One thing I always find amusing about the insurance industry isits unabashed embrace of acronyms. Surely there are few otherindustries in the world in which you see quite as many of thembandied about—so much so, in fact, that a certain report we'veawaited for quite some time now contains a glossary of them that'snearly two pages long.

But I digress. One of the most discussed of insurance acronymsis the FIO, or Federal Insurance Office, which just in time forChristmas released its long overdue, long-awaited report (createdpursuant to the Dodd-Frank Act) that examines whether federaloversight is truly necessary in regulating the insurance industry.It thoughtfully posits that the debate at hand is not whetherinsurance regulation should be state-based or federal, but whetherthere are areas in which federal involvement in regulation underthe state-based system is warranted.

The report concludes that insurance regulation in the U.S. isbest achieved through a hybrid model in which state and federalauthorities can work together, their roles defined by whichstrength each party brings to the process of improving solvency andmarket-conduct regulation. Solvency, remember (or a lack thereof),is one of the things that started all this talk of increasedgovernment regulation in the first place; it's hard to argueagainst the importance of implementing controls to help prevent anyof our industry giants from ever again requiring a bailout.

Industry reaction thus far has been measured, if not mostlypredictable: David Sampson, president and CEO of the PropertyCasualty Insurers Association of America, notes that the report“starts by listing a number of attacks on state regulation that PCIbelieves does not adequately reflect the strengths and historicalsuccess of the current state-based system.”

Similarly, the National Association of Professional InsuranceAgents (PIA) says the report fails to properly highlightconclusions of a June27 Government Accountability Office report stating that thestate-based system worked effectively to help mitigate the negativeimpacts the 2008 financial crisis had on the insuranceindustry.

Interestingly, one group that didn't question the report'sassessment of the state-based system was the National Associationof Insurance Commissioners, which is comprised of state-basedregulators. NAIC President and Louisiana Insurance Commissioner JimDonelon says in a statement that the 71-page report “acknowledgesthe effectiveness of state-based insurance regulation and theimprovements states have made.” No chest-beating there.

Cheering the strengths of state regulation, however, was neverthe point of the FIO's report. Howard Mills, chief advisor withDeloitte LLP's insurance industry group, agreed with thissentiment, and felt the report contained no big surprises, wasfairly limited and its recommendations stuck to what one would haveexpected.

One of the more colorful turns of phrase in describing the FIO'srecommendations was offered by PIA National Executive VicePresident and CEO Mike Becker, who said while the group needs totake a closer look at the FIO report, “On first blush, this lookslike the camel's nose under the tent.”

Robert Hartwig, president of the Insurance InformationInstitute, contends that ship has already sailed. “The camel's noseis under the tent; in fact the camel's head is under thetent,” he tells NU, noting that Dodd-Frank is the law ofthe land for the indefinite future—and it already codifies parts ofthe hybrid approach to regulation that the FIO reportcontemplates.

Camel euphemisms aside, a report as sober and measured as theone delivered should put some at ease who would have thought thefeds would have communicated a tougher message. As Joel Wood,senior vice president of government affairs for the Council ofInsurance Agents and Brokers, very aptly puts it, “It was worthwaiting for. We hope and trust that this report will be wellreceived by Congress.”