The U.S Chamber of Commerce recently said that the 2010 Dodd-Frank Act may have a negative impact on the insurance industry’s capabilities as an advisor, which will ultimately hurt American businesses.
“Common sense solutions—streamlining the number of regulators, hiring the expertise needed to understand the markets, making the regulators accountable, forward looking regulation—were not considered in the Dodd-Frank debate,” Tom Quaadman, the vice president of the Center for Capital Markets Competitiveness, said on behalf of the Chamber, according to Insurance & Financial Advisor. “Instead, Dodd-Frank creates more regulators, exponentially increases layering and overlap and does not hold regulators accountable. The Dodd-Frank Act adds more floors to a building sitting on a crumbling foundation.”
Additionally, Quaadman said that insurers were “key providers of capital for the long term,” an important aspect for those businesses that need additional capital to expand.
The controversial Volcker Rule, a provision of Dodd-Frank that seeks to prohibit proprietary trading, provides an exemption for those trades transacted on behalf of policyholders, though it does not lend an exemption to bank-holding insurers.
“Several insurance companies have already spun off their banks to avoid being entrapped in the Volcker Rule,” Quaadman said, Insurance & Financial Advisor reports. “So while these insurance companies do not engage in the type or proprietary trading envisioned by the Volcker Rule and were intended to be exempted by Congress, they are still forced to make business decisions based upon regulatory interpretations that make them less efficient.”
Quaadman added that insurers will be affected a number of ways, even if they are offered exemptions to the rule.
“[I]f insurance companies are completely exempt from the Volcker Rule, the subjective trade by trade regulatory scrutiny of market-making and underwriting practices may make it more difficult for insurance companies to play their traditional role in the debt and equity markets,” Quaadman said, according to Insurance & Financial Advisor. “This will make risk management more difficult for insurance, while reducing the capital formation opportunities and increasing the costs for non-financial companies.”
Quaadman encouraged U.S. regulators to fully consider the regulatory effect, adding that the “interconnected nature” of regulations will ultimately determine how the insurance industry will move forward.
“Failing to get this right will harm the insurance industry and American capital markets for the next generation,” Quaadman said, Insurance & Financial Advisor reports. “There can be little doubt that the burden and uncertainty of these new regulations will be a drag on our economy and job growth for years.”