NU Online News Service, March. 8, 1:15 p.m. EST
The role of the Federal Insurance Office is "the biggest wildcard in regulatory reform," and the agency "could very well end up having a significant effect on insurer operations and costs," according to a Deloitte report.
The report, "Insurance Industry Outlook: High Hurdles Loom in 2011 & Beyond," authored by Sam Friedman, insurance leader for Deloitte Research, notes that while the FIO does not have much regulatory authority on paper, it can strain insurer operations and raise compliance costs by demanding data from the industry to carry out its mandate to produce studies.
The report points out that the FIO, created by the Dodd-Frank financial services reform law, is required to seek existing information before going to the industry, but the law does allow the FIO to compel carriers to produce data if needed. Aside from costs related to providing data, the outcome of the FIO studies could also impact the industry.
"Of particular concern to personal lines carriers is that the FIO can gather information about the ability of minorities and low-income consumers to access affordable insurance products," the report states. "The subject has been raised by a number of state regulators in the past, generating controversy about insurer underwriting and pricing decisions."
Additionally, the FIO is scheduled to issue a report to Congress on the state regulatory system, addressing, among other topics, the costs and benefits of enacting federal oversight of insurance. The Deloitte report states that such oversight could be across the board or specific to certain lines. "Given the proclivity of regulatory agencies to seek more power, and prior Treasury Department statements favoring more national insurance regulation, FIO is expected to conclude that a greater federal role is required," according to the report.
The report does point out that concerns about the FIO must take into account the agency's limited resources, "with staff allocations likely to be minimal in the current budget-conscious environment."
It also notes the potential benefits some in the industry see coming from the FIO. "Association leaders believe there is actually an opportunity for the FIO to be a positive force if its influence results in more uniform regulatory practices across the country," the report states.
The report mentions the potential impact of the Financial Stability Oversight Council (FSOC), also created by the Dodd-Frank Act, stating that it could end up exerting some authority over the biggest industry players.
While the report did not dive too far into the impact the FSOC could have going forward, recent comments by industry lawyers indicated that the council is the "cutting-edge issue as it relates to insurance regulation at this time."
Touching on the market cycle and economy, the Deloitte report states that insurers should not wait around for a recovery but rather should target regions, states and niches that are on the rise. "These trends provide insurers with an opportunity to rebound more quickly if they target their 
capital—financial, technological and intellectual—on areas where growth potential is strongest," notes the report.
Speaking to concerns on the minds of agents and brokers, the report notes that many producers are wary of competition from alternative distribution channels as technology allows for new interfaces for companies to connect with consumers. A Deloitte/National Underwriter survey in 2009 found that 83 pecent of producers expect more competition from alternative distribution channels.
The survey also found that 70 percent of agents and brokers are concerned about online price-quoting services and three of four agents fear more competition from carrier direct sales, much of which take place over the web.
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