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 contains a glossary of them that'snearly two pages long.

But I digress. One of the most discussed of insurance acronyms,of course, is the FIO, or Federal Insurance Office, which releasedjust in time for Christmas its long-delayed report (createdpursuant to the Dodd-Frank Act) that examines whether federaloversight is truly necessary in regulation of the insuranceindustry. It thoughtfully posits that the debate is not whetherregulation should be state-based or federal, but whether there areareas in which federal involvement in regulation under thestate-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 what started all this talk of increased regulation in the firstplace; it's hard to argue against the importance of preventing anyof our industry's 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 highlight a June 2013Government Accountability Office report that states the state-basedsystem worked effectively to help mitigate the impact the 2008financial crisis had on the industry.

Interestingly, one group that didn't question the report'sassessment of the state-based system was the National Associationof Insurance Commissioners (NAIC), which is comprised ofstate-based regulators. NAIC President and Louisiana InsuranceCommissioner Jim Donelon says in a statement that the 71-pagereport “acknowledges the effectiveness of state-based insuranceregulation and the improvements states have made.” No chest-beatingthere.

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 the tent,” hetells NU, noting that Dodd-Frank is the law of the land for theindefinite future—and it already codifies parts of the hybridapproach to regulation that the FIO report contemplates.

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 bewell-received by Congress.”