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FIO Report Met with Skepticism in Hearing

Federal Insurance Office director Michael McRaith faced skepticism when he appeared February 4 before the House Subcommittee on Housing and Insurance to discuss the office’s much-delayed report on regulatory modernization...
February 12, 2014

Federal Insurance Office (FIO) director Michael McRaith faced skepticism when he appeared February 4 before the House Subcommittee on Housing and Insurance to discuss the office’s much-delayed report on regulatory modernization. While not recommending outright federalization of insurance regulation, both the report and McRaith in his testimony outlined ways that the federal government could “modernize” insurance regulation, including several where he said the states have failed to achieve uniformity despite complaints from the industry. He said these included producer licensing, product approval, reinsurance captives and mortgage insurance.

McRaith’s support of an expanded federal role in some aspects of the industry was met with criticism from lawmakers on the panel, who argued the state system has proven itself to be capable of handling the worst financial crises, such as the one in 2007-2008.

Several members of the committee criticized McRaith and the FIO for failing to produce the report on time, saying that demonstrated the problem with permitting the federal government to take on a regulatory function. Under the Dodd-Frank financial reform act, the report was required to be submitted to Congress by January 2012. The report wasn't turned in until nearly two years later.

“We expect to get quality reports from the FIO and to get them on time,” said Rep. Sean Duffy, (R-Wis). “The timing of the report adds to my concern about federal involvement in the private market.” Duffy questioned whether the FIO was “incompetent.”

PIA National President John G. Lee observed in a statement,“Remembering back to my college days, if I had attempted to turn in a report almost two years after it was due, I would have been deemed to be a failure. But we are dealing with the federal government here, so there are apparently no consequences for such behavior.”

Connecticut Insurance Commissioner Thomas Leonardi also testified before the panel. He said he did not see a need for a larger federal role in almost all of the cases cited by McRaith. He denied that the federal government was needed in the regulation of mortgage insurance and he spoke against the FIO’s support for a global capital standard. North Dakota Insurance Commissioner Adam Hamm, president of the National Association of Insurance Commissioners (NAIC), said, “The NAIC’s accreditation system ensures insurance is regulated consistently across the country, while allowing each state to be flexible and respond to the concerns of its own particular market.”

“PIA was encouraged by the level of skepticism with which the FIO report and the FIO director’s testimony was met,” said PIA National Director of Federal Affairs Jon Gentile, who represented PIA at the hearing. “An agency of the federal government being unable or unwilling to adhere to deadlines for Congressionally-mandated reports — missing them by almost two years — calls the substance of such reports and the competency of the office into question. It also indicates a measure of arrogance.”

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