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FIO Report Sets the Stage for an Active Year in Insurance Regulation

It has been the perfect sort of winter for curling up with a good read, and this winter brought us some of the most highly-anticipated reading material of the past few years: the December 12, 2013 report prepared by the Federal Insurance Office (“FIO”) titled, How to Modernize and Improve the System of Insurance Regulation in the United States. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which created the FIO, specified that the report was due to Congress not later than January 21, 2012, making the report nearly two years past due. Perhaps unsurprisingly given the time taken to complete the project, the report is thorough and presents a well-supported argument in favor of a significantly increased federal role in insurance regulation.  Equally unsurprising is state regulators’ opposition to the majority of FIO’s proposals.

The report identifies no fewer than nine areas it contends are appropriate for direct federal involvement in regulation. Some, such as FIO’s intention to work with interested entities to develop personal auto policies for U.S. military personnel enforceable across state lines may not meet much opposition, if any. Other initiatives have already been met with immediate opposition. In particular, the report recommends that FIO “should engage in supervisory colleges to monitor financial stability and identify issues or gaps in the regulation of large national and internationally active insurers.” Members and representatives of the National Association of Insurance Commissioners (“NAIC”) have voiced strong opposition to this goal, insisting that the presence of a non-regulator “would threaten the objective independence of not just state regulators, but regulators at the federal and international levels who participate in the colleges.”

Another issue that seems likely to receive increased attention by regulators on all levels this year is the topic of reinsurance collateral requirements. The FIO Report “recommends that Treasury and the United States Trade Representative pursue a covered agreement for reinsurance collateral requirements based on the National Association of Insurance Commissioners Credit for Reinsurance Model Law and Regulation.” At the same time, many states are working to implement those very models in state regulatory schemes. For example, on February 7, 2014, Maryland’s Insurance Commissioner issued a solicitation for comment on draft proposed regulations based upon NAIC’s Credit for Reinsurance Model, which signals an early step toward implementation.  Eighteen states have already adopted the NAIC model, and it appears that this NAIC initiative may become increasingly important to state regulators for a host of reasons in the coming year. State regulators do not appear willing to cede or share their jurisdiction willingly, and may appropriately use this push for federal regulation as motivation to increase cooperation and coordination among the states and in turn, demonstrate the type of regulatory uniformity that FIO contends only a federal authority can accomplish. Some may debate whether the report itself was worth the wait, but it seems beyond argument that the positions set out therein are a call to action at both the federal and state levels.

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