There are no immediate actions insurers need to take in response to the Federal Insurance Office’s report, “How to Modernize and Improve the System of Insurance Regulation in the United States,” released yesterday, says Howard Mills, director and chief advisor of Deloitte’s insurance industry group and former New York State Insurance superintendent. “There is going to be a very slow evolution of regulation, but the environment is going to stay much like it is: state-based,” he said. “The FIO can’t do anything more without congressional action, and that isn’t going to happen anytime soon. The FIO doesn’t have the authority to tell the states what to do. While the content of the report doesn’t represent a threat to the state regulators, it does pose more challenges.”

A number of industry associations issued statements following the release yesterday. While they’ll all say they agree that the regulatory system can be improved, most disagree with the idea of Federal oversight.

In a formal statement NAIC CEO Senator Ben Nelson echoed Mills’ comments. “State regulators – both individually and collectively through the NAIC – are constantly working to improve our national state-based system of insurance regulation,” Nelson said. “We will add this report to our agenda for discussion when the full membership gathers in DC for our National Meeting starting this weekend.

“While we appreciate FIO’s suggestions for improvement, the states have the ultimate responsibility for implementing regulatory changes,” Nelson said. “The NAIC’s deliberate, thoughtful, and transparent process has served policyholders well for the past 140 years.  In this regard, reports such as this one as well as other comments provided by consumers, industry, and governmental organizations as part of this process are always welcome and are useful tools for assisting regulators in identifying areas that require improvement.”

National Association of Mutual Insurance Companies

Perhaps the most direct against the content of the report is NAMIC. “As we debate what can and should be done by the federal government, it is important to remember that the state-based regulatory system, though far from perfect, has performed remarkably well for decades,” said Charles Chamness, president and CEO of NAMIC. “That performance should not be taken lightly, especially in favor of new, untested alternatives.

“While the report makes much of the international regulatory climate and the demands to modify our system by non-U.S. regulators, it is worth noting that the U.S. system of state-based regulation consistently has proven itself to be the gold standard of the world – most recently during the economic crisis of 2008,” Chamness said. “We should therefore be wary of significant changes to our existing system, and the unintended consequences that could result. Any move to give the federal government a role in insurance regulation must be taken with extreme care. Even if done with the best intentions, providing federal authority in even a limited sense today could become an avenue to expand that authority tomorrow.”

“We respectfully disagree that federal involvement is necessarily the default answer to existing regulatory concerns,” Chamness continued. “There is much room for improvement at the level of state insurance regulation, but recent experience has not proven that a one-size fits all, nationally designed and operated program will remedy deficiencies and add real value. And the financial crisis experience of other sectors of financial services shows that federal regulation is no panacea.”

The Property Casualty Insurers Association of America

In its response, PCI also referred to the economic crisis of 2008. “PCI is pleased that the report raises the need to reform state rate regulation and prods the states toward greater uniformity or coordination in a number of important areas,” said David Sampson, PCI President and CEO. “However, the report starts by listing a number of attacks on state regulation that PCI believes do not adequately reflect the strengths and historical success of the current state-based system. There is little if any objective proof that there are critical gaps in state regulation or that it has failed to produce a beneficial market. While the 2008 crisis highlighted some gaps in the financial regulatory system, state insurance regulation performed comparably well to federal regulation in several areas. Federal regulation is not necessarily a panacea modernization solution, particularly if it will be multilayered and duplicative.”

American Insurance Association

Also commending parts of the report, Leigh Ann Pusey, president and CEO of the AIA said “AIA agrees that there is a need for greater regulatory uniformity across the states. Efforts to identify rate-related regulatory practices that promote more competitive markets for personal lines insurance will also be beneficial. However, any movement toward proposing binding risk classification standards would be counterproductive. In addition, AIA concurs that commercial lines insurance regulation should continue to be modernized so that insurers may best meet the needs of their sophisticated commercial customers with new and innovative products.”

The Independent Insurance Agents & Brokers of America

IIABA said it is actively reviewing the details of the report. “While we agree with the report’s conclusion that insurance regulation could be improved and modernized in certain areas, we strongly believe that any federal action should be targeted and limited with day-to-day regulation left in the in the hands of state officials,” said Charles Symington, IIABA SVP of external and government affairs. “The state-based system of insurance regulation has served consumers and our economy well for decades. The Big ‘I’ strongly supports the continued preservation of this system and is ardently opposed to any direct infringement by the federal government.”

Symington also called attention to the section in the report on the National Association of Registered Agents and Brokers (NARAB II) Act. “The Big ‘I’ commends FIO for its call on Congress to pass NARAB II. This bill is a perfect example of how to modernize insurance oversight without encroaching on state regulation,” he said.

Insured Retirement Institute

The IRI said it supports the recommendations. “IRI has long advocated for measures to increase uniformity, such as the creation of a national insurance licensing clearinghouse and market conduct examination reforms – specifically the ‘lead state’ concept and coordination among the states,” said IRI President and CEO Cathy Weatherford. “We are encouraged by their inclusion in this report. But beyond anything else, we commend the Treasury for its continued recognition of the importance of lifetime income products in providing financial security to retired Americans.”

The American Bankers Insurance Association

The American Bankers Insurance Association commends the Treasury. “We especially support their call for uniformity, their endorsement of NARAB II legislation, and for their consideration of an Optional Federal Charter,” said Kevin McKechnie, ABIA SVP. “This report paves the way for hearings and serious examination of the deficiencies of the state-based system. We look forward to working with Director McRaith and congressional leaders to implement the FIO’s recommendations.”

Read the full report with full details on each of the 27 recommendations here:

Carrie Burns is editor-in-chief for Insurance Networking News.

Readers are encouraged to respond to Carrie by using the “Add Your Comments” box below. She also can be reached at

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

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