Proposed Dodd-Frank Replacement—Financial CHOICE Act 2.0

Texas Congressman Jeb Hensarling (R) has reintroduced a bill in the federal House of Representatives to create a new federal insurance office with authority to federally pre-empt state insurance measures.

Released on Wednesday, April 19, 2017, “Financial CHOICE” stands for Financial Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs (CHOICE) Act.

Within the bill, Title XI of the Financial CHOICE Act will repeal the Federal Insurance Office (FIO) and instead create the Office of the Independent Insurance Advocate (IIA). The head of the new Office will be appointed by the President and will serve a term of six (6) years.

The Advocate will not have general supervisory or regulatory authority over the business of insurance, which will remain with the states. This section of the bill introduces federal pre-emption if a state regulation favors a non-U.S. based insurer domiciled in a foreign jurisdiction over a U.S. insurer, or if a state rule is inconsistent with a covered agreement. However, the Financial CHOICE Act does not pre-empt state rates, premiums, coverage requirements, anti-trust laws, or capital and solvency requirements unless practices favor a non-U.S. based insurer over a U.S. insurer.

As the bill is currently written, the Office will have the authority for the following:

• Coordinate efforts with the International Association of Insurance Supervisors (IAIS) to assist in negotiating covered agreements
• Consult with the states regarding prudential insurance matters
• Assist the Secretary of the Treasury in administering the Terrorism Insurance Program
• Observe the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the financial arena
• Make determinations with respect to covered agreements and state insurance measures

While the Office would have authority over all lines of insurance, except health insurance, long-term care insurance, and crop insurance, it is limited in that it cannot participate in any activities that are not specifically authorized by the Financial CHOICE Act. This includes participation in supervisory colleges, which are meetings between insurance regulators and supervisors to facilitate Enterprise Risk Management.

The House Financial Services Committee held a public hearing Wednesday, April 26, 2017, where a panel of witnesses was available to answer questions and address concerns. The committee was split along party lines in its opinion of the bill, with Republican members generally in favor and Democratic members opposed.

Members of the committee will have five (5) legislative days to submit additional written questions on the bill, which will be addressed by the members of the panel. The public hearing will continue on Friday, April 28, 2017.