Editor's note: Arthur D. Postal writes aweekly column for PC360 on insurance-related developments inWashington. Prevoiusly, he was National Underwriter'sWashington Bureau chief. Opinions expressed are the author'sown.

Property and casualty industry officials gave unanimous supportlast week for the concept of the Federal Insurance Office, althoughthey acknowledged the devil is in the details and said they remaincomfortable with the current state-based regulatory system.

At a hearing on the FIO convened by the Housing and InsuranceSubcommittee of the House Financial Services Committee, Rep.Michael Capuano, D-Mass., ranking minority member of thesubcommittee, asked,

“If your choice was to keep FIO as it is, pretty much with itsauthority or limited authority as it is, to have these discussions,would you repeal it outright?” All of the insurance-trade groupssaid they supported the FIO.

The hearing was the insurance highlight in a week in Washingtonthat saw continued uncertainty over flood-insurance rate hikes, anda victory for crop insurers and their agents in the form of therecently-signed farm bill that includes a big boost to thecrop-insurance program.

The House subcommittee hearing was called for in response to theFIO's regulation modernization report released late last year.

During the hearing, Capuano said, “There are some of mycolleagues here who hate the concept that FIO even exists. Theyhate the concept of them even asking questions and trying to put afocus on this discussion.”

He added, “I would like to ask each of you, if you had a choice,if I made you emperor of the universe, and you could unilaterallymake this decision, now—you only have two choices here. I'm notgoing to give you multiple choices, because that gets toocomplicated, and I don't have that choice. I get to vote red orgreen, so you may as well vote red or green.”

One-by-one, the representative of each trade group voicedsupport.

Paul Ehlert, president of Germania Farm Mutual InsuranceAssociation, Brenham, Texas, testifying on behalf of the NationalAssociation of Mutual Insurance Companies, said, “I think FIOdefinitely has a role in the international market. And we wouldsupport FIO in that market, as well.”

The Independent Insurance Agents & Brokers of Americasupports the FIO as it stands, said Jon Jensen, president, Correll Insurance Group, which is basedin South Carolina.

Frank Nutter, president and CEO of the Reinsurance Associationof America, said the RAA supported the FIO, “with the authoritythey have,” and “for covered agreements in particular.”

The Property Casualty Insurers Association of America also saidit supported “FIO as it is,” as Robert Restrepo, president,chairman and CEO of State Auto Insurance Companies testified.

Scott Sinder, a partner at Steptoe and Johnson who testified onbehalf of the Council of Insurance Agents and Brokers, added,“We've been big supporters of FIO since day one.”

J. Stephen “Stef” Zielezienski, senior vice president andgeneral counsel of the American Insurance Association, added, “Yes,we support FIO and believe it has a crucial internationalrole.”

For his part, FIO Director Michael McRaith said the state versusfederal oversight discussion is a “binary debate” that is a relicof a bygone era. In contrast to previous eras, the world ofinsurance today is vast, complex, diverse and global, McRaithsaid.

It is “not as it was, or as one might wish it were,” hesaid.

Rep. Randy, Neugebauer, R-Texas, chairman of the subcommittee,did take issue with McRaith on the activities of InternationalAssociation of Insurance Supervisors (IAIS), which is proposingComFrame as a model for the supervision of internationally activeinsurance groups. “Identify the problem,” Neugebauer said toMcRaith. ComFrame seems to be “a solution in search of a problem,”he said.

McRaith defended FIO's role in the international-insurancemarket, saying that FIO is unlikely to sit back and be a spectator,and that it will do what it believes is in the “national interest”for such a critical component of the economy and consumers'lives.

Industry a winner in new farm bill

As for the farm bill, both crop insurers and agents were seen asbeneficiaries of major changes in the farm-subsidy system thatestablishes a new program to cover “shallow losses,” or lossesincurred by farmers but not covered currently by cropinsurance.

Neugebauer proposed legislation in the last two Congressessupporting such a change as more appropriate than the directsubsidy program that has been a hallmark of prior farm-aidprograms.

The Supplemental Coverage Option (SCO) would be available forpurchase by crop producers as an additional policy to cover part ofthe deductible under the producer's underlying policy.

R.J. Lehmann, a senior fellow at the R StreetInstitute, said the SCO covers up to 90% of a farmer's crop revenuewhen elected in combination with a conventional crop-insurancepolicy.

In its latest Weekly Credit Outlook, Moody's Investor's Servicessaid the new farm bill is “credit positive” for U.S. crop insurersbecause it further cements their pivotal role in the U.S.government's support of the agricultural sector. Moody's said thebill expands existing crop-insurance programs and restricts theability of the Department of Agriculture to renegotiate lowerpayments to crop insurers during the term of the law.

Moody's said the bill expands the use of the federal multi-perilcrop insurance (MPCI) program by approximately $7 billion in addedcrop-insurance protection spread over the coming decade. It isavailable to farmers only if they record actual losses.

The law also eliminated a much-criticized $5 billion annualsubsidy to farmers (handled outside of the crop-insurance program)who received the payments whether they grew crops or not.

“The final farm bill conference report strengthens the FederalCrop Insurance Program (FCIP) and recognizes it as the central riskmanagement tool for farmers and ranchers across the country,” saidRobert Rusbuldt, president & CEO of the Independent InsuranceAgents and Brokers of America. “Independent insurance agents andbrokers play an integral role in the efficient and effective salesand servicing of this program,” Rusbuldt said, meaning that agentsshould receive higher commissions as a result.

The new program means that, the FCIP will not have paymentlimits, but it will be tied to conservation compliance, Rusbuldtsaid.

“Opposing payment limits for the FCIP was a central goal for theIIABA as the farm bill went through the legislative process,” saysCharles Symington, IIABA senior vice president for external andgovernment affairs.

The bill “cemented crop insurance” as the cornerstone of farmpolicy, and “proves that crop insurance's popularity amongfarmers has reached an all-time high,” Tim Weber, chairman of theAmerican Association of Crop Insurers (AACS) and National CropInsurance Services (NCIS), said today at the annual conference ofthe two trade groups in Scottsdale, Ariz.

There are 17 crop insurers.

Brandon Willis, administrator of the USDA's Risk ManagementAgency, which administers the law, said at the meeting that, nowthat the law has been enacted, the agency is focusing on quicklyimplementing it.

Willis said the Obama administration would prioritizeimplementation based on those programs that affect the mostgrowers. He specifically mentioned ensuring a 2015 signup forthe STAX program that provides enhanced insurance protection forcotton farmers and the new Supplemental Coverage Option for growersof other crops.

Flood uncertainty continues

As for flood, the House twice last week rejected the efforts ofDemocrats to put S. 1926, which delays National Flood InsuranceProgram rate hikes imposed by the 2012 Biggert-Waters Act for fouryears, on the House floor. What the House will do, and when,remains unclear.

However, a federal court in Gulfport, Miss., is reviewing arequest by the Mississippi Insurance Commissioner Michael Chaneyfor an injunction barring the rate increases until the FederalEmergency Management Agency completes an affordability study. Thesuit has strong support from other coastal and Gulf states and adecision could come down this week, some industry lawyerssay.