On the moment of the passage of the Dodd-Frank financial regulatory overhaul legislation, we at The Council sent out a red alert email noting the achievement of our long-sought surplus lines reform measure. A response from one of our executives, though, seemed to sum up the feelings of many: “Well, congratulations,” he said. “I guess somebody had to buy the pig in order for us to get the truffle!”
In the nearly 18 years that I have been lobbying for The Council, this has been the most consequential, action-packed session of Congress ever for our member firms. The health industry reform was grueling, and while we can take considerable pride in all of the broker-unfriendly provisions that we knocked out, we regret that President Obama signed health insurance reform, not healthcare reform—a major distinction.
Financial regulatory reform, alas, also turned into a partisan affair, with only three Republican senators dragging it to the finish line. But unlike healthcare reform, the Dodd-Frank bill does no violence at all to brokers and contained the shiny nugget of non-admitted reforms that we believe will dramatically improve the marketplace.
Obviously, the financial law is pervasive and complicated. It creates a consumer financial protection agency. It has new resolution authority for firms “too big to fail.” Bank regulators have been shuffled. There are all sorts of new rules for proprietary trading and derivatives. If you work in a bank-owned firm, there are a number of provisions that your parent bank probably doesn’t like. But for insurance brokerages, those provisions either don’t affect us directly or we were carved out.
Every week, I attend events with colleagues throughout the financial services world. I’ve heard their lobbying stories of woe in the year and a half that the legislative process played out. For many months, I’ve kept my counsel, quietly staring down at my shoes. I was excited and pleased about the prospects that the overhaul would be the vehicle for reforming the chaotic and cumbersome non-admitted multistate placement marketplace. And I was grateful for all of the members of the House and Senate, Democrats and Republicans alike (and the Obama administration) who helped make it happen.
Unlike healthcare reform, whose implementation is tortured and unclear, we pretty much know everything we need to know about the surplus lines law. Starting next July, one set of rules—the rules of the home state of the insured—governs access to, and premium taxes for, non-admitted placements. Period. We will see much action as states pass new laws to adjust to this new reality, and there’s a good chance that an interstate compact will be erected, but basically, it’s one set of rules for a transaction. That’s good for clients, good for brokers, good for insurers, good for regulators and, we believe, ultimately good for state coffers.
Because it’s a win-win, it was a no-brainer for Congress, right? Not at all. There were many hurdles. This battle wasn’t won because we had great white papers or because legislators were pining to shore up the surplus lines marketplace. It was achieved because of shoe-leather lobbying and years of coalition building. And it was achieved because we successfully made our case to a handful of very influential lawmakers who are really smart on insurance issues. (One in particular, Rep. Dennis Moore, D-Kan., is retiring this year, and that’s a big loss.)
The surplus lines provisions of the legislation were part of a tight insurance title that contained only two other pieces: some reinsurance reform and creation of a Federal Insurance Office that has narrow preemptive authority. We supported all of it.
Stepping back, though, it is incredible that the most sweeping financial reform since the Glass-Steagall Act of 1932 had so little direct impact on the insurance industry, given the reality of the unprecedented AIG bailout of 2008.
Despite a very ugly and protracted process, Congress passed and President Obama signed a sweeping piece of legislation passed in response to the market meltdowns of 2008. Council member firms will save millions in unnecessary compliance costs thanks to the reforms of the surplus lines marketplace.
W.C. Fields famously said, “If at first you don't succeed, try, try again. Then quit. There’s no point in being a damn fool about it.” I was starting to feel like a fool, watching the House pass the surplus lines bill four times in five years only to see it wither in the Senate. It’s a godawful shame that it took the near collapse of the American economy to provide a vehicle through which we could get this positive reform enacted. But we’ll take victories however we can.