Regulatory Update

By Nick Pearson

Day two of the education sessions at the 2013 October Rendez-Vous wound up with a presentation on insurance regulatory issues. The panel was moderated by Nick Pearson, a partner in the Insurance and Reinsurance Department of Edwards Wildman Palmer LLP and the panelists were Martha Lees, Senior Policy Advisor at the New York Department of Financial Services, Denise Brignac, Chief Deputy Commissioner of the Louisiana Insurance Department, Peter Maloney, Chief Legal Officer of QBE North America and Matt Wulf, Vice President of State Relations and Assistant General Counsel of the Reinsurance Association of America.

The panel first addressed the role of the regulator in catastrophe insurance, with specific focus on Superstorm Sandy. Martha Lees described the New York Department of Financial Services’ role as seeking to ensure fair treatment of insureds through, among other things, implementing a mediation program for disputed claims and being responsive to policyholder complaints. All members of the panel acknowledged the existence of political pressure to resolve claims in the context of large scale catastrophes, but agreed that it was important to recognize the legitimate need of insurers to only pay those claims rightfully falling within the scope of coverage.

The next topic dealt with federal and international solvency standards, and specifically whether or not insurance companies should be subject to federal solvency regulation under Dodd-Frank, and the appropriate role of solvency standards being promulgated by the International Association of Insurance Supervisors. Matt Wulf felt that the application of solvency standards by the Federal Reserve Board to those insurers designated as systemically important was potentially problematic in light of the difference between the businesses of banking and insurance. The rest of the panel agreed and also expressed concern about the lack of insurance regulatory experience at the federal level. There was general agreement that adoption of international solvency standards at the state level would be met with considerable resistance and the panelists did not expect to see their wholesale implementation.

The panel then turned their attention to the possibility of broader federal regulation of insurance. Denise Brignac thought it was highly unlikely that the federal government would seek to take on a substantially greater role as a regulator, although she expects to see the federal government seek to play a greater role in certain specific areas such as healthcare. On the whole, the panel felt that there was little likelihood of a move from state based to federal regulation.

The final topic addressed by the panel was insurer insolvency under the state based system currently in place. Pete Maloney opined that a typical insurance company insolvency takes too long and was concerned that assets that otherwise could be distributed to claimants were getting paid out in administrative expenses over the course of the many years the estates are typically kept open. The other panelists agreed that this was a problem but, given the need to treat similarly situated claimants equally, there was no consensus on how the process could be abbreviated. This was particularly true in light of the potential for reinsurer liabilities being enlarged if liquidators were allowed to close out estates based on estimated liabilities. However, the panel agreed that regulators do their best to keep companies solvent and so avoid the complications of a US insolvency in the current framework.

At the close of the panelists’ discussion, there was a brief but lively question and answer period.