Last week a bill was introduced — to the cheers of many in the insurance industry and state insurance regulators — in the Housing and Insurance Subcommittee of the House Financial Services committee to limit the power of the Federal Office of Insurance.
It’s H.R. 3861 or by title, the Federal Insurance Office Reform Act of 2017. Washington Democrat Rep. Denny Heck of the PIA Western Alliance state of Washington is one of the two sponsors. The other is the subcommittee’s chair and Republican Sean Duffy of Wisconsin. So, it is a bipartisan bill.
If it eventually passes the House and gets to the Senate and then to the president, the bill limits the FIO’s power in international insurance business and says the FIO can only speak for the U.S. Treasury and not for any other federal agencies.
Even more importantly to insurance and its regulators, the bill forces the FIO to communicate with state regulators and get consensus from states before advocating a U.S. position on international matters with international groups like the International Association of Insurance Supervisors.
The FIO can continue to negotiate covered agreements under supervision of the Treasury. But the Treasury Secretary and not the FIO director will decide if any agreements reached preempts state law.
The bill also does away with some of the FIO’s responsibility. This includes the authority to gather broad information on insurance and does away with some of its reporting duties. At the same time, it keeps the FIO’s authority to monitor the insurance industry and to advise the Treasury Secretary about those issues.
Property Casualty Insurers Association of America (PCI) Vice President Nat Wienecke said his group is very happy at the bill’s introduction. “This bipartisan legislation will reduce FIO’s domestic footprint, eliminate its quasi-regulatory authority, and refocus the FIO on international matters, where it can play an appropriate role in coordinating with the states to develop consensus on U.S. international insurance policy. The bill also limits the bureaucracy from expanding beyond its core mission,” he said.
PIA National has not issued a statement on the bill but the association does have strong opinions on the FIO and opposes any federal regulation or international standards that destabilize or supplant state-based regulations.
In its policy statement, PIA said actions “by certain federal and international bodies have raised alarm that the state-based insurance regulatory system may be needlessly eroded in the face of new global challenges. In response to this, PIA is working diligently to ensure that our dynamic state-based system of U.S. regulation is not undermined.”
Thus, the PIA is:
Monitoring the activities of the Department of Treasury, including the Federal Insurance Office (FIO) and the Financial Stability Oversight Council (FSOC), to ensure that the federal government is not encroaching on state based insurance regulation or placing an undue burden on independent agents.
Monitoring international standard setting developments, trade negotiations, and FIO efforts on certain international agreements to ensure there is no negative impact on state insurance regulation.
Much of the introduction of this bill relates to a new covered agreement with the European Union on the lack of equivalency of the U.S. in Solvency II. At the urging of the National Association of Insurance Commissioners (NAIC) and others some provisions of the agreement were revisited.
NAIC President Ted Nickel — Wisconsin’s Insurance Commissioner — said the NAIC is pleased “to see Treasury and USTR clarify their interpretation of the covered agreement, as we have asked, in key areas like capital, group supervision, reinsurance and the joint committee. We've worked closely with Treasury and USTR on these clarifications and appreciate their affirmation of the primacy of state regulation. In the months ahead, NAIC members will assess the impact of the covered agreement on state regulation consistent with our open and transparent process, and consider any changes to insurance regulation that may be necessary.”
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