find a middle ground.
While lawmakers work on that, they aren't working on other issues of importance to insurers. One of them is the National Flood Insurance Program, languishing -- and twice being forced into a brief hiatus -- in a long series of short-term extensions. Pusey doesn't think this session will see an answer, beyond maybe a lengthier extension. "It is unfortunate it's just become this kind of ping pong in this volley of extensions, and unfortunately, I don't see it resolved in any meaningful reform any time soon."
(Jesse A. Hamilton, Washington bureau manager: [email protected])