One thing I always find amusing about the insurance industry is its unabashed embrace of acronyms. Surely there are few other industries in the world in which you see quite as many of them bandied about—so much so, in fact, that a certain report we’ve awaited for quite some time contains a glossary of them that’s nearly two pages long.
But I digress. One of the most discussed of insurance acronyms, of course, is the FIO, or Federal Insurance Office, which released just in time for Christmas its long-delayed report (created pursuant to the Dodd-Frank Act) that examines whether federal oversight is truly necessary in regulation of the insurance industry. It thoughtfully posits that the debate is not whether regulation should be state-based or federal, but whether there are areas in which federal involvement in regulation under the state-based system is warranted.
The report concludes that insurance regulation in the U.S. is best achieved through a hybrid model in which state and federal authorities can work together, their roles defined by which strength each party brings to the process of improving solvency and market-conduct regulation. Solvency, remember (or a lack thereof), is what started all this talk of increased regulation in the first place; it’s hard to argue against the importance of preventing any of our industry’s giants from ever again requiring a bailout.
Industry reaction thus far has been measured, if not mostly predictable: David Sampson, president and CEO of the Property Casualty Insurers Association of America, notes that the report “starts by listing a number of attacks on state regulation that PCI believes does not adequately reflect the strengths and historical success of the current state-based system.”
Similarly, the National Association of Professional Insurance Agents (PIA) says the report fails to highlight a June 2013 Government Accountability Office report that states the state-based system worked effectively to help mitigate the impact the 2008 financial crisis had on the industry.
Interestingly, one group that didn’t question the report’s assessment of the state-based system was the National Association of Insurance Commissioners (NAIC), which is comprised of state-based regulators. NAIC President and Louisiana Insurance Commissioner Jim Donelon says in a statement that the 71-page report “acknowledges the effectiveness of state-based insurance regulation and the improvements states have made.” No chest-beating there.
Cheering the strengths of state regulation, however, was never the point of the FIO’s report. Howard Mills, chief advisor with Deloitte LLP’s insurance industry group, agreed with this sentiment, and felt the report contained no big surprises, was fairly limited and its recommendations stuck to what one would have expected.
One of the more colorful turns of phrase in describing the FIO’s recommendations was offered by PIA National Executive Vice President and CEO Mike Becker, who said while the group needs to take a closer look at the FIO report, “On first blush, this looks like the camel’s nose under the tent.”
Robert Hartwig, president of the Insurance Information Institute, contends that ship has already sailed. “The camel’s nose is under the tent; in fact the camel’s head is under the tent,” he tells NU, noting that Dodd-Frank is the law of the land for the indefinite future—and it already codifies parts of the hybrid approach to regulation that the FIO report contemplates.
Camel euphemisms aside, a report as sober and measured as the one delivered should put some at ease who would have thought the feds would have communicated a tougher message. As Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, very aptly puts it, “It was worth waiting for. We hope and trust that this report will be well-received by Congress.”