The Federal Insurance Office’s Modernization Report has recommended greater federal oversight, a drive towards uniformity in state insurance regulation, and potential punitive measures for those states unwilling to play ball.
Those are the conclusions from Mike Nelson, chairman of law firm Nelson Levine, who said that topics covered in the report were wide-ranging and could have a marked impact on insurance regulation in the US. He said that topics in the report range from international regulatory activity and details of insurance rating regulation to state solvency laws, although the report did not address the hot topic of health care insurance.
The report concurred with state regulators that the insurance system would benefit from a “better system of agent licensing, market conduct reform and speed to market reform initiatives”, said Nelson, but added that further modernisation would benefit the US regulatory environment.
Nelson said that “one of the main concerns for the FIO is the lack of uniformity in our current system. The report suggests that the nature and structure of the state based system presents inherent difficulties in achieving uniformity. The FIO goes beyond mere uniformity and points to areas where the laws are uniform, but the application of those laws by regulators is not.”
“The FIO outlines an active role for itself, indicating that it will monitor whether and how states implement FIO’s recommendations. The report does not recommend federal regulation of insurance, but it does suggest that Congress should strongly consider direct federal involvement if states do not implement the FIO’s recommendations.”
Nelson said that FIO oversight would be considerable under the proposed regime and that states that do not work with the FIO could face censure. “Perhaps most surprising was the FIO’s statement that if states do not reform their laws and processes to meet the recommendations of the report, they could face federal action. The FIO did not shy away from controversial topics. The report includes discussions of the implementation of principles-based reserving (PBR) and the use of reinsurance captives, both of which have been the subject of considerable debate among state regulators.”
“Some of the FIO’s suggestions may raise concerns among state regulators and others about the FIO’s longer term intentions. For instance, regulatory supervision and rate and form regulation are both at the heart of state regulation. While the FIO says it is simply going to monitor some issues related to those topics, many may worry that this could be the first step towards broader federal involvement.”
Presently the FIO does not have the authority to impose its will, with report details serving as recommendations rather than any definitive move, explained Nelson. Congressional approval is still needed for the suggested changes. “However, the report will undoubtedly influence the discussions and actions of state insurance commissioners. We can also expect to see the FIO asking more questions of state regulators on substantive issues as it monitors the progress of regulatory reforms and modernization initiatives.”
FIO, state regulation, regulatory, US