Tags: FIO | report | House | insurance

House Financial Services Looks at Insurance

By    |   Tuesday, 11 Feb 2014 06:38 AM

The House Financial Services Committee's Subcommittee on Housing and Insurance, chaired by Randy Neugebauer, R-Texas, held a hearing Feb. 4 titled "The Federal Insurance Office's Report on Modernizing Insurance Regulation."

The Federal Insurance Office (FIO) is one of the many new entities created under Dodd-Frank in the name of improving financial regulation. The clinching argument for this was the admitted failure of the federal Office of Thrift Supervision (OTS) to prevent AIG from incurring losses in derivatives transactions at a London affiliate that helped to precipitate the bailout of the entire financial sector in 2008. Since the states are primary insurance regulators, Eric Dinallo, former New York superintendent of insurance, also deserves blame.

On the first panel Michael McRaith, director of the FIO, presented the report, accompanied and often contradicted by Thomas Leonardi, the Connecticut insurance commissioner, who is dedicated to preserving the primacy of state regulation insurance.

They were followed by a panel of eight witnesses representing the many segments of the industry.

In his opening statement, Neugebauer praised the report for going a long way in educating policymakers and said it "could facilitate movement by the states toward more uniformity through more coordinated examinations and product approvals." He called upon the states to "work diligently together or risk ceding relevance."

At the same time, he criticized the report for glossing over some issues and "alarmingly" suggesting "the potential for binding federal standards for risk." He also questioned the value of the FIO and chided it for the fact that several of the largest insurance companies have been designated as systemically important financial institutions (SIFIs), which subject them to stricter regulation.

The industry has heard admonitions like this before, and its witnesses were notably unimpressed, not least because its witnesses outnumbered the FIO witness nine to one, and McRaith himself is a former state insurance commissioner from Illinois.

There had been predictions that the report would call for the establishment of some sort of federal insurance regulator. With this result in the bag, it was easy to revert to its message that state regulation works well and the only reason the FIO is needed is to help the industry present a unified front in international councils in order to head off proposals and regulations the industry doesn't like, such as the European Union's Solvency II.

State authorities are established as the dominant regulators of the insurance industry under the McCarron-Ferguson Act of 1945. In his statement, Leonardi repeated the argument by defenders of this arrangement that it has worked well but continues to improve, and he cautioned that "simply federalizing regulation is no guarantee of better results."

A parade of industry witnesses followed Leonardi to bolster the case for state regulation, which is generally well-received in Congress, where many members arrived already indoctrinated, either because they are products of the industry, as with Rep. Blaine Luetkemeyer, R-Mo.

In addition to repeating reinforcing the defense of state regulation, the industry witnesses pressed other themes and complaints from the industry's agenda. For example, the industry fears that the Federal Reserve, which has gained some authority over the industry under Dodd-Frank, will use that authority to impose bank-like regulation on the insurance industry.

(Archived video, witness statements and the staff memorandum can be found here.)

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Robert-Feinberg
The House Financial Services Committee's Subcommittee on Housing and Insurance, chaired by Randy Neugebauer, R-Texas, held a hearing Feb. 4 titled "The Federal Insurance Office's Report on Modernizing Insurance Regulation."
FIO,report,House,insurance
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2014-38-11
Tuesday, 11 Feb 2014 06:38 AM
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