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FIO Seeks to Revive Talk of Federal Insurance Regulation

The newly-formed Federal Insurance Office (FIO) has placed a notice in the Federal Register requesting comments on how to modernize and improve the system of...
October 18, 2011

The newly-formed Federal Insurance Office (FIO) has placed a notice in the Federal Register requesting comments on how to modernize and improve the system of insurance regulation in the U.S., and specifically put on the table what it terms is the need for a federal regulator across multiple lines of insurance and any shortcomings in state insurance regulation that might need addressing.

In addition, the FIO notice said it wants to hear from interested parties on the costs and benefits of potential federal regulation of insurance across various lines of insurance except for health insurance. FIO wants views on systemic risk regulation for insurers, capital standards and the relationship between capital allocation and liabilities, consumer protection issues on insurance products, including any "gaps in state regulation," and access to affordable products across all lines by those traditionally underserved, such as minorities and low-and moderate-income persons.

Also up for discussion are state insurance guaranty fund systems, including the loss of guaranty fund coverage if an insurance company is subject to a Federal resolution authority.

What it Means to Agents:  Legislation that created the FIO mandated that it conduct a study of our nation's system of insurance regulation and make a report to Congress with recommendations. PIA opposed this provision of the law from the outset because we believe the FIO is incapable of conducting an objective study. PIA opposes federal regulation of insurance and supports state insurance regulation.

The scope of authority of the FIO is strictly limited by law. The legislation creating it clearly states, "Nothing ... shall be construed to establish or provide the office or the Department of the Treasury with general supervisory or regulatory authority over the business of insurance."

Unfortunately, the Obama Administration seems predisposed toward expanding the FIO into an insurance policy-setting body, which exceeds its mandate. The FIO is meant to serve as an information resource for policymakers and to coordinate international insurance agreements - nothing more. But this study can be used by the FIO as an opening to recommend greater federal regulation of insurance, as evidenced by the questions it published in the Federal Register.

Greater federal regulation of insurance would greatly expand the power of the FIO itself - which Congress is on record opposing - and which is why this FIO study lacks credibility. Congress needs objective information, not the kind of pre-ordained conclusions likely to result from a study with a built-in institutional bias. Objective, unbiased assessments of public policy options are best left to the non-partisan Government Accountability Office (GAO), rather than having federal agencies on one side of a debate controlling the debate. FIO should not be the entity conducting this study.

See the entire FIO Notice: FIO Notice in Federal Register (10/17/2011)

Read an article on the FIO proposal: Federal Regulation of Insurance Under Consideration (National Underwriter 10/14/2011)