The Dodd-Frank Wall Street Reform and Consumer Protection Act, H.R. 4173, was signed into law in July 2010. One insurance provision included in the new law was a requirement for an insurance modernization report to the U.S. Congress, which was supported by the Automotive Service Association (ASA). The director of the Office of National Insurance is to conduct a study and submit a report to Congress on how to modernize and improve the system of insurance regulation in the United States not later than 18 months after the date of enactment.
Included in the Dodd-Frank Wall Street Reform and Consumer Protection Act was a requirement for the creation of the Federal Insurance Office (FIO). The purpose of the FIO is to review international insurance agreements and monitor the industry from a federal level.
The bill enlarges the scope of the Federal Insurance Office’s authority regarding all insurance types except health. The bill mandates that the FIO report back to Congress on the modernization and improvement of insurance regulation in the United States. The report to Congress will address the following considerations:
• Systemic risk regulation with respect to insurance
• Capital standards and the relationship between capital allocation and liabilities, including standards relating to liquidity and duration risk
• Consumer protection for insurance products and practices, including gaps in state regulation
• The degree of national uniformity of state insurance regulation
• The regulation of insurance companies and affiliates on a consolidated basis
• International coordination of insurance regulation
The study and report will also examine additional factors:
• The costs and benefits of potential federal regulation of insurance across various lines of insurance (except health insurance)
• The feasibility of regulating only certain lines of insurance at the federal level, while leaving other lines of insurance to be regulated at the state level
• The ability of any potential federal regulation or federal regulators to eliminate or minimize regulatory arbitrage
• The impact that developments in the regulation of insurance in foreign jurisdictions might have on the potential federal regulation of insurance
• The ability of any potential federal regulation or federal regulator to provide robust consumer protection for policyholders
• The potential consequences of subjecting insurance companies to a federal resolution authority, including the effects of any federal resolution authority – on the operation of state insurance guaranty fund systems, including the loss of guaranty fund coverage if an insurance company is subject to a federal resolution authority; on policyholder protection, including the loss of the priority status of policyholder claims over other unsecured general creditor claims; in the case of life insurance companies, on the loss of the special status of separate account assets and separate account liabilities; and on the international competitiveness of insurance companies.
The study and report will also contain any legislative, administrative or regulatory recommendations, as the director determines appropriate, to carry out or effectuate the findings set forth in such a report.
With respect to the study and report, the FIO director will consult with state insurance regulators, consumer organizations, representatives of the insurance industry and policyholders, and other organizations and experts, as appropriate.
At least one insurance industry organization has targeted the elimination of funding for this study. It is requesting that Congress pass legislation to defund the study of insurance to be conducted by the new Federal Insurance Office and repeal the mandate granted to the FIO to make recommendations to Congress regarding insurance regulation based upon that study.
While speaking with stockbrokers in London in November, U.S. Department of Treasury Deputy Secretary Neal Wolin spoke about the Federal Office of Insurance, stating:
“The Office will monitor for problems or gaps in insurance regulation that can contribute to a systemic crisis in the insurance industry or the financial system; gather data and information on the industry and insurers; and coordinate policy in the insurance sector.”
Wolin went on to say that insurance power would not be limited to the hands of the insurance office: “The act does not provide the Federal Insurance Office with general supervisory or regulatory authority over the business of insurance. The states remain the functional regulators. Through the office, however, the federal government will work toward modernizing and improving our system of insurance regulation.”
ASA says it supported the creation of the Federal Insurance Office and is against repeal of the mandate granted to the FIO to make recommendations to Congress regarding insurance regulations. ASA is asking repairers to go to the ASA legislative website, www.TakingTheHill.com, to send a letter to their senators and representatives encouraging them to oppose efforts to eliminate funding of the Federal Insurance Office modernization study.
