Congress’s enactment of the insurance provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act signals the federal government’s most significant incursion into the regulation of insurance, an activity historically left to the states.
Title V, the insurance provisions of Dodd-Frank, are divided into two subtitles: Subtitle A, establishing the Federal Insurance Office, and Subtitle B, setting forth state-based insurance reforms, with Title 1 addressing non-admitted insurance and Part 2 addressing reinsurance.
Although the Federal Insurance Office is granted very limited direct regulatory authority (essentially dealing with international trade matters), Congress directs the new office to monitor a number of marketplace activities, study aspects of state regulation and report back to Congress in 18 months.
The reforms enacted to address surplus lines insurance fixes long-lingering regulatory overlap among the states. The legislation essentially allocates the surplus lines tax to an insured’s home state (subject to a to-be-developed interstate compact). Similarly, the legislation directs surplus lines regulatory and licensing jurisdiction to that home state as well.
The reforms addressing regulation of reinsurance also fixes potential regulatory overlap among the states. The legislation vests regulatory authority over credit for reinsurance to the ceding insurer’s state of domicile, essentially codifying the longstanding comity among the states in this regard. Correspondingly, the legislation designates a reinsurer’s state of domicile as its solvency regulator.
The surplus lines and reinsurance regulatory reforms bring jurisdictional clarity to potential duplicative regulation among the states. The monitoring and studying activities of the Federal Insurance Office, however, portend substantial future growth of the federal government into the regulation of insurance.