In light of the US governments’ decision last week to deem
MetLife ‘systemically important,’ subjecting the insurance company to stronger regulatory oversight, questions have been asked about the applicability of the Dodd-Frank reform act to insurance providers.
As many of you probably know, in the wake of the 2008 crisis Congress created the Dodd-Frank Wall Street reform act, which automatically identifies banks with over $50 billion in assets on their books as ‘systemic,’ or ‘too big to fail.’
MetLife is the third insurer to be given the label, with Prudential Financial and
AIG already deemed ‘systemic’ by the Financial Stability Oversight Council (FSOC).
Basically the systemic designation is used as part of an effort to rein in the largest and most risky financial firms, with the hope to avoid another catastrophic collapse like 2008.
The issue is, the act also left the FSOC, comprised of the country’s top financial regulators, with room to interpret whether some non-banks also deserved the tag.
Should insurers be saddled with bank-centric capital rules? Navigators Group CEO, Stan Galanski, weighed in on the topic in a recent interview with IBA.
“I think the burden associated with regulatory risk is actually a bigger threat to business than some people think, and coming through the financial crisis it seems, at least in my view, that globally property casualty insurers have borne more of the brunt of additional regulatory risk than the banks. For the most part it was the banks that got us into the mess, and not the insurance industry,” explained Galanski.
He continued, “The United States regulatory environment worked relatively well to protect both consumers and frankly even the shareholders of companies, with maybe one or two notable exceptions. So when I look at that, our business has gotten so costly and while there have been a lot of technology improvements the additional costs, which are sometimes hidden, associated with the new and on-going regulatory burden continue to expand. These aren’t going away but they need to be carefully analyzed to ensure the hidden costs don’t spiral out of control.”
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