Insurance and Financial Regulatory Reform in the 111th Congress

Baird Webel
Specialist in Financial Economics


In the aftermath of the recent financial crisis, broad financial regulatory reform legislation has been advanced by the Obama Administration and by various Members of Congress. Under the McCarran-Ferguson Act of 1945, insurance regulation is generally left to the individual states. For several years prior to the financial crisis, some Members of Congress have introduced legislation to federalize insurance regulation along the lines of the regulation of the banking sector, although none of this legislation has reached the committee markup stage. 

The financial crisis, particularly the role of insurance giant AIG and the smaller monoline bond insurers, changed the tenor of the debate around insurance regulation, with increased emphasis on the systemic importance of insurance companies. While it could be argued that insurer involvement in the financial crisis demonstrates the need for full-scale federal regulation of insurance, to date the broad financial regulatory reform proposals have not included language implementing such a system. Instead, broad reform proposals have tended to include the creation of a somewhat narrower federal office focusing on gathering information on insurance and setting policy on international insurance issues. Legislation proposed by the Obama Administration, Representative Paul Kanjorski (H.R. 2609 as incorporated into H.R. 4173), Representative Spencer Bacchus (H.Amdt. 539 to H.R. 4173), and Senator Christopher Dodd (committee print of the Restoring American Financial Stability Act of 2009), all contain slightly differing versions of such an office. 

The broad reform proposals could also affect insurance through consumer protection or systemic risk provisions, though insurance is largely exempted from these aspects of the legislation as well. The Obama proposal exempts insurance from the proposed federal consumer protection agency's oversight, except for title, credit, and mortgage insurance. Insurers could be considered "tier 1 financial holding companies" and thus subject to Federal Reserve oversight and federal resolution authority. Representative Barney Frank's H.R. 4173 as passed by the House exempts all insurance from the federal consumer protection agency's purview. In limited circumstances, insurers under H.R. 4173 could be subject to additional regulation for systemic stability and federal resolution authority, although insurers would continue to be primarily subject to state guaranty fund resolution. Under Senator Dodd's committee print, systemically significant insurers could be subject to the new Agency for Financial Stability and federal resolution authority. 

Finally, H.R. 4173 and the Dodd committee print include narrower insurance reform legislation regarding surplus lines insurance and reinsurance similar to H.R. 2572/S. 1363, which had previously passed the House. 

The House of Representatives passed H.R. 4173 on December 11, 2009, by a vote of 223-202. The Senate Banking, Housing, and Urban Affairs Committee held a hearing on Senator Dodd's committee print on November 19, 2009, but has not officially acted further on the legislation.


Date of Report: January 13, 2010
Number of Pages: 9
Order Number: R41018
Price: $29.95

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