The FIO, Congress and Shaping Industry Regulation
Insurance Experts' Forum, October 31, 2011
Federal Insurance Office (FIO) Director Michael McRaith’s first appearance before a Congressional hearing could provide some needed reassurance for those concerned about the prospect of dual regulatory layers for insurance. Some had expressed concerns that the FIO, whose mandate includes sending a report to Congress early next year on how to improve state insurance regulation—including how federal regulation could help—could add another layer of regulation for insurers, increasing the burden on the industry.
While McRaith’s prepared testimony paid tribute to state regulation, including his six years as Illinois Insurance Director, what might have been most striking to those viewing the hearing was the deference the federal legislators granted to state regulators. With few exceptions, the legislators noted the strength of state insurance regulation and how well insurance companies did during the last fiscal crisis under that regime.
Time and again, Director McRaith was prompted to explain that FIO was not a regulator, and that they wanted to work cooperatively with the state regulators. The Director took pains to reassure the Congresspeople that the FIO would do all it could to minimize the burden of its data demands on insurers and downplayed any suggestion that he would be quick to employ his subpoena power.
Whereas two or three years ago, the legislators may have focused on the need for stronger regulation, what viewers saw at the hearing was an oversight committee strongly concerned about jobs in the industry, and the negative effect increased regulation could have. For an industry already as tightly regulated as insurance, this should be welcome news.
Those insurers that would like to replace our current state system of regulation with a federal or dual federal-state system may find less encouragement in the hearing. Neither the FIO director nor his hosts, the Insurance, Housing and Community Opportunity subcommittee of the House Committee on Financial Services, seemed inclined to consider the prospect of a federal regulator during a political period when jobs are wanting while regulations seem plentiful.
This actually speaks to the importance of a topic on which Director McRaith spoke briefly: The report. The Dodd-Frank Act requires the FIO to conduct a study on modernizing and improving the system of insurance regulation in the United States. This study is due on Jan. 31, 2012.
As McRaith mentioned more than once, the FIO has issued a request for comments as it prepares the report. Those comments are due by December 16, 2011, and anyone with an interest in the future of insurance regulation should take advantage of their opportunity to be heard.
This report offers a rare opportunity to influence the future shape of insurance regulation, and it goes beyond a simple “federal vs. state” argument, or even systemic risk. For example, McRaith noted the FIO now represents the United States at the International Association of Insurance Supervisors (IAIS). The IAIS just adopted new Insurance Core Principles (ICPs) that strongly suggest producer compensation disclosure as a consumer protection measure.
One item the FIO report must examine: Consumer protection for insurance products and practices.
That is just one item among many. Take a look at the comments already received, then add your voice. Otherwise you won’t be able to help shape the change that still may come.
Howard Mills is a director and chief advisor of the Insurance Industry Group of Deloitte LLP and can be reached at email@example.com.
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