DODD-FRANK REFORM ACT


The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank, is the most comprehensive overhaul of U.S. financial regulations in decades. The law has introduced new risk management challenges and will continue to do so as it is implemented.


The Dodd-Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd-Frank, affects all federal financial regulatory agencies and nearly the entire financial services industry. While it removes some existing agencies and merges a few others, it also creates several new agencies to increase oversight of specific institutions that are deemed a systemic risk to the U.S. financial system.

Federal Insurance Office

One of the agencies created by the act is the Federal Insurance Office (FIO). The first U.S. federal government office established to focus on insurance, the FIO will be responsible for monitoring the insurance industry for systemic risk issues and for collecting insurance industry information such as consumer access to affordable insurance products by minorities, individuals with challenging income levels, and under-served communities.

Through state-based reforms, the FIO will streamline the regulation of surplus lines insurance and reinsurance.

Below we outline how Dodd-Frank could affect risk management.

Directors and Officers Liability

The combination of increased regulatory scrutiny and empowerment of consumers and investors creates powerful incentives for board members and senior management to fulfill their fiduciary duties. Companies should prepare for enforcement of Dodd-Frank by reviewing their own practices, particularly in the areas of data collection, governance, and compensation.

Corporate leaders must be proactive in anticipating the new requirements and preparing their organizations for the advent of the new regulatory landscape.

Nonadmitted and Reinsurance Reform Act

Deep within the 2,319-page Dodd-Frank law is the Nonadmitted and Reinsurance Reform Act (NRRA), which is intended to simplify the complex—and often conflicting—web of taxing, licensing, and eligibility rules for surplus lines insurance across the 50 states, District of Columbia, and five U.S. territories.

The NRRA will become effective as of July 21, 2011, at which point it will cover all surplus lines policies that incept from that date forward. Its main provisions are as follows:

  • Regulation: It establishes that the regulations of the insured's home state apply to the insurance broker, eliminating multiple and sometimes conflicting broker regulations on multistate exposures in a single placement.
  • Exempt commercial purchaser (qualified risk manager, purchasers of a certain asset size, etc.): As defined in the law, the broker can go directly to the nonadmitted market without a diligent search of the admitted market when directed to do so by the client.
  • Tax allocation: It prohibits any state other than the home state of the insured from requiring any premium tax payment on surplus lines premiums.  

Whistleblower and “Clawback” Provisions

The whistleblower protection provision of Dodd-Frank (Title IX, Subtitle B, Section 922) establishes a potential bounty to individuals reporting “original information” to the Securities and Exchange Commission (SEC) regarding securities violations within their companies. If eligible, such “whistleblowing” activities could yield an award of 10 percent to 30 percent of the monetary sanctions imposed in an action, subject to a minimum sanction of $1 million.

Dodd-Frank’s compensation “clawback” provision, technically known as “Recovery of Erroneously Awarded Compensation” (Title IX, Subtitle E, Sec. 954), requires a company to:

  • disclose of its policies on incentive-based compensation based on financial information that is required to be reported under the securities laws; and
  • establish a policy to recover (claw back) from any current or former executive any amount of incentive-based compensation that exceeds the amount that would have been paid under an accounting restatement in the three years prior to the date on which the company was required to prepare the restatement.

Failure to comply with the “clawback” provisions could result in a de-listing from its exchange.

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Conflict Minerals — How Dodd-Frank Is Impacting the High-Tech Industry
May 29, 2013  |  Views: 20735 |  Comments: 0 
Conflict Minerals — How Dodd-Frank Is Impacting the High-Tech Industry
Public companies are struggling to comply with the multitude of requirements of the Dodd-Frank Act.  >>
Webcast: Risk Management 301—Captives: A Premier Alternative Risk Finance Solution (Replay)
October 15, 2012  |  Views: 20162 |  Comments: 0 
Webcast: Risk Management 301—Captives: A Premier Alternative Risk Finance Solution (Replay)
This one-hour Webcast covers pre- and post-loss strategies that will help you to reduce your organization’s total cost of risk.  >>
The Impact of the Dodd-Frank Act on Captive Owners
August 19, 2012  |  Views: 29738 |  Comments: 0 
The Impact of the Dodd-Frank Act on Captive Owners
Provisions within Dodd-Frank have serious implications for those procuring non admitted insurance from wholly owned captives.  >>
Nonadmitted and Reinsurance Reform Act Client Briefing
June 15, 2011  |  Views: 6802 |  Comments: 0 
Nonadmitted and Reinsurance Reform Act Client Briefing
Our NRRA client briefing explores how Dodd-Frank changes the surplus lines insurance industry.  >>
Original Documents Related to the Dodd-Frank Act
June 14, 2011  |  Views: 22429 |  Comments: 1 
Original Documents Related to the Dodd-Frank Act
To assist organizations in meeting the challenges associated with Dodd-Frank, we are providing several original documents.  >>
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