For more than 150 years the state-based system of insurance regulation has worked, successfully protecting consumers and creating a competitive and diverse U.S. insurance market.

In fact, a report issued by the Government Accountability Office (GAO) in June 2013 found the state-based system of insurance regulation helped to mitigate the negative effects of the 2007-2009 financial crisis on the insurance industry.

Now, the election of Donald Trump as president and a Republican majority in both houses of Congress will bring about a unique opportunity to re-examine the regulatory framework for insurance.

PIA opposed creation of the FIO from outset

With Congress poised to significantly roll back key provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the time is right to include a full repeal of the Federal Insurance Office (FIO) as part of any financial regulatory reform package. Our longstanding and robust state-based insurance regulatory system does not require this level of federal oversight.

PIA opposed the creation of the FIO from the outset. In 2010, advocates of federal insurance regulation succeeded in getting the FIO established as part of the Wall Street Reform and Consumer Protection Act (Dodd-Frank) — but PIA, along with others in industry, fought back attempts to give this office broad authority. In the end, protections against the FIO acting as a regulator of the business of insurance were included.

One only needs to look at recent actions by FIO to see why its existence is inappropriate. In November 2016 it issued a report recommending that Congress consider prescribing a uniform national standard for state guaranty association coverage limits. This report only validates our concerns that the FIO's ultimate aim is to federalize or itself become a federal regulator of insurance.

Repeal, and don't replace

A version of Dodd Frank reform that was introduced and passed the House Financial Services Committee last year, the Financial CHOICE Act, is expected to be reintroduced early in the new 115^th Congress. PIA has raised concern about one provision included in this bill that would create a new federal office called the Office of the Independent Insurance Advocate, within the Treasury Department. The head of this new office would be confirmed by the Senate and given a six-year term, while the current FIO director is a Senior Executive Service Employee in the Department of the Treasury.

The proposed Independent Advocate office would have the power to have its own budget, hire staff and engage attorneys. It is expected to coordinate federal efforts on international insurance matters, including at the International Association of Insurance Supervisors (IAIS), and assist in negotiating covered agreements, monitor the insurance industry, recommend insurance companies to be designated for heightened prudential standards and supervision and administer the Terrorism Risk Insurance Program. This office would have the potential to morph into an FIO on steroids.

We were somewhat pleased that the office would be given no broad authority to regulate or supervise insurance. That said, our concerns with the very existence of this office have continued, as federal offices tend to gain more power over time — not less.

Unintended consequences

Given the concentration of power in this proposed office, we are concerned about unintended consequences of the independent insurance advocate developing into an even stronger Federal insurance entity by formalizing a position with an even broader mandate. While the FIO has adhered to its limited mandate, it has indicated from time to time that it wishes to expand federal authority and has advocated for national standards.

Neither the Federal Insurance Office nor an Office of the Independent Insurance Advocate are needed.

If the goal of the new Congress is to eliminate unnecessary federal regulation, getting rid of the FIO makes solid sense. Doing so would reaffirm that regulation of insurance should continue to be the responsibility of the states.

We look forward to working with Congress to repeal the FIO and continue to cultivate the well-functioning system of state insurance regulation.

Jon Gentile is Vice President of Government Relations of the National Association of Professional Insurance Agents (PIA) based in Alexandria, Va. Opinions expressed in this article are the author's own.

Special Reports /

Repeal, don’t replace the Federal Insurance Office

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