The Dodd-Frank Act created the Financial Stability Oversight Council to oversee systemic risk across all sectors of the economy. Deputy Treasury Secretary Neal Wolin stated that the Council, “has a clear responsibility for examining emerging threats to our financial system, regardless of where they come from” including insurance companies. If the Council determines that an insurer presents a systemic risk to the financial system, the insurer may fall within the prudential supervision of the Federal Reserve. Any decision by the Council requires approval by a majority vote, and some must receive a two-thirds majority.
The Council is composed of 10 voting members—heads of the various federal financial regulatory agencies and one independent member—and five advisory members. The Council is to have three members with insurance expertise:
- An independent voting member appointed by the president subject to Senate confirmation “having insurance expertise”;
- The director of the the Federal Insurance Office (FIO), serving in an advisory capacity; and
- A State Insurance Commissioner, selected by the State Insurance Commissioners (via the National Association of Insurance Commissioners (NAIC)) and serving in an advisory capacity.
The Dodd-Frank Act is silent regarding how the Council’s voting member with insurance expertise and the director of the FIO will interact outside of the Council meetings. It may turn out that the voting member will be the de facto political head of federal insurance matters while the director of FIO serves in a less overtly political role as an informational resource—particularly given the differing stature of their appointments—though much of this depends on who is appointed.
As of October 13, 2010, the president has not yet appointed the voting member with insurance expertise. Similarly, the FIO currently has little more than a skeleton crew and the secretary of the Treasury has not appointed a director. But the State Insurance Commissioners, through an NAIC-administered selection process, have selected Missouri Insurance Director John Huff as the state insurance regulator advisory member. Despite these and other vacancies (such as the lack of a director for the Consumer Financial Protection Bureau), the Council held its inaugural meeting on October 1, 2010. President Obama appointed Harvard Law School professor Elizabeth Warren as an adviser to the nascent Consumer Financial Protection Bureau (CFPB) to facilitate establishment of the Bureau on September 17, but this advisory role does not permit her to occupy the CFPB’s seat on the Council. Director Huff indicated that, in his view, FSOC is a “clear mandate” for state and federal cooperation to limit systemic risk. The extent to which the voting members of the FSOC share this view, and what it may mean for insurance regulation, remains to be seen.