A U.S. Senate and House conference committee on financial services regulatory reform agreed early today (June 25) on a bill that would avoid duplication between state and federal insurance regulation.

David Sampson

The bill (H.R. 4173), known as the Dodd-Frank Act, retains most state-based regulation of insurance.

Two property-casualty insurance trade groups endorsed the final result.

“Significant improvements have been made to the conference report to minimize the potential negative consequences of adding federal oversight to the state-based insurance regulatory system,” said David Sampson, president and CEO of the Property Casualty Insurers Association of America (PCI), in a statement. “PCI is pleased that the conferees recognized that the Federal Insurance Office should not be a duplicative federal insurance regulator. The office is limited primarily to monitoring the industry and advising Congress and federal agencies on insurance issues.”

Under the provisions agreed to by conferees, the Federal Insurance Office must first seek data from state insurance regulators before seeking information from insurance companies.

“While many of the final details will not be available until the weekend, to the extent property and casualty insurers have been considered in these reforms, in most instances the legislation appropriately recognizes that our industry does not pose systemic risk,” said Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), in a statement. “The existing state-based resolution mechanism remains in place and policyholders remain protected by the state guaranty fund system.

Pusey said her group, representing about 300 insurers, is “encouraged that the legislation establishes a federal office of insurance and believes that this provision offers a substantial contribution toward broadening and deepening our nation’s understanding of the critical role of insurance in our financial system.”

Sampson said the group feared the FIO “imposing costly and burdensome data demands on insurance companies.”

He added that members of Congress “have largely identified that the insurance sector already has its own resolution system at the state level and should not pay for bank failures in the new orderly liquidation process in the bill.”

Sampson continued to make the pitch insurers have repeated during discussions on financial services reform.

“The state regulatory system for property casualty insurers provides the strongest consumer protections of any other sector and it enforces strict solvency requirements for companies,” he said. “Duplicative federal oversight threatens to add costs to the insurance marketplace without corresponding benefits to the consumer. It also creates potential conflicts with existing state regulatory protections.”