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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 13, 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.

“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.”

PIA’s initial observations on the Federal Insurance Office (FIO) report on modernization of insurance regulation were prominently noted in articles in the insurance trade press. These included the National Underwriter (“From Welcoming to Wary: Industry Responds to FIO Report”) and Insurance Journal (“P/C Industry Supportive, But Cautious on FIO Recommendations”).

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