The National Association of Professional Insurance Agents (PIA)is disappointed that the FIO, in its narrative regarding the2007-2009 financial crisis, does not appear to take into accountthe report issued by the Government AccountabilityOffice (GAO) on June 27, 2013. The FIO report sails by theGAO's conclusion that the state insurance regulatory system workedwell to help mitigate the negative effects of the crisis on theinsurance industry. A truly objective report would have referencedthe GAO study's conclusions.

In arguing for more uniform regulation, the FIO report citesonly one recent example to make its case: AIG. However, we believeit significantly misreads, misinterprets and avoids making thedifference between the AIG insurance operations versus the AIGprivate capital London affiliate under which the originating matterarose. Thus, FIO confuses what actually happened regarding AIG'sinsurance operations versus its capital investment traditionoperations.

The report also appears to give a pass to the regulatoryfailures admitted by the Office of Thrift Supervision (OTS)involving a non-insurance unit of AIG which generated the initialproblems. These failures ultimately led to OTS, then a federalfinancial instrumentality, being dissolved.

The FIO seems to express an inordinate level of concern with theglobal aspects of the insurance industry, as opposed to thedomestic United States insurance marketplace. At one point, itasserts that the state-based regulatory system creates"inefficiencies and burdens…for the internationalcommunity." [emphasis added]. The primary public policy focusof insurance supervision and regulation should be to ensure thewell-being of U.S. insurance consumers and our domestic insurancemarketplace. The focus should be on how U.S. insurance needsinterface with global need–not on the concerns of global insuranceoperations about their operations in the U.S.

Many of the recommendations for action that the FIO cites arealready underway by the National Association of InsuranceCommissioners (NAIC). This is appropriate, as it was thestates' insurance regulators, along with industry that identifiedthese reforms and shared their action plan with FIO. Because actionis already being taken by the NAIC, FIO should have noted that itslisting came from the NAIC and is duplicative of states' actions. 

One area in which FIO demonstrates it could be willing tooverstep its responsibilities is regarding implementation of theNational Association of Registered Agents and Brokers Reform Act of2013 (NARAB II), if it is passed by Congress. PIA supports NARABII, however we are concerned when the FIO says that it will monitorits establishment and implementation "consistent with itsauthority."  Again, FIO has no authority and its statementis not consistent with FIO's advisory role, and we believeauthority for NARAB II should not reside within the purview of theFIO.

"As a strong supporter of our successful state-based system ofinsurance regulation, we are concerned that the FIO report may bedriven by assumptions and assertions that do not hold up toscrutiny," said PIA National Executive Vice President & CEOMike Becker. "Many of FIO's assumptions appear to have beencontradicted by a Government Accountability Office (GAO) reportthat concluded that the state insurance regulatory system workedwell to help mitigate the negative effects of the 2007-2009financial crisis on the insurance industry."

"On first blush, this looks like 'the camel's nose under thetent,'" Becker said.

Related: Read "GAO vsFIO"

NAIC vs. FIO

That nose does not belong in insurance regulation, according toNAIC CEO and former Senator Ben Nelson. "The Dodd-Frank Actestablished the Federal Insurance Office (FIO) within the TreasuryDepartment and makes clear that FIO is not a regulatory agency andits authorities do not displace state insurance regulation," Nelsonsaid. "While we appreciate FIO's suggestions for improvement, thestates have the ultimate responsibility for implementing regulatorychanges."

Since taking the executive helm at the NAIC, Nelson has been astaunch advocate for the state regulatory system and he has been inthe position of having to restrain the FIO.

At a March 8, 2013 meeting of National Conference of InsuranceLegislators (NCOIL) in Washington, D.C., Nelson issued a warning tothe FIO. "We are determined to see that FIO does the job it wasintended to do, but not our job," Nelson declared to the stateinsurance legislators from around the nation, adding the FIO should"stay in their own lane."

In testimony before Congress in June of last year, Nelsondeclared, "FIO does not speak for insurance regulators." Then inJuly of last year, Nelson said FIO Director Michael McRaith hadattempted to speak on behalf of state insurance regulators oninternational issues and had "taken positions that run contrary tothe state regulatory mechanism."

In November 2013, Nelson, Connecticut Insurance CommissionerThomas B. Leonardi, NAIC President Jim Donelon and North CarolinaInsurance Commissioner Wayne Goodwin met with President Obama atthe White House. Nelson and Leonardi raised issues they have hadwith the FIO. Nelson told the president that state regulators werenot getting support from the Treasury Department as global policydirectives, international capital and other standards are beingmeted out from afar.

President Barack Obama said he was supportive of stateregulation and told the NAIC to take its issues with theFIO up in a meeting with Treasury Secretary Jack Lew.

Different Visions

Attempts by the FIO to go beyond its mandate to only "monitor"the insurance industry and expand into regulatory activities inwhich it is prohibited from engaging may have provided some of thebackdrop for the controversy that erupted at the December 2013meetings of the NAIC.

Connecticut Commissioner Leonardi criticized what he describedas a unilateral decision by a past NAIC president to give the FIOone of the NAIC's three seats on the International Association ofInsurance Supervisors (IAIS). Leonardi said that after the seat hadbeen given up, "the FIO director [McRaith] had the audacity todemand that he take the seat held by our NAIC CEO." This is anexample of high-level bureaucratic hand-to-hand combat.

It is clear that the FIO is not satisfied remaining a benignentity. It has one agenda, while the NAIC has another. Thedifference is not about personalities, it is aboutphilosophies.

The NAIC for the most part believes in the state-based system ofinsurance regulation. The FIO seems to believe that increasedfederalization of insurance regulation is desirable. Each paints adifferent vision for our industry.

The current system of state-based insurance regulation has beena resounding success—for consumers, for our industry and for ournation's economy. The improvements it needs are being made by stateregulators, who for more than a century have served our industry,carriers, consumers and our economy very well.

The competing vision of federalization contends there are toomany insurance companies, that everything would be better if –instead of having many carriers of all sizes, meeting the needs ofconsumers in all areas of the country – we would have just ahandful of interconnected global mega-carriers, similar to howthere are only a handful of big banks. This would underminecompetition, with consumers, the economy and our local communitiesall being the losers.

One thing is clear: The attempt by the FIO to recast this debateas something other than state versus federal is disingenuous.