Ahead in 2016: Insurers Seek to Reduce Regulatory Burden
December 30, 2015 by Frank Klimko, Washington correspondent, BestWeek: frank.klimko@ambest.com
WASHINGTON – Celebrating significant victories in 2015, insurance companies and trade groups are looking for further success, specifically by reducing the domestic and international regulatory burdens they say are making it difficult to survive in the increasingly competitive global marketplace.
Congress recently granted significant relief to health insurers by postponing for two years the implementation of the so-called “Cadillac Tax,” and placing a one-year moratorium on the Health Insurance Tax. Lawmakers also adopted legislation to protect the assets of insurance companies during liquidation and a measure to fight cyber-attacks.
Topping the priority list for next year: amending the new fiduciary rule on investment advice, proposed by the U.S. Department of Labor, which could be implemented by the end of 2016. If executed, it could disrupt the market, end commission-based compensation and spark an exodus of agents from the industry, representatives have said.
Jack Dolan, American Council of Life Insurers vice president of media relations, told Best’s News Service the issue “falls into one of our key retirement security categories: facilitating and encouraging employer and employee access to guaranteed lifetime income products. At the same time, we will continue to support and encourage private-sector management of retirement plans for private sector employees.”
Trade organizations were disappointed that lawmakers failed to address the rule in any end-of-session bills last year. However, ACLI will advocate for bipartisan legislation in the next session of Congress, Dolan said.
Next year could also see the resolution of a long-running legal battle that could have implications for the industry. MetLife Inc. has sued the Financial Stability Oversight Council over its systemically important financial institutions designation, saying it does not pose a threat to the global economy (Best’s News Service, Dec. 11, 2015).
Although the final SIFI rules haven’t been written, it’s anticipated nonbank SIFIs will have to comply with the Federal Reserve’s capital plan mandate and develop annual capital plans, conduct yearly stress tests and maintain an adequate risk-based capital ratio.
The American Insurance Association is pushing for increased transparency, said Tom Santos, AIA vice president, federal affairs.
“Our members share the same concerns as the nonbank SIFIs,” Santos said. “For them, it remains unclear which actions get them designated and if designated, how to do you get off,” the list.
“The FSOC’s lack of transparency is a concern for a lot of companies,” Santos said. “Having a clear set of rules is important. We have pushed efforts for it to become more transparent.”
The Independent Insurance Agents & Brokers of America has an ambitious 2016 priority list,
Charles Symington, senior vice president of external and government affairs for IIABA, told Best’s News Service.
The IIABA will continue pushing for a full repeal of the “Cadillac” Tax after helping win a delay in its implementation, Symington said.
Although the National Flood Insurance Program won’t expire until 2017, the IIABA is working now to remind Congress that independent insurance agents and brokers play a vital role in the sale and servicing of NFIP policies, Symington said.
“We know that nothing happens quickly in town,” Symington said. “We support the NFIP and we need to establish a foundation for an extension of the program. Of course, any program can be improved to better serve its customers, but we want to see it extended.”
IIABA is specifically supporting legislation (H.R. 2901) that would ensure policyholders could retain their grandfathered status if they chose to move between the NFIP and the private market for coverage, Symington said.
IIABA is also working with state insurance regulators to oppose H.R. 3974, the “Nonprofit Property Protection Act.” It would expand the Liability Risk Retention Act to allow Risk Retention Groups to write a great range of commercial insurance coverage while retaining a weaker system of regulatory oversight, Symington said.
“There is a lot of concern that consumers could be hurt,” Symington said. “They are not subject to state guaranty funds. If an RRG goes insolvent there is no safety net.”
Next year, IIABA hopes to see the appointment of the board which will oversee the National Association of Registered Agents and Brokers Reform Act or NARAB II. The new law will open the door for agents and brokers who become NARAB members to do business in multiple states without having to maintain separate licenses.
“This is important and we are working with the administration to get the board appointed,” Symington said. “Hopefully, the pace will quicken.”
On the international scene, there is some concern about how globally active insurance companies will be regulated.
The regulatory landscape in the European Union changes significantly on Jan. 1 with the implementation of Solvency II. Insurance companies based in the United States will be at a disadvantage unless they are recognized by the EU as equivalent under provisions of Solvency II.
American companies are hoping to receive a brief grace period from complying with Solvency II until negotiators can complete a covered agreement. It would allow U.S. companies to operate in Europe on the same regulatory terms as insurers and reinsurers based there.
Trade groups are also closely watching how the International Association of Insurance Supervisors overhauls its rules for designating global systemically important insurers. New global capital standards are to come online in 2017 and 2019.
Industry representatives, including the Property Casualty Insurers Association of America, have complained IAIS shares the transparency problems of U.S. regulators.
“The concern is that the international insurance standards should be flexible enough to reflect different market realities,” Dave Snyder, PCI vice president of international policy, told Best’s News Service. “Will the end result reflect the legitimate differences in the markets?”
Congress has a greater role to play, Snyder said, and should remind federal regulators that a domestic capital standard should come before any global standard is finalized. The U.S. system of state insurance regulation works well, Snyder said.
“An important development next year would be congressional action to reinstate the balance between state and federal regulation and ensure the primacy of state regulation,” Snyder said.
A consequence of the increased activity by international regulators is a trickle-down effect to state regulators, said Howard Mills, Deloitte global insurance regulatory leader and former New York state insurance commissioner.
Insurance regulators are interacting on a scale never before envisioned, Mills said.
“Regulators from small states are involved in these international dialogues,” Mills said. “It is having an impact in states that may not have an international presence. What is happening is that it is raising the bar on capital, governance and risk management.”
The health insurance industry is also in a state of transition and 2016 may see a settling out of several trends that began in 2015. The mega-mergers of the nation’s largest insurers may be completed at the end of 2016, reducing the number of big players from five to three. The Justice Department is reviewing the merger proposals, but lawmakers on Capitol Hill from both parties have expressed some doubt about the wisdom of the business deals.
And, it remains to be seen if any of the Affordable Care Act Consumer Operated and Oriented Plans will survive past next year after half of the original 23 failed or were failing in 2015. Some of the failed CO-OPs and several lawmakers blamed Center for Medicare and Medicaid Services for breaking funding promises in programs that were supposed to keep the fledgling companies afloat. CMS has just proposed a new set of ACA rules for next year that insurers say are largely unworkable.
