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Insurance groups hope Republican-controlled Congress will amend Dodd-Frank

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Insurance groups hope Republican-controlled Congress will amend Dodd-Frank

With Republican control of the next Congress, the insurance industry gains confidence that at least both chambers will consider pivotal changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In fact, the Financial Stability Oversight Council seems almost certain to undergo enhanced scrutiny, insurance industry experts say.

But first the current Congress, convening in lame-duck session this week, must move on several issues of interest to the industry, most notably reauthorization of the federal government's terrorism insurance backstop created by the Terrorism Risk Insurance Act of 2002. The program, commonly known simply as TRIA, will expire on Dec. 31 if not extended.

For the immediate future, industry attention is focused on the lame-duck session.

“The thing that's most close to our heart is we have three bills to pass in the lame-duck session — TRIA, insurance capital standards and NARAB II,” said Nat Wienecke, senior vice president in the Washington office of the Property Casualty Insurers Association of America, referring in addition to TRIA legislation that would create a National Association of Registered Agents and Brokers to streamline interstate producer licensing and efforts to make sure that insurers are not subject to capital standards designed for banks.

The Senate passed a bill that would extend TRIA for seven years; the House Financial Services Committee approved one that would extend it by five. But observers are concerned that some opponents of the program would like to pass a short-term extension of TRIA during the lame-duck session in order to pass legislation in the next session that would scale back or possibly eliminate the program.

“Hundreds of candidates ran on decreasing economic uncertainty by job creation,” and a short-term extension of TRIA would create uncertainty, Mr. Wienecke said. “I don't think Republicans got elected to increase economic uncertainty, a one- or two-year bill in a post-financial crisis world does not lead to an environment where businesses can act with confidence.”

“If a TRIA deal is struck, then capital standards and NARAB are automatic, in my view,” said Joel Wood, senior vice president at the Council of Insurance Agents & Brokers in Washington.

NARAB issues

Mr. Wienecke noted that capital standards legislation has passed both the House of Representatives and Senate, but the bills also contain some nongermane language that would have to be reconciled. Both the House and Senate have also passed NARAB legislation, although the Senate bill would sunset the program after two years.

Regarding NARAB, the only question is whether the final bill contains the House or Senate language, and “our preference is the House bill,” he said.

If the lame-duck session settles those three issues, the new Congress appears likely to turn its attention to Dodd-Frank, say observers.

“I think the election opens up greater opportunity for a willingness to compromise,” said Jimi Grande, senior vice president in the Washington office of the National Association of Mutual Insurance Cos. “We're now far enough away from the origination of Dodd-Frank to understand that there are fixes that are bipartisan. I think many Senate Democrats will work with the Senate majority to focus on the areas of commonality instead of getting caught up in 'let's repeal Dodd-Frank.'”

“It seems unlikely as long as the president's wielding the veto pen that they could repeal it wholesale,” said Tom Santos, vice president at the American Insurance Association in Washington. Instead, lawmakers are likely to take a close look at the transparency at FSOC as well as taking a “little deeper dive” on the office's process of designating insurers as significantly important financial institutions subject to heightened federal oversight, he said.

“I think you're going to see an emerging chorus around greater transparency in FSOC,” said Mr. Grande. “You can't just have a group of regulators sitting in a closed room making pronouncements about private entities that shift markets without validation of their theories.”

“You can be assured that there will be greater scrutiny of Dodd-Frank via congressional oversight in the Senate, to match what's been done in the House in the past couple of years. And above and beyond that, you may see a legislative effort to make some changes to the law,” said Charles Symington, senior vice president at the Alexandria, Virginia-based Independent Insurance Agents & Brokers of America. If the lame-duck session doesn't resolve the issue of the “bank-centric application of capital standards to large insurers, you'll probably see action on that next year as well,” he said.

“For the first time, you could see some substantive changes to Dodd-Frank,” said Mr. Wood. He said some changes, such as elimination of the Consumer Financial Protection Bureau, would be vetoed, but others could attract bipartisan support and could be negotiated with the administration.

“What I don't see is major insurance provisions as being altered,” he said. “Some might want to erode the authority of the Federal Insurance Office; I don't see that happening.”

The elections also had an affect at the state level regarding tort reform. California voters rejected Proposition 46, which would have eliminated the $250,000 cap on noneconomic damages in medical liability cases.

“This may encourage legislators in other states to support limits on liability that have been shown to be effective,” said Victor Schwartz, general counsel of the American Tort Reform Association in Washington.

Republican victories in the states mean insurers can promote tort reform in concert with the business community, said Joe DiGiovanni, a senior vice president at AIA. That could perhaps mean repeal of some bad-faith laws, he said.

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