Login Register Subscribe
Current Issue

Federal Insurance Office receives lukewarm early reviews


Although the Federal Insurance Office appears to be short on major accomplishments in three years of existence, most insurance industry experts still give it a passing grade and don't share the disappointed view of some on Capitol Hill.

The office does not lack for congressional critics, as was evident earlier this month when FIO Director Michael McRaith appeared before the House Financial Services Committee's subcommittee on Housing and Insurance to discuss the office's long-delayed report on insurance regulatory modernization. The report was initially due by the end of January 2012, but was not finished until December 2013.

The report recommended a hybrid model of insurance regulation in which state and federal regulators play complementary roles to improve solvency and market conduct regulation. Many industry leaders' immediate reactions to that recommendation were opposition or displeasure.

But Mr. McRaith seemed to ease some of the industry's skepticism by telling the House panel that it's time to “move away'' from the long-running state vs. federal insurance regulation debate.

Insurance industry experts tend to give Mr. McRaith and his office the benefit of the doubt, noting that launching a new federal entity — particularly one with limited powers — is no easy task. Some in Congress chided the FIO for its tardiness in releasing its first report and questioned its value.


The Dodd-Frank Wall Street Reform and Consumer Protection Act established the office in 2010, but granted it limited regulatory power, leaving that to each state. The law gives the office a role in representing U.S. interests in international forums and requires it to make reports to Congress.

Subcommittee Chairman Randy Neugebauer, R-Texas, opened the recent hearing by saying that while he is “appreciative of the hard work that Director McRaith and his staff put into this report, I am disappointed that it failed to provide any clarity on what strategic purpose the Federal Insurance Office serves. FIO has been in existence for over three years, and it's still not clear what value the office is bringing to policyholders and our domestic industry.”

Rep. Sean Duffy, R-Wis., was more critical, saying, “If we're asking for reports from FIO, we expect to get them and get them on time.” The long delay demonstrated disrespect for Congress, he said.

However, industry experts have a more conciliatory view, realizing the limited power of the office and its inherent challenges.

“I think they have done the best they could with the resources that are available and the fact that it is a nascent office” within the Treasury department, said J. Stephen Zielezienski, senior vice president and general counsel at the American Insurance Association in Washington.


“The truth is they have a small staff and a lot of important issues within their sphere of authority,” he said. “They're not regulators, but they do play an important role in how the regulatory view of the U.S. system is shaped. It's our hope and expectation that FIO will be allowed to fulfill its international role under Dodd-Frank. It is imperative that the U.S. contingent to the International Association of Insurance Supervisors speak with a unified view.”

David Snyder, senior vice president in the Property Casualty Insurers Association of America's Washington office, also stressed the FIO's role in international insurance matters.

“FIO has been actively engaged in international regulatory discussions, and its report is a thorough compendium of insurance regulatory issues,” he said. “We much appreciate FIO's focus on maintaining the competitiveness of U.S. insurance companies.''

The FIO's support for negotiating covered reinsurance agreements, which provide uniform regulatory criteria for transactions between U.S. and non-U.S. reinsurers, was noted by Frank Nutter, president of the Reinsurance Association of America. “This is a new initiative in the federal government,” he said.

“It's quite understandable that there may have been some delays in some initiatives and reports,'' he said. “It's the nature of an entity that's in a startup mode.”

“I think everybody recognizes that Director McRaith and the FIO have a tough job. They do not have the power to increase the scope of their authority without congressional action,” said Howard Mills, former New York superintendent of insurance who is director and chief adviser of the insurance industry group at Deloitte L.L.P. in New York.


“It's a job of trying to persuade and cajole state regulators in the area of uniformity,” Mr. Mills said. “It's a tough job.”

Others, however, questioned the office's performance.

“The delay of the big report remains somewhat inexplicable,” said Ray Lehmann, a senior fellow at the free market-oriented R Street Institute who follows insurance issues. “Two years late is a long time.” But he commended the FIO for being “very open to hearing from many stakeholders.”

The long-delayed report is “very comprehensive,” said Jimi Grande, senior vice president in the National Association of Mutual Insurance Cos.' Washington office.

He said, though, the FIO reached some conclusions in which Mr. McRaith “made the assumption that direct federal involvement would almost be a panacea, to which we would object. We see no evidence that regulation moving to Washington makes it better.”

The FIO did not respond to a request from Business Insurance to interview Mr. McRaith.

Mr. Grande disagreed with Mr. McRaith's statement before the House panel that it is time to “move away” from the state vs. federal debate about the best way to regulate insurance. “It appears that his report indicates that both is the answer; it's not either/or, we need both,” he said. “We think duplicative regulation would be the worst regulation we could imagine.”