The FIO: Recent Developments in Focus
The Federal Insurance Office – What It Is.
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[/dropcap]he Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) established the FIO within the Treasury Department. The first Director of the FIO is Michael McRaith, the former Illinois Director of Insurance. In November 2011, the Treasury Secretary created a Federal Advisory Committee on Insurance (FACI) to provide advice and recommendations directly to the FIO Director. The 15 members of the Committee include seven insurance commissioners, six industry executives, a university professor, and a consumer advocate. The FIO is mandated to: (1) monitor the insurance industry; (2) monitor the extent to which underserved communities have access to affordable insurance; (3) make recommendations to the Financial Stability Oversight Council (FSOC); (4) assist in the administration of the Terrorism Risk Insurance Act; (5) coordinate federal involvement and policymaking on prudential aspects of international insurance matters; (6) consult with state insurance regulators regarding insurance matters of national or international importance; and (7) determine whether state insurance laws are preempted by international agreements.
Subpoena Power
The FIO has the power to issue subpoenas to the insurance industry and to others. Before issuing a subpoena, the Director must make a written finding that the information is required to carry out the Director’s duties, and that the Director has coordinated with federal agencies, state insurance regulators and other sources of publicly available information. On December 5, 2011, a bill was introduced that would repeal the Director’s subpoena authority and impose additional confidentiality protections on information obtained by the FIO. Representative Steve Stivers introduced H.R. 3559, which has been approved by the House Insurance, Housing and Community Opportunity Subcommittee.
Reports
The FIO has several reporting obligations. By January 2012, according to the Dodd-Frank Act, the FIO is to conduct a study and prepare a report on how to “modernize and improve the system of insurance regulation in the United States.” Many aspects of insurance regulation are to be considered by the FIO including systemic risk, capital standards, consumer protection, and the degree of national uniformity in state regulation, regulation of insurers on a group basis and international coordination of insurance regulation. The FIO is further charged with submitting annual reports on the insurance industry and actions taken by the FIO to preempt state laws. The FIO will also prepare reports on topics including the U.S. and global reinsurance markets (by September 30, 2012), and the impact of reinsurance reform measures in the Dodd-Frank Act on state regulators’ ability to obtain reinsurance information for insurers they regulate (by January 1, 2013).
Interested Party Comments As part of its study of the insurance industry, the FIO has requested comments from interested parties on twelve different subjects. Below is a brief summary of comments submitted as of December 14, 2011 . Systemic Risk
• A statement that the FSOC should monitor all or nearly all insurers and determine whether they are systemically risky.
• Arguments that the property and casualty insurance industry does not present a systemic risk. Capital Standards
• A recommendation that the FIO be the primary entity to advise federal agencies about the differences between the insurance industry and other financial industries, and to advise federal agencies on capital, leverage and liquidity requirements, including solvency regulation, supervision, rehabilitation, liquidation and guaranty fund protection. National Uniformity
• A request that auto insurance liability laws be synchronized.
• A recommendation that the FIO encourages state legislatures and regulators to adopt uniform national standards and rules (e.g. market conduct examinations, rate and form filings and timelines, company and agency licensing).
• A request for additional disclosures and uniformity in the regulation of life insurance contracts.
• A request for a law or rule that prohibits companies from including a provision in agent contracts to allow for the termination of agents without cause.
• A recommendation that the FIO be the primary entity to advise federal agencies about the risks of dual, duplicative and/or inconsistent regulation of insurance, as well as the state-based resolution system. Regulating Certain Lines of Business at the Federal Level
• A suggestion that the financial guaranty insurance industry should be regulated at the state level, but subject to a national prudential standard, similar to the Solvency II Directive. The suggestion was made, in part, to reduce dependence on ratings provided by credit rating agencies.
• A suggestion that credit-related insurance may be appropriate for federal regulation.
• A request that the FIO regulate Swaps, validate the reserves of “small companies” selling annuities, and take over all rate filings from the states. International Coordination
• A request that the FIO be given more resources to support its participation in the IAIS, G20, IMF, World Bank and other international bodies. Costs and Benefits of Federal Regulation
• Requests for federal involvement in the licensing of producers.
• A call for the adoption of NARAB II legislation to achieve nonresident reciprocity in producer licensing. Ability of a Federal Regulator to Provide Robust Consumer Protection
• Concerns that federal regulation may result in regulators being less accessible to consumers. Other
• Criticisms of state guaranty fund mechanisms, including the sufficiency of assessments.
• A request that financial statements of insurance companies be made public via the SEC EDGAR Service. • A request that the FIO review the necessity of the continued existence of rate controls, residual markets and state-run reinsurance mechanisms.
• A concern about the size of the surplus of domestic property insurers in Florida.
• A discussion regarding requiring insurers to submit information similar to the information requested under the Home Mortgage Disclosure Act, as a means to determine whether consumers in minority, low-income and other traditionally underserved communities have access to affordable insurance.
• A call for data collection that would specifically identify market problems with more precision.
• Requests from certain vendors suggesting technology solutions to improve regulation.
