Feds Reach into State Regulators for Boss of Federal Insurance Office

I'm sure the phones were ringing in the offices of insurance carriers based in Illinois when the announcement came last week that secretary of the treasury Timothy Geithner had selected Michael McRaith to be the first director of the Federal Insurance Office.

The fear that someone would be put in charge of the insurance office that was unfamiliar with the industry—and its voluminous regulations—was for naught. McRaith not only has experience as the director of the Illinois Department of Insurance, but he also is the current secretary/treasurer of the National Association of Insurance Commissioners (NAIC).

McRaith has his work cut out for him. In creating the Federal Insurance Office, Congress has asked the director to submit a report to them by early 2012 on how best to modernize and improve insurance regulation.

Many observers believe the report will recommend the federal government have an increased presence in insurance. That's not much of a stretch.

Certainly McRaith wasn't selected to come in and say things are fine with the individual states in charge. It seems doubtful that anyone would be appointed to such a position—with a mandate to report to congress—if they were firmly opposed to the federal government usurping some of the power of the state regulators.

Deloitte's Howard Mills—himself a former New York state insurance commissioner—said of McRaith, "Mike understands the state regulatory system, the insurance industry, and has the reputation of being an extremely competent and fair regulator."

It seems that by reaching out to an experienced regulator and one tied closely to the NAIC, the Obama administration is making a statement about where federal regulation may –or may not—be headed.

As much as the Democrats would like to continue their love affair with big government, at this point in time it would be too much work and too expensive to dismantle the state regulatory system for insurers under a single roof, no matter how many national-brand insurers would like that.

Still, McRaith will be closely watched for the next year as he prepares to explain to congress what the federal government can and should be doing to ensure that the events of the last three years are never repeated.