Title V of the Dodd-Frank Act created the the Federal Insurance Office (FIO) to serve two primary roles: to facilitate the development and implementation of international insurance agreements, and to serve as the federal government’s resource for insurance expertise. The FIO is one of a handful of changes that is “effective immediately” under Dodd-Frank but has yet to be meaningfully staffed. Rumors suggest that Illinois Director of Insurance Michael T. McRaith is being considered to head up the new office. But the Administration may opt to nominate such a high-profile person as Director McRaith to the the new Financial Stability Oversight Council (FSOC), given that the FIO director position must be staffed at the senior executive service level, subject to appointment by Secretary Geithner. As of press time, no director has been appointed yet.
Despite the creation of an FIO, which many in the industry looked to as a first step towards federal regulation, the FIO’s authority does not extend to federal chartering or outright regulation of insurance. Dodd-Frank expressly states that FIO does not have “general supervisory or regulatory authority over the business of insurance.” Indeed, even when operating within the purview of its specific mission to address prudential international insurance agreements, the FIO’s preemption authority is severely limited.
FIO’s most substantive role is to facilitate U.S. participation in international prudential insurance agreements—though those agreements may not result in preemption of state rate, premium, underwriting, sales, coverage or antitrust regulation of insurers. The secretary of the Treasury and the United States trade representative may enter into international agreements with foreign governments on prudential regulatory matters. FIO is tasked with implementing such agreements by determining whether the agreements conflict with state regulations. If FIO determines that a state law is inconsistent with a covered international agreement or results in less favorable treatment of a non-U.S. insurer than a U.S. insurer in that state, it may preempt the state law—subject to several limitations. Notably, the FIO’s determinations are subject to de novo review.
The FIO is authorized to gather data on all lines of insurance other than health insurance, long-term care insurance (excepting any annuity component) and federal crop insurance. The first FIO report on the global reinsurance market and modernization and improvement of insurance regulation in the United States is due within 18 months of the Act’s enactment. FIO has fairly broad authority to collect information and design reports to Congress on the state of the insurance market. The Office may subpoena information from insurers and their affiliates but is directed to make use of publicly available information and information-sharing agreements to the extent possible, to alleviate the burden of producing redundant information.
Given the limitations on FIO’s preemption authority and lack of real regulatory teeth, its real value may be as a conduit of information for the federal government regarding the insurance industry. In this capacity, FIO may well pave the way for increased uniformity in national insurance regulation through its study of modernization of insurance regulation in the U.S. The direction this study takes largely may turn on who is tasked as director of the FIO.
The full range of responsibilities assigned to the FIO include:
- Monitoring the insurance industry;
- Identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system;
- Monitoring the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products covering all lines of insurance, except health insurance;
- Recommending to the FSOC that it designate an insurer as one subject to stricter standards;
- Assisting in administering the Terrorism Insurance Program; and
- Advising on major domestic and prudential international insurance policy issues.