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PIA Responds to the FIO Report on Regulatory Modernization

Almost two years overdue, the Federal Insurance Office (FIO) on December 12, 2013 finally issued the report that it was required to produce under the Dodd-Frank Act on how to modernize and improve the system of insurance regulation in the United States...
December 18, 2013

Almost two years overdue, the Federal Insurance Office (FIO) on December 12, 2013 finally issued the report that it was required to produce under the Dodd-Frank Act on how to modernize and improve the system of insurance regulation in the United States. PIA’s policy analysts are now in the process of reviewing this report and its recommendations in detail. PIA will issue a comprehensive analysis in the coming days.

Initially, PIA has some observations:

  • We are disappointed that the FIO, in its narrative regarding the 2007-2009 financial crisis, does not appear to take into account the report issued by the Government Accountability Office (GAO) on June 27, 2013. The FIO report sails by the GAO conclusion that the state insurance regulatory system worked well to help mitigate the negative effects of the crisis on the insurance industry.
  • The FIO report, in attempting to make a case for more uniform regulation, cites only one recent example to make its case: AIG. However, we believe it significantly misreads and misinterprets what actually happened. It also appears to give a pass to the regulatory failures admitted by the Office of Thrift Supervision (OTS) involving the non-insurance unit of AIG which generated the initial problems.
  • The FIO report attempts in subtle ways to reset the debate on state vs. federal insurance regulation, replacing it with an assumption that federal involvement is necessary when the goals FIO sets out are not embraced by the states. This would replace deference to the states for determining insurance public policy with deference to the FIO, potentially under threat of preemption. FIO may wish to change the terms of this debate as a way to advance its views and gain more power for itself; however, Congress is under no obligation to accept this.
  • The FIO seems to express an inordinate level of concern with the global aspects of the insurance industry, as opposed to the domestic United States insurance marketplace. At one point, it asserts that the state-based regulatory system creates “inefficiencies and burdens…for the international community.” [emphasis added] PIA believes that the primary public policy focus should be for the well-being of U.S. insurance consumers and our domestic insurance marketplace. Concern for domestic insurance operations should take precedence over concern for global insurance operations, not vice-versa.
  • Many of the recommendations for action cited by the FIO are already underway by the National Association of Insurance Commissioners (NAIC). This is appropriate, as the states regulate the business of insurance; however, since action is already being taken by the NAIC, many of these recommendations are merely duplicative.


A few hours after the FIO report was issued on December 12, PIA put out a brief statement:

“It looks like the FIO, reading the political climate, decided not to propose a full federal takeover of insurance regulation from the states, but to take steps to frame a future debate,” said PIA National Executive Vice President & CEO Mike Becker. “On first blush, this looks like ‘the camel’s nose under the tent.’”

“As a strong supporter of our successful state-based system of insurance regulation, PIA is concerned that the FIO report may be driven by assumptions and assertions that do not hold up to scrutiny,” Becker said. “Many of FIO’s assumptions appear to have been contradicted by a Government Accountability Office (GAO) report that concluded that the state insurance regulatory system worked well to help mitigate the negative effects of the 2007-2009 financial crisis on the insurance industry. We look forward to providing our more detailed, substantive analysis in the days and weeks ahead.”

Meanwhile, NAIC CEO and former Sen. Ben Nelson commented on the FIO report: “The Dodd-Frank Act established the Federal Insurance Office (FIO) within the Treasury Department and makes clear that FIO is not a regulatory agency and its authorities do not displace state insurance regulation,” said Nelson. “While we appreciate FIO’s suggestions for improvement, the states have the ultimate responsibility for implementing regulatory changes.”

“The NAIC’s deliberate, thoughtful, and transparent process has served policyholders well for the past 140 years,” Nelson said. “In this regard, reports such as this one as well as other comments provided by consumers, industry, and governmental organizations as part of this process are always welcome and are useful tools for assisting regulators in identifying areas that require improvement.”

The National Conference of Insurance Legislators (NCOIL) President Rep. Greg Wren (AL) said “NCOIL will be thoroughly and thoughtfully examining the FIO Modernization Report with a keen eye toward its direct and indirect impact on the state-based system of insurance regulation.”

“NCOIL legislators throughout the United States are fully aware of the preeminent role which has been reserved to the states in the regulation of insurance in order to protect U.S. consumers,” said Wren. “NCOIL stands ready to work directly with the Treasury Department and the FIO to ensure state legislatures have a significant role in the future of insurance regulation in the United States.”