The Personal Insurance Federation of California (PIFC) has questioned the intent of a Senate bill that would mandate Federal Community Reinvestment Act (CRA) standards of reporting and investing for California insurance companies.
Michael Gunning, senior legislative advocate for PIFC warned that SB 1679 could potentially jeopardize billions of dollars of future insurance company investments in state municipal bonds that currently fund schools, libraries, water districts, parks, bridges and other community projects throughout the state.
“Given that the State Treasurer’s plans to issue the largest municipal bond in United States financial history, it would seem that the extraordinary measures proposed by SB 1679 could dramatically affect the sale of these state bonds,” Gunning said. “With a state budget crisis looming, to now require the largest purchasers of municipal bonds to make CRA types of investments, seems inappropriate and imprudent,” Gunning added. “The CRA Guidelines were created for Banks—insurance companies are not banks. To take federal guidelines that are for banks and place them on insurance companies is simply wrong.”
The CRA was imposed on banks by Congress to address concerns about banks locating in a community, collecting deposits, and then making loans to projects elsewhere. “Insurers do not ‘take’ money from the areas in which they do business,” Gunning continued. “Proceeds are directly funneled back into the communities in the form of claims payments to policyholders, auto repair facilities, auto dealers, home repair services, home furnishings outlets and others. In other words, insurers invest in their policyholders’ well being where they live.
“SB 1679, introduced by State Senator Richard Polanco, would mandate California insurance companies to make community development investments in low-income communities even though many of these investments would have lower returns and in some cases violate solvency safeguards currently imposed on insurers,” he added.
“The Senate Insurance Committee recently held hearings regarding solvency of California insurance companies in light of recent events. Committee members suggested that possibly the State Treasurer should oversee insurance company investments. “It is puzzling to me that the Senate Insurance Committee would now consider a mandatory investment bill for California insurance companies in light of the testimony from those hearings,” Gunning noted. “We have made investments in low-income communities where safe and sound investments exist. However, being forced by government to make unsafe investments in any community is not in the best interest of our policyholders.”
Gunning outlined PIFC member company objections and concerns to SB 1679:
The California Department of Insurance (CDI) already actively promotes community investments through the California Organized Investment Network (COIN), which was formed as an alternative to previous legislation introduced to mandate investments. California insurers have invested more than $675 million in low-income communities in California since 1996. Insurers continue to search for good investments and the dollars are increasing each year. There is no need to mandate CRA investments.
In addition to COIN, the insurance industry has formed Impact to Community Capital (IMPACT), a voluntary community investment program whereby California insurers can seek and place investment dollars in underserved California communities. Since 2000, California insurers have invested nearly $170 million in communities through IMPACT.
The California insurance industry is already the single largest investor in the California economy with over $463 billion in total investment in the state’s $1.2 trillion dollar economy. SB 1679 could potentially shift hundreds of millions of dollars already voluntarily invested by insurers in municipal bonds in California to other community investments undermining many infrastructure projects already funded by these bonds.
SB 1679 creates new and unique powers for the insurance commissioner. The Commissioner would have broad powers to hold public hearings and require any insurer or insurers to make low-income community investments. Given the existing controversy surrounding the office, is it wise to increase the Commissioner’s power in such a way that can lead to additional abuse of power?
The insurance industry doesn’t understand why it’s being singled out in SB 1679. Insurers already report investments in their annual reports and feel it is unfair to require not only additional reporting of community investments, but the mandate to make investments.
“SB 1679 turns upside down common sense as well as state and federal laws that protect consumers,” Gunning added. “The bill places the social policy objective of investing by banks in low-income communities and places it on insurers over the interests of their policyholders and that is why we strongly oppose SB 1679.”
Topics California Carriers Market
Was this article valuable?
Here are more articles you may enjoy.
First Street Finds Most Debby-Damaged Homes Outside Flood Zone, Without Coverage 
Hard Reinsurance Prices Likely to Last Longer Than in Previous Market Cycles: Report 
Consumers’ Refusal to Keep Paying Higher Prices May Halt Inflation Spike 
Taylor Swift Cancellations Deal Blow to Insurers: Sources 
