The 111th Congress was an important one for risk managers. Lawmakers addressed many of the long-term issues facing the industry, with the Dodd-Frank financial reform bill being the most significant piece of legislation.
On the insurance side, the most important overhaul may be the creation of the Federal Insurance Office, which is being seen by many as the first step toward greater federalization of insurance regulation. The office, which is headed by Michael McRaith, former director of the Illinois Department of Insurance, will be responsible for specific reporting obligations. It will present an annual report to the president and Congress on the insurance industry and recommend ways that the nation can modernize and improve its insurance regulation.
Dodd-Frank has also introduced the concept of director-level risk committees. Through these committees, risk managers will become a more vital part of their companies’ strategic decision making. While the bill’s provisions were narrowed to apply only to systemically significant entities regulated by the Federal Reserve Board, the proposal does pave the way for greater consideration of enterprise risk management among all large, publicly traded companies.
Another noteworthy aspect of the overhaul is the Nonadmitted and Reinsurance Reform Act (NRRA), which will make it easier for “qualified risk managers” to secure surplus lines for their organizations — something they often must turn to for risk transfer options that the traditional market cannot provide. Originally, the definition of “qualified risk manager” was a sticking point. As introduced some years ago, the bill contained a very narrow definition that eliminated many risk managers from consideration. But with RIMS’ input, the definition was expanded, allowing many more risk managers to qualify.
Although not part of the Dodd-Frank legislation, the Securities Exchange Commission also recently increased the importance of risk management. By mandating that companies include information in proxy statements related to the board of directors’ role in risk oversight, most publicly traded companies must disclose how the board administers the oversight function and the effect it has on the board’s leadership structure.
Implementation of Dodd-Frank will play out on a variety of fronts over the next two years. While federal regulatory agencies will be implementing major portions of the legislation in the near future, state legislatures are grappling with how to implement portions of the surplus lines law. As enacted, the NRRA requires states to establish uniform procedures for allocating the state premium taxes paid back to the insured’s home state. How this will be accomplished is still up for debate, however.
One approach preferred by RIMS and adopted by the National Conference of Insurance Legislators (NCOIL) and other state legislative groups, is known as the Surplus Lines Insurance Multi-State Compliance Compact (SLIMPACT-Lite). This approach goes further in achieving national uniformity by authorizing a governing commission to establish binding allocation formulas and uniform payment methods called for in the legislation. On the other hand, RIMS opposes the proposal put forward by the National Association of Insurance Commissioners (NAIC), known as the Surplus Lines Insurance Multi-State Agreement (SLIMA), because it is a voluntary, multi-state agreement and permits states to unilaterally regulate and collect premium taxes.
As this and other debates mount, risk managers have an increasingly large stake in the government’s efforts for financial reform. As a result, it has become more important for risk managers to get involved in the legislative process any way they can. In the case of surplus lines legislation, for example, this means following up at the state level with their representatives in Congress to make sure that the voices of risk managers are being heard.
Another way for risk managers to make an impact is through RIMS’ new political action committee (PAC). An increasingly important tool in Washington, PACs provide a source of campaign funds for candidates and give their sponsors an effective way to develop relationships with policy-makers. RIMS established RISK PAC to give members greater access to the federal policy-makers who influence issues important to them and make a statement about just how seriously RIMS takes the federal and legislative process.
Dodd-Frank may be making headlines now, but other issues of importance to risk managers are also being debated on Capitol Hill. Only by being involved can risk managers ensure that their interests are being protected.