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FIO Will Work to "Improve" Insurance Regulation, Treasury Official Says in London

Treasury Deputy Secretary Neal Wolin told London stockbrokers on November 17 that the Obama administration believes the new financial services reform law gives it the...
November 23, 2010

Treasury Deputy Secretary Neal Wolin told London stockbrokers on November 17 that the Obama administration believes the new financial services reform law gives it the power to monitor the insurance sector and coordinate and develop federal policy on major domestic [our emphasis added] and international insurance issues.

Wolin's statements at the London Stock Exchange came despite the fact that under the law, the new Federal Insurance Office (FIO) is prohibited from having any general supervisory or regulatory authority over the business of insurance.

"The States remain the functional regulators," Wolin said. But he added that through the FIO, "the federal government will work toward modernizing and improving our system of insurance regulation."

Mr. Wolin added the new Federal Insurance Office will monitor the insurance industry to look for problems or gaps in insurance regulation that can contribute to a systemic crisis in the insurance industry or the financial system, gather data and information on the industry and insurers, and coordinate policy in the insurance sector.

Of course, if the FIO wishes to be constructive as it "looks for problems or gaps in insurance regulation," it could address the federal government's lack of regulation of derivatives, which caused a great deal of our recent financial turmoil. These "products" were marketed as insurance products, but Congress mandated that the states could not regulate them.

What It Means to Agents: The Obama administration is claiming an overly broad mandate for the FIO that is in direct conflict with the law. The mandate for the FIO is very clearly limited. It is expressly prohibited from having any regulatory authority over the business of insurance. The FIO is to serve as an information resource for policymakers and coordinate international insurance agreements. That's all. It is specifically not supposed to coordinate policy in the domestic insurance sector. And its mandate does not include, as Mr. Wolin puts it, "work[ing] toward modernizing and improving our system of insurance regulation."

The intent of Congress in setting up the FIO could not have been clearer. Lawmakers want the FIO to stay out of regulating the business of insurance and leave it to the states. The U.S. Treasury Department has no business exceeding that mandate.