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Recap: Senate Banking Examines Insurance Issues

September 19, 2022

A September 8 Senate Banking hearing covered a number of issues in the insurance industry, including private equity-owned insurers, pandemic risk insurance, and flood insurance. The hearing included witnesses from NAIC and Treasury’s Federal Insurance Office (FIO).

Why it matters: Insurance companies are largely regulated at the state level, but policymakers have pointed to private equity ownership as increasing systemic risk. That could spur federal action or intervention.

What they're saying: Chairman Sherrod Brown (D-OH) outlined his concerns in his opening statement:

NAIC has been monitoring the risk-taking behavior of private equity-owned insurers. FIO has done similar work and looked at the wider interconnectedness of insurance and reinsurance markets across the world. Those connections have added to systemic risk concerns because US insurance companies depend even more on the financial help of insurance companies outside the US.

Committee Republicans pushed back on the risk inferences and noted that private-equity owned insurance companies are subject to the same regulations as other insurers.

Pandemic Risk Insurance: Additionally, the topic of a government-backed pandemic risk insurance came up during the hearing. Ranking Member Pat Toomey (R-PA) criticized the idea in his opening remarks:

… [A] federally guaranteed pandemic risk insurance program would encourage state and local governments to impose economically devastating shutdowns in the future. Such a program would, in fact, incentivize state and local policymakers to quickly impose lockdowns with their jurisdictions, with the assurance of the federal government risk insurance program will bail them out.

However, pandemic risk insurance found support among some committee Democrats. Sen. Kyrsten Sinema (D-AZ) outlined the benefits of establishing a program to be prepared to respond to a crisis:

Our goal is to improve the resiliency of the US economy to future pandemic-related economic shocks. Our group aims to do this by creating and advancing an insurance framework that brings forward the power of the private sector and provides business owners with choices to buy coverage that aligns with their needs and their risk tolerance.

Flood Insurance received little attention at the hearing, though Sen. Bob Menendez (D-NJ) took the opportunity to urge congressional action on the federal flood insurance program. Menendez noted:

• Nearly half a million (or 10%) policyholders dropped flood insurance eight months after FEMA’s new Risk Rating 2.0 was implemented.
• FEMA had estimated a 20% drop over 10 years.

Menendez and other coastal senators have been pushing back on Risk Rating 2.0 and the higher costs it imposes on frequently flooded properties. 

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Insurance companies are largely regulated at the state level, but policymakers have pointed to private equity ownership as increasing systemic risk. That could spur federal action or intervention.

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