The following is an article published in National Underwriter Advanced Markets, a National Underwriter product that focuses on estate planning, investments, life insurance, retirement planning, wealth management, and annuities.

 

The Federal Insurance Office

 

By Prof. William H. Byrnes and Robert Bloink, Esq.

 

September 17, 2010

 

Although regulation of insurance generally has been left to the states, the Wall Street Reform Act may foreshadow future federal oversight of the industry. The Act creates the Federal Insurance Office (FIO) within the Treasury, which will monitor all components of the insurance industry—excluding the health, crop, and long-term care sectors. The FIO is not a regulatory or supervisory body but will serve the following functions:

 

(1)Gathering information about the insurance industry, conducting studies on the industry, and generating reports for Congress and Executive Branch

(2)Locating regulatory gaps and other issues in the insurance industry that may contribute to systemic risk

(3)Administering the Terrorism Risk Insurance Program

(4)Monitoring minority and other underserved communities' access to affordable insurance

(5)Making recommendations to the Financial Stability Oversight Committee (also created by the Act) that particular insurers be supervised as a nonbank financial company by the Federal Reserve

(6)Coordinating the federal response to international insurance related matters, and

(7)Negotiating international trade agreements that preempt inconsistent state regulations.

 

The FIO is granted the power to consult with state regulators in carrying out these functions.

Mandated Studies

 

The Act requires the newly formed FIO to conduct a series of comprehensive studies of the insurance industry and provide Congress with recommendations on how to modernize insurance regulation in the United States. Among other topics, the studies will weigh the costs, benefits, and feasibility of Federal regulation of the insurance industry.

 

Information Gathering

 

The FIO will have the power to require insurers and their affiliates to submit data to it as needed for the FIO to carry out the functions mandated by the Act. However, the Office's information gathering power will not extend to small insurers. The FIO's information gathering power includes the power to subpoena information from insurers. Before the FIO is permitted to gather data directly from insurers or subpoena them for information, it is required by the Act to determine whether the information is available from other sources, such as federal agencies, state regulators, or other public sources. In conducting its information-gathering function, the FIO is empowered to enter into information-sharing agreements with state regulators.

 

Future Federal Regulation of Insurance?

 

Although the FIO is not given regulatory authority by the Wall Street Reform Act, the studies mandated by the Act are telling. By studying the industry as a whole and the practicability of federal regulation of insurance, the feds are signaling their increased interest. And given the role of insurance companies like AIG in the financial crisis, it would be naïve to think that the FIO studies will find that federal regulation of insurance companies is absolutely unnecessary. Although comprehensive federal regulation of insurance may not be coming anytime soon, more federal involvement in the insurance industry is inevitable.

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