Almost two years overdue, the Federal Insurance Office (FIO) finally issued on Dec. 12 the report that it was required to produce under the Dodd-Frank Act on how to modernize and improve the system of insurance regulation in the United States.
From the outset, the National Association of Professional Insurance Agents (PIA) opposed FIO being the entity that would be tasked with making recommendations on insurance regulatory modernization to Congress. We believe that FIO has a bias in favor of federal insurance regulation. This report, both in what it includes and what it ignores, supports our view that many of our initial concerns were well placed.
Under the law, FIO has not been granted any authority. Rather, in its enabling statute, FIO has a series of responsibilities that are all advisory in nature.
The FIO report is a very carefully constructed document that’s designed to advance a federalization argument while at the same time positioning FIO as the final arbiter of what constitutes modernization.
The report attempts to reset the debate on state versus federal insurance regulation, replacing it with an assumption that federal involvement is necessary when the goals FIO sets out are not embraced by the states. This would replace deference to the states for determining insurance public policy with deference to the FIO itself, potentially under threat of preemption. This fits the definition of an attempt at a power grab.
The report advocates a hybrid approach between state and federal involvement. While stopping short of supporting an optional federal charter, FIO’s spin is part of the reset, in that it attempts to elevate federal involvement to equal status with state involvement. But this is contrary to Congress’ clear determination that the states are the regulators of the business of insurance, not the federal government.
FIO may wish to change the terms of the state/federal debate as a way to advance its views and gain more power for itself; however, Congress is under no obligation to accept this, and the insurance industry is well advised not to stand aside and let it happen.