On January 13, the United States and the European Union came to terms regarding the Insurance Regulation Pact. This pact effectively increases the market for both U.S.-based and EU-based insurance and reinsurance companies while eliminating the complications of collateral or local presence requirements when dealing within the international market. It also maintains the United States’ state-based insurance industry model and protects it by a measure within the pact that assures primacy dependent upon the company’s home policy. That is to say, US-based companies, even if operating within the EU, will still follow United States (and more specifically, the individual state’s) policies. Whereas insurers and reinsurers will adhere to EU policies even if operating within the United States.
With the opportunity for insurance and reinsurance companies to operate on an international stage, it also extends the opportunity to supervisory authorities to an exchange of information regarding those insurance and reinsurance companies. This allows respective supervisory authorities to protect the interests of the policyholders within their sovereign borders by requesting at will any and all information “which could harm policyholders’ interests or financial stability in their territory.”
Many companies, both American and European, appeared wholly supportive of the covered agreement, noting the relative simplicity of the regulatory process for those who operate in both the United States and European Union jurisdictions. The International Underwriting Association, a major representative of London-based reinsurance companies (many of whom are reinsurers of United States risks) affirmed their belief that the bilateral agreement would be a universal benefit and promote “global access to reinsurance services.”
While there are many who believe that this pact with the European Union will benefit insurance companies by expanding opportunities for becoming competitive on the international stage, there are those in the United States who believe this agreement could be a hindrance to businesses within US primacy. Representatives of the National Association of Insurance Commissioners based in the United States are skeptical after holding a minimal part in the finalization of the covered agreement between the United States and the European Union. Ted Nickel, the president of NAIC, also commented about the fear that such an agreement would inadvertently provided “…a backdoor to force foreign regulations on US companies.” Representatives of the National Association of Mutual Insurance Companies appeared to find the covered agreement convoluted with much that still required clarification lest they be forced to convene with European authorities regarding insurance regulation at a later date. Still, they instilled good faith in working with the Trump administration in determining the efficacy of this agreement on behalf of United States-based companies and citizens. Tom Considine, CEO and representative for the National Conference of Insurance Legislators, also criticized the covered agreement and suspected that it would infringe upon operating capabilities of state regulatory systems. Considine commented further, suspecting that the policy statement would attempt to reconcile the agreement with state-based regulation, but he believed more firmly that the agreement was “great for Wall Street and horrible for Main Street.”
The United States was subjected to a financial crisis in 2007 through to 2010 under the Obama administration. As a result, the government was required to bail out financial institutions to the amount of several trillion dollars throughout the nation. It was regarded as the worst financial crisis the country had endured since the Great Depression nearly 80 years prior. Amid this crisis, President Obama proposed a bill that would dramatically alter the regulatory systems of the financial industry. It would later come to be known formally as the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The main purpose of this legislation was simply to protect American taxpayers in the event of another financial crisis, that they would not suffer the brunt of the repercussions if Federal banks required another bailout such as that required in the preceding financial crisis. It consolidated and employed new agencies to oversee specific institutions that were seen as a “systemic risk.” It increased transparency and put in safeguards and warning systems regarding the stability of the economy. It also closed legislative loopholes that were said to be at fault for the financial crisis of 2007.
However, there are those in the Trump administration, including President Trump himself, who are strongly opposed to this legislation. The administration claims that it impacts banks negatively by discouraging loan approvals, and thus it impacts the consumer at the base level negatively as well. Those who might seek personal loans for expenses or to start businesses and create jobs, those who have established businesses that may wish to expand and create more jobs, are impacted negatively as a result of the Dodd-Frank Act.
While many are focused on the protections afforded the United States citizens and whether or not they conflict with the forward interests of American financial institutions, there are some who wonder at the implications of the insurance sector rather than strictly the financial sector. Would the Dodd-Frank Act alter the methods of operation for a state-based insurance industry? Would President Trump consider these implications in his effort to repeal or modify the Act? Many believe the President agrees with and supports entirely the notion of the state-based industry considering he has not yet spoken out against it.
The Financial CHOICE Act would effectively negate many of the items put forth in the Dodd-Frank Act. Its goal would be to give more freedom to the financial institutions by simplifying the processes of regulation and encouraging competition while maintaining consumer protections and restricting government bailouts to the financial institutions. Though, some believe that there is still not enough reform to the insurance industry. Or at least, not enough assurance for the current maintenance of the state-based insurance industry. The only significant change proposed in the Financial CHOICE Act bill was the merger of two positions within the hierarchy. There is also speculation of insurance companies which maintain the classification of SIFI (Systemically Important Financial Institutions) – and are therefore affected by articles in the Dodd-Frank Act – to have this label rescinded based on a court case brought forth by MetLife.
While the Trump administration has focused more intently on health care reform in the past months, there is still a focus on dismantling Dodd-Frank, and only time will tell if the the Financial CHOICE Act that hopes to repeal and replace it will include significant insurance reform as well.