Baribeau.Regs

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The Baribeau reading, Demystifying the Regulatory Web discuss the impact of the Dodd–Frank Wall Street Reform and Consumer Protection Act on insurance companies. This Act, passed in 2010, primarily targeted non-insurance financial institutions although it also has significant implications for insurers.

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Study Tips

This reading is only 8 pages but the exam questions are detailed. Fortunately, many of the older exam questions do not appear to be based on material within the current syllabus readings. Use the wiki article to orient yourself, scan the quizzes, read the source, then come back and memorize the quiz answers. If you're pressed for time, don't worry too much about the exam questions in the BattleTable below the solid line, aside from Federal Ins. Office - structure & responsibilities. The FIO responsibilities do seem kind of important. (These are designated as low-probability questions and count for fewer BRQ points than the others.)

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

  • types of companies regulated by Dodd-Frank
  • actions required by insurers under Dodd-Frank
  • impact of court decisions & legislation on insurer compacts
  • Federal Ins. Office - structure & responsibilities
  • miscellaneous facts about Dodd-Frank from older exams (appears less relevant to current syllabus)

Note: Some (not all) of the exam problems below the thick orange line in the table below appear to be from Dodd-Frank readings no longer on the syllabus. They have been mostly (not entirely) excluded from the quizzes but are included as BattleCards of lower probability. (You can access these through the Custom Battles feature either from the sidebar or the main part of the BattleActs site.)

reference part (a) part (b) part (c) part (d) part (e) part (f)
E (2018.Fall #5) Federal Ins. Office:
- structure/responsibilities 		policyholder cost:
- related to Dodd-Frank 		product customization:
- related to Dodd-Frank 		banking vs insurance:
- related to Dodd-Frank
E (2017.Fall #4) Porter.3-Roles-Fed Porter.3-Roles-Fed Porter.3-Roles-Fed Porter.3-Roles-Fed types of companies:
- reg'd by Dodd-Frank 		required actions:
- under Dodd-Frank
E (2017.Spring #4) impact on compacts:
- of SEUA 		impact on compacts:
- of McCarran-Ferguson 		impact on compacts:
- of Dodd-Frank
E (2016.Fall #4) Federal Ins. Office:
- structure/responsibilities 		Federal Ins. Office:
- restrictions on 		reinsurer impact:
- of Dodd-Frank
E (2016.Spring #6) Porter.3-Roles-Fed Porter.3-Roles-Fed Porter.3-Roles-Fed Federal Ins. Office:
- structure/responsibilities
E (2015.Spring #3) Porter.2-Devlpt Porter.2-Devlpt fed role in insurance:
- of Dodd-Frank 		Porter.2-Devlpt
E (2014.Fall #3) Porter.2-Devlpt general description:
- of Dodd-Frank 		NAIC.Solvency NAIC.Solvency
E (2014.Spring #4) Porter.2-Devlpt Porter.2-Devlpt Porter.2-Devlpt Porter.2-Devlpt surplus lines:
- impact of Dodd-Frank 		cedant benefits:
- under Dodd-Frank

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In Plain English!

Intro

Regarding insurance regulation, Dodd-Frank created 2 entities:

  • Federal Insurance Office (FIO):
   - monitors insurance industry
   - identifies gaps in the state-based regulatory system
  • Financial Stability Oversight Council (FSOC):
   - monitors all financial services markets (including insurance)
   - identifies risks to financial stability

Dodd-Frank has the authority to regulate 2 types of insurers:

  • SIFIs (Systematically Important Financial Institutions)
  • insurance holding companies that own banks

Dodd-Frank imposes several requirements on these insurers: UMAD ← Are you mad the feds are always watching??!! 😧 (shout-out to ActuariesAreNerds!)

Undergo stress-testing (to assess whether an insurer can absorb the financial impact of adverse events)
Meet liquidity requirements (for short-term obligations)
Adhere to capital requirements (for all obligations)
Develop a living will (a resolution plan in the event of insolvency)

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FIO Details

Let's dig a little deeper into how the FIO operates. There are several specific things it does as part of its goal to monitor the industry and identify gaps in state regulation:

Question: describe specific areas of responsibility of the FIO [Hint: CRITI]
Collect data on the insurance industry
Report annually to Congress on the state of the insurance industry
Improvements (suggest improvements to insurance regulation in conjunction with state insurance departments)
TRIA (help administer TRIA - Terrorism Risk Insurance Act)
International (help with negotiation of international agreements)

Of course, with any significant piece of legislation affecting large industries, there are concerns. In the source reading, there's a table on page 7 (labelled as page 24) that highlights these:

Question: describe actuarial concerns regarding the FIO
  • dual regulation:
   - inconsistent regulation between state & federal (accounting/solvency standards)
   - excessive regulation (federal regulation on top of state regulation may be expensive and restrictive)
  • capital requirements:
   - inappropriate increases in capital requirements (stricter capital requirements should apply more to banks than insurers)
  • standardization:
   - forced standardization of forms & rates decreases innovation and competition
  • banking regulation spillover:
   - increases compliance costs for insurers that have banks within their structure

The next item on our agenda is that all industries, including insurance, are more globalized than before. This presents opportunities but also concerns.

Question: describe international concerns regarding the FIO
  • conflict between NAIC & FIO:
   - NAIC and states have traditionally been at the forefront of international insurance issues
   - FIO is now participating at the federal level and may have different approaches
  • federal approach:
   - better for international coordination of standards (versus many different state-based approaches)
   - worse for transparency (FIO is not as transparent as NAIC)
  • standardization of insurance:
   - this was listed as an actuarial concern but also applies internationally
   - may decrease innovation, reduce consumer options, increase costs

To finish this section, observe that the power of the FIO is not absolute. There are limits as to what it can do and how it is permitted to change existing state regulations.

Note: The following question was part (b) of E (2016.Fall #4) and seems to have been based on a reading no longer on the syllabus. Current syllabus readings cover Dodd-Frank and the FIO, but in less detail. It's reasonably likely that the level of detail in the following question is no longer required.

Question: describe restrictions on the authority of the FIO
==> cannot preempt state regulation of:
   - rates
   - UW
   - coverage requirements
   - sales practices
   - capital requirements
==> EXCEPT if state requirements result in less favorable treatment of a non-U.S. insurer versus a U.S. insurer
   (preemption of state law requires a rigorous process)

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Other Exam Problems

Nothing new here. Just more practice.

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