Last November, the National Association of Professional Insurance Agents (PIA) became the first association to publicly call for the repeal of the Federal Insurance Office (FIO).
Over the last year, we’ve been joined by other stakeholders seeking to dismantle what can only be described as a temporary lapse in judgement in the aftermath of the Great Recession.
In 2010, advocates of federal insurance regulation succeeded in getting the Federal Insurance Office (FIO) established as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act. PIA National opposed the creation of the FIO from the outset. For over 150 years, the state-based system of insurance regulation had successfully protected consumers and created a competitive and diverse U.S. insurance market that has been enormously successful over the years. There was no need to jeopardize the state system of regulation. But there are times when policymakers panic and act rashly; the aftermath of the recession was such a time, and policymakers overreacted in creating the FIO.
Like most Federal offices, once created, it sought to consolidate its power. This happened even though the FIO shouldn't have been formed in the first place. Over the last seven-plus years of its existence, the FIO has called for federal regulation of mortgage insurance; for its inclusion in supervisory colleges with state regulators; and for uniform national standards for state guaranty associations. It also issued a report on consumer protections that was far beyond the scope of its authority. Every one of these things was an overreach, all well outside its mandate.
Related: GAO vs. FIO
The FIO also undervalued the insurance industry by rejecting its expertise in concurring with Systemically Important Financial Institutions (SIFI) designations (which have since been questioned) for nonbank insurance institutions under Dodd-Frank. What’s more, the FIO made a bad deal with the European Union on an international covered agreement that could open the door for Europe to impose its standards on U.S. insurance markets.
Earlier this year, Congress missed an opportunity to address the improper exercise of the FIO's authority when the House passed the Financial Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs (CHOICE) Act. In fact, the CHOICE Act would make the problem worse by folding the FIO into a newly-created mega insurance office called the Independent Insurance Advocate, which would have vast new authority and virtually no accountability.
The FIO Reform Act
With the CHOICE Act dead on arrival in the Senate, however, a bipartisan bill has been proposed by Congressmen Sean Duffy (R-WI) and Denny Heck (D-WA) called the Federal Insurance Office Reform Act of 2017 (FIO Reform). While PIA National has advocated for and continues to seek the full repeal of this office, we support this legislation, as it will begin to scale back the FIO’s authority, particularly on some domestic matters.
Importantly, the bill moves the FIO from an independent realm of the Treasury Department into the Department’s Office of International Affairs; this will properly subordinate the office to the Treasury. The office will also be limited to five staff members. Since its creation, FIO has gradually expanded its authority, so these changes are important steps.
The FIO Reform Act also removes FIO’s improper assumption of certain duties, like its advisory role to the Financial Stability Oversight Council. FIO will no longer have subpoena power, and its power to issue reports will be somewhat curtailed. FIO will continue to have a role in negotiating international covered agreements, but the bill requires state insurance commissioners to be consulted and involved throughout such negotiations. Consistent state regulatory involvement will provide an important check on FIO’s power.
However, the bill should have gone further in scaling back the power of the FIO. To that end, and short of full repeal, PIA views this legislation as a stepping stone to advocate for the FIO’s disentanglement in the process of designating systemically important financial institutions. In keeping with its move to the International Affairs Office, FIO should not retain authority to monitor gaps in U.S. insurance regulation or monitor the access and affordability of insurance. Such duties give the FIO the opportunity to expand the scope of its power in the future.
While the FIO Reform Act is a step in the right direction to reign in this nascent federal entity, the goal should remain the full elimination of the Federal Insurance Office, once and for all. We look forward to the FIO of today being a distant memory.
Jon Gentile is vice president of government relations of the National Association of Professional Insurance Agents. He can be reached by sending email to email@example.com. The opinions expressed here are the writer's own.