My paper Insurance Regulation and the Dodd-Frank Act, prepared for the Networks Financial Institute’s 2011 Insurance Reform Summit, discusses a number of key issues regarding implementation by the Financial Stability Oversight Council (FSOC) and the Federal Insurance Office (FIO) of the Dodd-Frank Act’s provisions affecting insurance. The paper emphasizes the fundamental differences between insurance and banking, including much lower potential for systemic risk and substantial market discipline in insurance, and how those differences favor solvency regulation and guaranty systems that reflect the distinctive features of each sector. It argues that the FSOC and FIO should carefully consider those differences in their analyses of possibly systemically important insurance companies and in the FIO’s study and report to Congress on insurance regulation. Particular attention should be paid to the relatively low systemic risk and relatively strong market discipline in insurance compared with banking.
Category Archives: Insurance
Congress’s long-term care bomb redux
As predicted by many, it looks as if the federal long-term care insurance program included in the health care reform law will be financially unsustainable without major fixes. See, for example, “Long-term Care Needs Changes, Officials Say” in the Feb. 22 New York Times. I wrote about this program in my Dec. 2009 WSJ op-ed. Not to worry though — HHS Secretary Sebelius claims that she has the authority and know-how to fix the program.
Not what the Founders intended
From federal Judge Roger Vinson’s 1.31.11 decision (p. 48) in the Florida case on the constitutionality of the PPACA’s health insurance mandate:
It would be a radical departure from existing case law to hold that Congress can regulate inactivity under the Commerce Clause. If it has the power to compel an otherwise passive individual into a commercial transaction with a third party merely by asserting — as was done in the Act — that compelling the actual transaction is itself “commercial and economic in nature, and substantially affects interstate commerce†[see Act § 1501(a)(1)], it is not hyperbolizing to suggest that Congress could do almost anything it wanted. It is difficult to imagine that a nation which began, at least in part, as the result of opposition to a British mandate giving the East India Company a monopoly and imposing a nominal tax on all tea sold in America would have set out to create a government with the power to force people to buy tea in the first place. If Congress can penalize a passive individual for failing to engage in commerce, the enumeration of powers in the Constitution would have been in vain for it would be “difficult to perceive any limitation on federal power†[Lopez, supra, 514 U.S. at 564], and we would have a Constitution in name only. Surely this is not what the Founding Fathers could have intended.