By Arthur D. Postal
WASHINGTON -- The primary implications of the mid-term elections for the insurance industry is the likely selection of Sen. Richard Shelby as the chairman of the Senate Banking Committee in the next Congress and the enactment of the industry’s three legislative priorities, probably by year’s end.
With Republicans in control of both houses of Congress, analysts said that besides tweaking the Consumer Financial Protection Board (CFPB), Republican-controlled financial panels are expected to seek a greater voice for the states in insurance regulation, and a lessening of the authority of the Federal Reserve to oversee insurance companies. Along with Shelby, R-Ala., in the Senate, analysts project Rep. Jeb Hensarling, R-Texas, will be chairman of the House Financial Services Committee.
They will also likely propose greater “transparency” in the SIFI designation process, making it tougher for the Federal Stability Oversight Council to designate more SIFIs.
At the recent annual meeting of the American Council of Life Insurers, Maurice Perkins, senior vice president of federal relations, said Shelby is likely to offer technical amendments to the Dodd-Frank Act (DFA) that would be beneficial to the industry through the Senate through the appropriations process. He said an effort to reduce the impact of DFA on all businesses “through provisions honeycombed through the appropriations process.” However, the substantive impact of these proposals, even if enacted, is difficult to predict.
Washington Analysis, which advises investors, such as hedge funds and institutions, gave the odds on comprehensive tax reform as less than 50 percent, even with Republicans in control of both houses.
Pete Bautz, ACLI vice president of taxes and retirement security, said that is a double-edged sword for life insurers. He cited the effort of Rep. David Camp, retiring chairman of the House Ways and Means Committee, earlier this year. Comprehensive tax reform drafted by Camp had a “disproportionate impact” on life insurers, Bautz said. “Far worse than for other industries.”
He cited the impact on life insurers both as taxpayers and as the sellers of products that provide tax benefits to consumers and companies.
Bautz said Camp was unable to get his bill out of his own committee, without mentioning that the insurance industry mobilized both carriers and agents against Camp’s proposal.
He expects a “ton of hearings” in the coming Congress on the issue, with little chance of comprehensive reform.
Targeted reform, most likely not affecting insurance, will focus instead on issues such as inversions, which are efforts by U.S. based companies to reduce their taxes by merging with companies based in low-tax foreign jurisdictions.
Going forward, seeing out over the next two years, the only significant change in current law the insurance industry is likely to see is perhaps a modest tweaking to the enormous power of the Consumer Financial Protection Bureau, which affects the industry modestly, and raising the threshold level for designation of institutions as systemically important (SIFI) from the current $50 billion to $100 billion. That will likely bring a sigh of relief to property and casualty insurers fearful of designation.
Moreover, life insurers are already acknowledging that oversight outside state regulation is already a reality facing 60 percent of industry assets. That is through federal oversight SIFIs, Internationally Active Insurance Groups (IAGs) and Federal Reserve Board oversight of thrift holding companies.
That means that major changes in the Dodd Frank Act and the Affordable Care Act, despite all the noise, is unlikely. The country is too divided for major changes to occur.
The first step is likely passage in December of the Senate version of legislation extending the Terrorism Risk Insurance Act (TRIA), as well as a provision providing the Federal Reserve Board the flexibility to create insurance-specific capital and liquidity requirements, freeing them from the Dodd-Frank constraint that they apply bank-like capital rules to SIFI insurers.
The lame duck session is scheduled to begin on Nov. 12 and will likely last through Dec. 12. The insurance industry provisions are likely to be included in the Continuing Resolution (CR) Congress must pass to keep the government until March 15. The CR will also likely include legislation creating the National Association of Registered Agents and Brokers (NARAB) and maybe a measure continuing TRIA.
“We expect TRIA to be reauthorized before Congress adjourns sine die in December,” added Nat Wienecke, senior vice president, federal government relations at the Property Casualty Insurers Association of America (PCI). “It is possible that TRIA is attached to a CR if they run out of time, though there are many that would like to see it go through regular order.”
Congress will return to work after the mid-term elections Nov. 12, but will spend that first week or two organizing themselves as political parties.
Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, said he does not expect to see a lot of negotiating after the organizing weeks and Thanksgiving. “When they return from Thanksgiving, they will only have eight to nine days (to negotiate) and I haven’t seen anything that will give me any confidence that the House and Senate will do any negotiating between a Senate bill that had 93 votes and a House bill that can’t get enough support to get on the House floor,” Grande said.
As to NARAB, it has strong support from the National Association of Insurance and Financial Advisors (NAIFA) and the Insured Retirement Institute (IRI) on the life side and the Independent Insurance Agents and Brokers of America (IIABA) and the Council of Insurance Agents and Brokers (CIAB) on the property and casualty side.
John Nichols, past NAIFA president, recently said that NARAB has had overwhelming bipartisan support from both the House and Senate. “NARAB is a win for insurance agents and brokers, but more importantly, it’s a win for consumers,” Nichols said.
Cathy Weatherford, IRI President and CEO, said the legislation is “commonsense,” and promises to streamline the insurance licensing process for professionals operating in multiple states and will help ensure that clients have access to a full suite of retirement income strategies without forcing their advisors to overcome the burden of redundant insurance licensing requirements.”
The Senate bill contains a provision demanded by Sen. Tom Coburn, R-Okla., that will require another vote to sustain NARAB within two years of the time it is up and running that the industry would like to see removed from the final version.
The Senate TRIA bill raises the insurer co-pay from the current 15 percent to 20 percent and the mandatory recoupment from $27.5 billion to $37.5 billion over five years. But, it retains the current $100 million trigger for federal involvement in a terrorism event.
The House bill H.R. 4871, the TRIA Reform Act of 2014. That bill calls for gradually increasing the program trigger for all non-nuclear, biological, radiological, and/or chemical (NBCR) events, from $100 million to $500 million by 2019. Industry officials said that amount effectively phases out the program for non-NBCR events.
It passed the House Financial Services Committee in July on a party-line 32-27 vote, but a head count in September by the House Republican leadership failed to produce enough Republican support to get the bill through the House without Democratic support.
And, Democrats signaled they would not support the bill forced through the House committee with no Democratic support.
Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, wants to rein in federal risk regarding TRIA, and has also made clear he would like to challenge Rep. John Boehner, R-Ohio, as speaker in a House that will likely contain more Republicans since the 1948 election.
However, moderate, more business-oriented members of the House, have fired shots at Hensarling’s bow.
Since Congress left in early October to campaign, Oklahoma Rep. Frank Lucas said he is considering a challenge to Hensarling. He told Politico that he’d been approached by several members “about their concerns on the direction of the Financial Services Committee and the indication that they would like to have a different way of going about things compared to the last two years.”
Arthur D. Postal has covered regulatory and legislative issues for more than 30 years in Washington, D.C. He can be reached at email@example.com.