Finally, The Federal Insurance Office (FIO) officially exited stealth mode last week when it commenced its first conference at the Treasury Department.

As the offspring of the Dodd-Frank Act most salient to insurance, the FIO event was well-attended, or at least appeared to be, as it was nearly impossible to distinguish anything on the murky video feed of the event posted on Treasury Web site. Thankfully the audio was clear, and what emerged was an interesting discussion about the nature, future and limits of insurance regulation.

As a quick refresher, the FIO was envisioned as the sole federal outpost on the insurance frontier, tasked with advising the Secretary of the Treasury on insurance issues, coordinating federal policy for interaction international insurance regulators, keeping an eye on systemic risk for Financial Stability Oversight Council and keeping insurance affordable for low- and middle-income Americans. Everything except actually, you know, regulating insurance. "To be clear: Regulating the insurance industry is not one of FIO’s responsibilities," Deputy Treasury Secretary Neal Wolin declared in his opening remarks. "Nothing in the Dodd-Frank Act alters the fact that insurance is fundamentally regulated by the states."

Which is precisely the problem, according to many of the day's speakers. Markham McKnight, president, BancorpSouth Insurances Services, detailed the man-hours and money his company spends complying separate state requirements. "Frustration with state regulation with regards to surplus lines, producing licensing and lack of uniformity across state lines, burdens of redundant regulation and questions about the benefits to consumers has vexed brokers and their clients for years," he said. "It is my hope that the FIO can guide policymakers to an efficient and fair system."

John D. Johns, chairman of the board, president and CEO of Protective Life Corporation, agreed that the current state-based system is too duplicative and inefficient, but did prove its mettle during the financial crisis as insurers largely avoided trouble. "The state system has been very effective when it comes to prudential solvency regulation," he said. "So there is a lot that is good about the current system, but there are some inefficiencies that need to be addressed."

Despite the progress made through interstate compacts, Johns said the inherent inefficiency of a state-based system has become magnified in an era of global commerce. "The state-based insurance regulatory system we have has evolved over the last 150 years when insurance was predominately a local business," he said. "It does not fit well with any sort of rational international approach to the regulation of solvency. It's impossible for the United States to be an effective participant in global regulation so long as we function in this highly fragmented and state-based system."

Robert Hunter, director of Insurance, Consumer Federation of America, worried that the FIO may misconstrue efforts to facilitate uniformity with weakening safeguards for consumers. "State regulators do a pretty good job on solvency, but are not very good on transparency, market conduct or other consumer protections with some notable exceptions," he said. "One problem is that market conduct exams almost never discover abuses until a lawsuit finds them in discovery. Consumers do not want inefficient regulation, but they don’t want ineffective regulation either. Let's not weaken consumer protection in the name of efficiency."

Since the frictions between state and federal regulation and efficiency and effectiveness predate the FIO, what has really changed? In one sense very little. However, insurers and insureds now have some very able people such as Former Kentucky Insurance Commissioner Roy Woodall, Missouri Department of Insurance Director John Huff and FIO Director Michael McRaith focused solely on addressing these questions and speaking for the industry at a national and international level.

Indeed, it is overseas where the FIO's most immediate impact may be felt as it recently became a full member of the International Association of Insurance Supervisors (IAIS), which is currently working to designate globally significant insurers and develop a framework for supervising internationally active insurance groups. The FIO may also be a voice for good as European Union regulators look to define which countries will gain equivalency under the Solvency II framework.

Closer to home, the FIO will report to Congress in January on how to improve and modernize U.S. insurance regulation.

No shortage of tasks for an agency that existed only on paper a few short months ago.

Bill Kenealy is a senior editor for Insurance Networking News.

Readers are encouraged to respond to Bill by using the “Add Your Comments” box below. He 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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