Senator Jack Reed (D-RI), a member of the United States Senate Banking, Housing and Urban Affairs Committee, provided a view on insurance issues being addressed by the Senate. "The landscape has changed dramatically due not only to financial factors but physical and geo-political upheaval," he said. Among the most recent challenges Reed referenced, was the implementation of program and spending cuts referred to as "sequestration" that began on March 1. According to Senator Reed, sequestration will have a significant impact on the industry and the greater economy, potentially leading to 750,000 lost jobs and a .4 to .6 percent decline in GDP. In contrast to the sequestration approach, Senator Reed advocated a renewed focus on job creation, acknowledging his home state’s 9.9 percent unemployment rate.
He also cautioned participants about another pending debt ceiling and the catastrophic effect that a failure to extend the debt ceiling would have not only on the United States, but around the globe. As the nation strives to create a balanced budget, Senator Reed noted that $2.4T has already been cut and that progress continues.
Looking at the goals of the Senate Banking Committee, Senator Reed indicated the committee will continue its bi-partisan approach to housing reform including a report on reforming the government-sponsored enterprises (GSEs) and creating a new policy framework for housing. The implementation of the Dodd-Frank Act (DFA) legislation will also be a priority. Senator Reed said that the Consumer Financial Protection Bureau (CFPB) created by the DFA is helping to recover hundreds of millions of dollars for consumers and he credited the Act with exposing the largely unregulated "shadow banking" industry. "For the first time, we have a system for handling unregulated areas that will create a more even playing field," Senator Reed said.
The creation of the Financial Stability Oversight Council (FSOC) was in response to the AIG debacle in which the investment behavior of a subsidiary loosely regulated under the auspices of U.K. regulators resulted in substantial losses and led to an industry-wide discussion on what constitutes a Systemically Important Financial Institution (SIFI). The Senate Banking Committee continues to examine the interconnectedness of institutions deemed SIFIs and other financial institutions. Another level of complexity facing the committee refers to an insurance sector that is increasingly global. "Global is the norm, not the exception," noted Senator Reed.
The Office of Financial Research (OFR) within the Treasury Department was created by Congress to serve the FSOC in identifying the issues affecting financial markets, including insurance. The OFR is charged with a mission of streamlining data collection among federal financial agencies in an effort to identify emerging threats and challenges. For example, the large amount of student debt carried by young people appears to be delaying the purchase of homes and could ultimately have a huge impact on housing policy and the greater economy.
Senator Reed cited the FIO as another major initiative of the DFA. He noted that FIO Director Michael McRaith is a member of the FSOC, providing federal representation for the insurance sector and that McRaith’s role on the International Association of Insurance Supervisors (IAIS) provides insurance with a voice at the global level. Despite this increasing voice at the national and global levels, Senator Reed observed that the bulk of regulation is still properly placed at the state level.
Other insurance industry issues currently under review by the Senate Banking Committee include determining appropriate capital levels for insurers in the international market, the pending expiration of the Terrorism Risk Insurance Act (TRIA), and the impact that recent weather events such as "Super Storm Sandy" will have on product innovation.
Our partners for this event, Faegre Baker Daniels, have also published a brief report of the Summit.