Selected International Insurance Issues in the 115th Congress

Summary

The growth of the international insurance market and trade in insurance products and services has created opportunities and new policy issues for U.S. insurers, Congress and the U.S. financial system. Insurance regulation is centered on the states with the federal government having a limited role. While the risks of loss and the regulation may be local, the business of insurance, as with many financial services, has an increasingly substantial international component as companies and investors look to grow and diversify. International insurance trade is covered in the World Trade Organization (WTO) agreements and in a number of U.S. free trade agreements (FTAs).

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank; P.L. 111-203) enhanced the federal role in insurance markets through several provisions, including the Financial Stability Oversight Council’s (FSOC) ability to designate insurers as systemically significant financial institutions (SIFIs); Federal Reserve oversight of SIFIs and insurers with depository affiliates; and the creation of a Federal Insurance Office (FIO) inside the Treasury Department. Alongside FIO, Dodd-Frank defined a new class of international insurance agreements called covered agreements for recognition of prudential measures which the FIO and the United States Trade Representative (USTR) may negotiate with foreign entities. Although not a regulator, FIO has the authority to monitor the insurance industry and limited power to preempt state laws in conjunction with covered agreements. Dodd-Frank requires congressional consultations and a 90-day layover period for covered agreements, but such agreements do not require congressional approval.

International Insurance Stakeholders and Concerns

The international response to the financial crisis included the creating a Financial Stability Board (FSB), largely made up of various countries’ financial regulators, and increasing the focus of the International Association of Insurance Supervisors (IAIS) on creating regulatory standards, especially relating to insurer capital levels. The Federal Reserve and the FIO have assumed roles in the IAIS whereas previously the individual states and the U.S. National Association of Insurance Commissioners (NAIC) had been the only U.S. members. The Dodd-Frank Act also created the position of independent insurance expert as a member of FSOC, though the FSOC independent insurance expert has generally not participated in international bodies with a focus on systemic risk. Any agreements reached under the FSB or IAIS would have no legal impact in the United States until adopted in regulation by federal or state regulators or enacted into federal or state statute. Congress has little direct role in international regulatory cooperation agreements such as those reached at the FSB or IAIS.

The new federal involvement in insurance issues has created frictions both among the federal entities and between the states and the federal entities, and has been a subject of congressional hearings and proposed legislation. The first covered agreement, negotiated with the European Union (EU), was submitted to Congress on January 13, 2017. The agreement was largely rejected by the states and the NAIC, with the insurance industry split in its support, or lack thereof, for the agreement. The 90-day congressional layover period has ended, but the agreement and has yet to be fully approved by the European Union.

Issues for Congress

Congressional interest in international insurance issues includes: (1) the recently negotiated covered agreement addressing the EU treatment of U.S. insurers and the U.S. state requirements for reinsurance collateral; and (2) the potential impact of international organizations and standards on the United States. Although the U.S.-EU covered agreement and potential IAIS standards are formally separate, there is some overlap. For example, the EU plays a significant role in developing international standards and would have an interest in seeing its regulatory approaches incorporated in such standards as opposed to U.S. approaches.