Ex-Treasury Official Wolin Urges Federal, State Collaboration to Improve Regulation

By | January 17, 2014

To make continued improvements in the U.S. insurance regulatory system, it’s imperative for state and federal officials to work collaboratively and share information and perspectives, said former Deputy Treasury Secretary Neal S. Wolin, who delivered the keynote speech at the Insurance Information Institute’s Property/Casualty Insurance Joint Industry Forum in New York Tuesday.

There should be no doubt the U.S. insurance regulatory system has a substantial room for improvement, and the effectiveness and strength of insurance markets depend on making continued and meaningful progress, Wolin said in the keynote speech.

During his tenure as U.S. deputy Treasury secretary from May 2009 to September 2013, Wolin played a key role in formulating the U.S. government’s response to the 2008-2009 crisis, including the economic and financial reform plans. Before joining the Obama administration in 2009, he was president and chief operating officer of the property/casualty insurance companies at The Hartford Financial Services Group.

Neal S. Wolin

Wolin in his speech spoke about the role of the Federal Insurance Office (FIO), an entity created by the Dodd-Frank Wall Street Reform and Consumer Protection Act. FIO, an entity within the federal government broadly focused on insurance, recently published a modernization report which says insurance regulation in the U.S. is best viewed in terms of “a hybrid model,” where state and federal oversight would play complementary roles.

Wolin said FIO is pretty modest in its functions and limited in its authority; the office was never intended to have any general regulatory or supervisory authority over the business of insurance, and the statute made that explicit.

“In essence, what Congress created is an office intended to bring insurance knowledge and expertise to the federal government; to express from time to time its views on insurance matters to Congress and to the public; to administer the terrorism insurance program; to participate in the work of the Financial Stability Oversight Council; and to engage in international insurance policy issues on behalf of the federal government,” he said.

“So where are we now?” he asked. “So much time, energy and emotion has been spent on the question of state versus federal regulation. What are the respective roles of the state regulators and of FIO? Does FIO pose a threat to the state regulatory system? Should it?”

In the current system, the states regulate the insurance industry in the U.S. and the Treasury has never been confused about that and did not propose anything different than that, he commented. In any event, the Dodd-Frank Act makes this absolutely clear — but having said that, the Dodd-Frank Act also lays out a set of roles for FIO, he observed.

“FIO is doing and will do its very best to carry out its responsibilities, circumscribed as they are, faithfully and energetically,” he said.

In any event, Wolin added, it makes enormous sense to have an office within the federal government that has developed expertise about the insurance industry. “It is important to have a place in the federal government that understands the issues that insurance companies and insurance customers care about,” he said.

“For too long, those going to Washington to discuss important issues or policies related to insurance — whether the topic was terrorism insurance or natural catastrophes, or mass tort litigation or insurance regulation itself — found virtually no one there who really understood,” Wolin said. “Having an office within the Treasury dedicated to insurance is an important step in addressing that problem.”

Furthermore, it is absolutely imperative that state and federal officials with responsibilities related to the insurance sector cooperate and coordinate, Wolin said. “They should work collaboratively. They should share information and perspectives. In short, they should work together in the best interests of our country and our insurance markets,” he said.

There undoubtedly will be different perspectives — even substantial disagreements on various issues among state regulators and those in the federal government with insurance-related responsibilities. But Wolin said such disagreements emphasize all the more the need for effective working relationships among all involved.

The insurance regulatory system in the United States continues to need reform and modernization, and this is something that the insurance industry, members of Congress, state regulators, consumer advocates, and the FIO have all recognized, he said.

Wolin said the current system is inconsistent, cumbersome, costly and prone to arbitrage — and the absence of uniformity creates inefficiencies and burdens on consumers and insurers and the international community. “Capital standards and consumer protections vary from state to state. The approval of rate and forms and the way in which market conduct exams are handled also differ substantially from state to state. And these are just a few examples,” he said.

“All of this raises costs for the industry and ultimately consumers,” Wolin told the forum attendees. “It impedes innovation, making the insurance industry and the broader financial sector less effective, less safe and less sufficient than they should be.”

On the question of whether the U.S. insurance regulatory system should continue to be state-based, or whether the federal government should have an increased or a leading role, “that debate has gone on for more than 100 years in this country, and is unlikely to be resolved anytime soon,” said Wolin.

However, what should be clear is the continued need for improvement, he said. “There should be no doubt that our insurance regulatory system has a substantial room for improvement,” he said. “The relative effectiveness and strength of insurance markets in the United States, something usually important to all of you and to the country more generally, very much depend on making continued and meaningful progress along that path.”

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