Insurers with at least $10 billion in assets would be required to pay into a federal fund to cover the costs of resolving failures at financial services companies under legislation to be taken up next week by the House Financial Services Committee.
The new assessment would come on top of insurers' contributions to state guarantee funds, which are administered to protect policyholders in the event that an insurance company defaults on benefit payments or becomes insolvent.
The prospect of a double payment is “a major concern,” said Kim Dorgan, senior executive vice president for public policy at the American Council of Life Insurers.
About 60 insurers have at least $10 billion in assets, she said.
The provision is part of the proposed Financial Stability Improvement Act.
Another provision in the bill that has life insurers worried is to bring insurers that have banks under the jurisdiction of a proposed financial oversight council, which would include the
Federal Reserve Board, Ms. Dorgan said.
The oversight council, to be led by the secretary of the Treasury, would supervise companies deemed to pose systemic risks if they were to fail. The bill does not exclude insurers from coming under the council's jurisdiction.
“We have a number of insurance companies that have small banks,” Ms. Dorgan said. “The way the rules are written, we could conceivably see the Fed start to regulate some insurance companies.”
Putting insurance companies under the
Federal Reserve would not be appropriate, Ms. Dorgan said. The Fed regulates banks for safety and soundness, while insurance regulation is based on solvency.
Life insurers are also concerned that putting them under the Fed would create another layer of regulation.
The Financial Services Committee next week also is scheduled next week to act on legislation that would create a Federal Insurance Office within the Treasury Department to coordinate federal policy regarding insurance.
While the bill stops short of creating the option of federal regulation of insurance, which the insurance industry has called for, it would give the Federal Insurance Office the authority to pre-empt state regulations with regard to international treaties.
The life insurance industry supports creating the Federal Insurance Office. “No administration or Treasury [official] understands the insurance industry,” Ms. Dorgan said. Creating the new office would help solve that problem, she said.
