After more than a year of consideration, financial services reform is finally here; made official when President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act midsummer. But the debate and the hard work of the law haven’t nearly begun. Indeed, the new law will likely take years to shape. What’s more, its impact will likely be felt across the board and affect many aspects of how financial services firms do business.

For financial services firms, including insurance companies, the law and the hundreds of new regulations it will foster will almost certainly affect how businesses interact with their corporate and retail customers, not to mention their stakeholders, such as analysts, regulators, consumers and shareholders.

To learn more about what’s in store in the months and years to come we sat down for a question-and-answer session with former New York state Insurance Superintendent Howard Mills, who is now a director and senior advisor at Deloitte LLP’s Insurance Industry Group. The interview coincided with Deloitte’s release of its report entitled; “The sound of rumbling thunder; assessing the impact of U.S. financial regulatory reform.”

Q. Now that the focus has turned from the passage and signing of the financial services reform legislation, it seems attention has now turned to assessing possible impacts. What do you see happening on the road ahead?

A. At this point, the road ahead is under construction. More than 200 regulations will need to be drafted by a host of federal agencies before we begin to see the true shape of financial reform. Nevertheless, we do know that the scope of the business impacts will be seen across all lines of insurance and in all sectors of the financial services industry. From consumer protection rules and the determination of systemically risky entities to liquidity, capital management and the treatment of derivatives, one thing that is certain is that there will be much change; perhaps, not all of it good for business.

Q. Speaking of, what are your thoughts on the prospect of unintended consequences that may result as the law gets put into practice?

A. No one knows what unintended consequences will be brought to bear either in the short or the longer term. We can make an educated guess that there will be unintended consequences and that they will be outside of what the framers of the law had in mind. Particular areas of the bill where we can see the potential for unintended consequences include the “too big to fail” issue, product innovation and consumer protection.

Q. Under the new law, firms will be designated “systemically important,” this is meant to include nonbanks as well, and could include insurance companies. How will this work?

A. The top-tier group, called “Group A” will be the first to be subject to new reporting requirements, which will include extensions of existing requirements, such as stress testing, as well demands for information not currently generated by banks and significant firms. This will likely cause a revamping of company information provision capabilities, among other internal changes. Other likely areas of impact might be seen as the regulator combs through a company looking for risk. The regulator’s findings could result in additional reporting requirements and added costs to the company.

Q. What should companies that don’t fall under the systemically risky category be thinking and doing?

A. The next group down, called “Group B” may seemingly be unaffected by the law directly, but this group should not let its guard down. This group will very likely remain on the radar screen of the regulator, who could very likely pull a Group B company up to the Group A level if changes are noted in its systemic environment. It’s also possible that as the new regulator sets up shop, it might create new reporting requirements for Group B to better gauge riskiness going forward.

Q. How will the new legislation affect insurance companies on the level of their organizational structures and legal entities?

A. Many companies, in anticipation of financial reform, are already well on their way to examining their structural charts, including a review of subsidiaries. Companies are also questioning whether the new law might mean that certain entities would no longer be required. This is especially pertinent for insurers, one, because some may wind up being deemed systemically risky, and, two, because many have complex business links with banks as counterparties.

Q. What about the tax picture, are there likely to be significant changes here as legal entities are altered?

A. Yes. The tax implications will certainly be there as companies find themselves dealing with compliance costs and technical challenges that relate to existing structures. At the end of the day, insurers, along with all sectors of the financial services industry, will likely see some need to change their tax structures as they work to retrofit themselves to be in line with the new rules and regulations coming down the pike as a result of the new financial services reform law.

Q. There’s been much talk about capital management in light of the recent financial crisis. Will the Dodd-Frank Act demand even greater discipline in this area?

A. It’s true that insurers, along with others in the financial sector, have placed greater emphasis on capital management in recent times. With the new law in place, including its new liquidity requirements, however, firms will need to think about securing more and better-quality capital. In addition, the fashion in which capital is deployed will also come under scrutiny. For management, this will necessitate the need to place greater focus on capital modeling and capital deployment.

Q. What else should we be watching out for in the capital management/liquidity space?

A. It’s no surprise that capital and liquidity are central players in the new financial services reform law. That said, we expect there might be a new “twist,” that will see the limitation, if not virtual demise, of leverage. The chance for capital arbitrage will also be reduced as regulators at the federal level are likely to discourage companies that seek alternative means to avoiding capital charges. Such avoidance, should it be publically reported could also impact reputational risk.

Q. The new law places great emphasis on consumer protection. Since the insurance industry is regulated at the state level, strong state-based laws on consumer protection already exist. How with the new federal consumer protection layer figure in?

A. It’s too early to determine the entire scope of how things will play out but we can say for certain that there will be a new federal layer of consumer protection and insurers need to be prepared for changes in this space. Likely in line for impact will be company boards of directors, who will need to protect themselves from possible regulatory involvement and legal risks that might be associated with the new law. To ensure companies are on track with both the letter and the spirit of the law, boards will likely begin drafting principals and core practices, among other safeguarding actions.

Q. As we dig into the language of the law, it becomes obvious that technology will play a huge role in areas such as thwarting systemic risk and emboldening consumer protection. To what extent will technology change impact the industry?

A. If you look back at recent edicts such as the Sarbanes-Oxley Act of 2002, you realize the potential that the sheer breadth of the Dodd-Frank bill will likely have a huge impact on insurers’ data and reporting requirements. In addition to consumer protection, another driver that will demand complex data and systems architectures will be the new systemic risk regulator, which is expected to ask financial firms for information that heretofore was not required. The good news is that the enhancement of data systems to meet regulatory demands can serve an insurance company well by enabling a decrease in finance costs, more effective capital management and better informed strategic management of business portfolios.

Q. Any other items related to the new law that insurance companies should be looking out for?

A. As with technology, another area to watch out for is human capital. Due to the highly technical nature of the new law, and the huge risk associated with noncompliance, the insurance sector, among others, will need to ensure they have the people and processes in place to meet the demand as regulations associated with the bill fall into place. This will include a revelation of company culture, organization and the roles, skills and experience of existing and new employees.