Legislation that purports to shield policyholders from the effects of another financial meltdown passed Congress today as part of the Omnibus spending bill.
The Policyholder Protection Act, introduced by Republican Bill Posey and Democrat Brad Sherman, affirms that resources from an insurance company may not be used to bail out an affiliated financial institution from liquidation under the Dodd-Frank Act unless the state insurance commissioner consents.
The bill also clarifies Dodd-Frank to prevent insurers from dipping into money set aside to satisfy policyholder claims in order to satisfy “non-insurance liabilities” within a holding company system.
“The bipartisan passage of this legislation proves that there is still room for common sense legislation that protects consumers,” Sherman said on the bill’s passage. “It is unfair to put policyholders at risk, because of the actions of some Wall Street firms.
“That is why the assets of an insurance company should be walled off from the risky practices of their affiliated financial institutions. The assets of an insurance company are needed to pay claims of their policyholders, and those dollars should not be jeopardized by complex bets, risk taking, or poor management elsewhere within a large financial firm.”
Posey added that the law will help insure that insurance policies of Americans will not be used to “prop up a failing financial firm.”
The bill’s passage was also praised among those inside the insurance industry, including the National Association of Professional Insurance Agents and the National Association of Insurance Commissioners.
Monica Lindeen, NAIC president and Montana insurance commissioner, said the legislation “maintains essential consumer protections” and that the issue is widely supported.
“Its inclusion [in the spending bill] means policyholders will remain protected, regardless of how their insurer is organized,” she said.
The bill was previously passed in the House of Representatives before eventually being included in the $1.1 billion Congressional spending bill, which is expected to be signed into law immediately.
