Insurance Regulation: Legislation in the 115th Congress

Summary

Insurance companies constitute a major segment of the U.S. financial services industry. The industry is often separated into two parts: (1) life and health insurance companies, which also often offer annuity products, and (2) property and casualty insurance companies, which include most other lines of insurance, such as homeowners insurance, automobile insurance, and various commercial lines of insurance purchased by businesses. Different lines of insurance present very different characteristics and risks. Life insurance typically is a longer-term proposition with contracts stretching over decades and insurance risks are relatively well defined in actuarial tables. Property and casualty insurances typically are shorter-term propositions with six-month or one-year contracts and have greater exposure to catastrophic risks.

Since 1868, the individual states have been the primary regulators of insurance with the National Association of Insurance Commissioners (NAIC) acting to coordinate state actions and collect national data. In accordance with the 1945 McCarran-Ferguson Act, the states have operated as the primary insurance regulators with congressional blessing, but they have also been subject to periodic congressional scrutiny. Immediately prior to the 2007-2009 financial crisis, congressional attention on insurance regulation focused on the inefficiencies in the state regulatory system. A major catalyst was the aftermath of the Gramm-Leach-Bliley Act of 1999 (GLBA; P.L. 106-102), which overhauled the regulatory structure for banks and securities firms, but left the insurance sector largely untouched.

The financial crisis refocused the debate surrounding insurance regulatory reform. Unlike many financial crises in the past, insurers played a large role in this crisis. In particular, the failure of the insurer American International Group (AIG) spotlighted sources of systemic risk that had gone unrecognized. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203), enacted following the crisis, gave enhanced systemic risk regulatory authority to the Federal Reserve and to a newly created Financial Stability Oversight Council (FSOC). The Dodd-Frank Act also included measures affecting the states’ oversight of surplus lines insurance and reinsurance and created a new Federal Insurance Office (FIO) within the Department of the Treasury.

Legislation before the 115th Congress addressing insurance regulatory issues includes the following:

H.R. 10, Title XI, would merge and revamp the FIO and the independent insurance expert position on FSOC;

S. 1463/H.R. 3110 would alter the term of the FSOC independent insurance expert;

H.R. 3363 would add insurance claims adjusters to the National Association of Registered Agents and Brokers licensing structure created by Congress in P.L. 114-1; and

S. 1360 would respond the development of international standards by the International Association of Insurance Supervisors (IAIS).