The Federal Insurance Office (FIO) released its long-awaited insurance modernization report December 12, 2013. Though the report made recommendations for the regulation of insurance in the United States, FIO was careful to note that this was the beginning of a longer process.
The increasingly international dimension of the insurance marketplace and the role of the federal government in foreign affairs is a reason for federal involvement in insurance regulation, the report says. However, the ideal solution isn't the displacement of the traditional state-based model the report notes.
The report is divided into five parts: (1) an introduction with a summary of recommendations for modernizing insurance regulation in the United States; (2) the history of insurance regulation in the United States; (3) the analysis underlying the recommendations regarding prudential oversight issues; (4) analysis supporting the recommendations concerning marketplace oversight; and (5) principles of regulatory reform as it affects insurance.
The significance of the recommendations on the discussion of state-versus-federal regulation of the insurance industry is open to continuing debate. The report states, "The proper formulation of the debate at present is not whether insurance regulation should be state or federal, but whether there are areas in which federal involvement in regulation under the state-based system is warranted. Reframed in this manner, the basic question with respect to reforming any aspect of insurance should be whether federal involvement is warranted at this time and, if so, in what areas."
In a U.S. Department of Treasury press release, FIO Director Michael McRaith said, "The report reflects an extensive study of the insurance sector and benefits from the collective expertise and experience of state, federal and international supervisors. It also recommends a hybrid approach to insurance regulation that provides a practical, fact-based roadmap to modernize and improve the U.S. system of insurance regulation. Importantly, this report reflects the dynamic nature of the regulatory system for insurers and provides an explicit path for state and federal regulatory entities to calibrate involvement going forward. We look forward to continuing our work with all stakeholders as the United States moves forward with modernizing insurance regulation."
The report is mandated under Title V of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act on "how to modernize and improve the system of insurance regulation in the United States."