Congress Could Shrink Federal Insurance Office

By | June 5, 2018

Congressional efforts to curtail the federal government’s involvement in insurance regulation continue this week as a House panel is scheduled to consider a measure to trim the sails of the Federal Insurance Office (FIO).

Rep. Sean Duffy, R-Wisc., chairman of the House Financial Services Subcommittee on Housing and Insurance, has sponsored a bill to eliminate FIO’s role in any domestic insurance issues and confine its work to international insurance issues. The full House Financial Service Committee is slated to hear the Duffy bill (HR.3861) on Thursday, June 7.

According to Duffy, his act would make it clear that “FIO speaks for Treasury but not other federal agencies in international discussions” and would “authorize FIO to coordinate federal insurance policy and require FIO to achieve consensus with the states before advocating or agreeing to positions in international forums” such as the International Association of Insurance Supervisors.

Duffy’s bill would also remove the FIO from the Financial Stability Oversight Council (as introduced by the Dodd-Frank Act) and eliminate its subpoena and enforcement powers concerning information gathering. The FSOC has the authority to designate certain financial institutions as systemically important or “too big to fail” and make them subject to heightened regulation.

Duffy’s measure is being considered in the wake of Congress passing and President Donald Trump signing a regulatory reform measure, the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155), which eases banking regulations imposed by the Dodd-Frank law after the financial crisis.

That new banking reform law includes a provision on international insurance regulation similar to Duffy’s. Using language proposed by Senators Dean Heller (R-Nev.) and Jon Tester (D-Mont.) and supported by the insurance industry, it requires U.S. negotiators to support consensus positions with state regulators in international negotiations on insurance standards.

Section 211 of S.2155 says that Treasury, the Federal Reserve System and the FIO “shall support increasing transparency at any global insurance or international standard-setting regulatory or supervisory forum” and if they intend to take any position on a global insurance regulatory proposal they “shall achieve consensus positions” with state insurance regulators through the National Association of Insurance Commissioners, when they are in negotiations on insurance issues with international bodies.

That was the first time Congress provided any guidance on international regulation of insurance, according to the National Association of Mutual Insurance Companies (NAMIC).

“The outcomes of these international discussions have tremendous potential to harm consumers and competitive markets in the U.S.,” Jimi Grande, senior vice president for government affairs at NAMIC, said last month after the measure passed.

Grande said the insurance provision will allow Congress to know whether new international standards are based on a “dangerous over-reliance on uniformity” or whether they respect different regulatory systems including the state-based system in the U.S.

Insurers see the law as a way to protect state insurance regulation and increase state input into international regulatory discussions.

However, the apparent victory for insurers in the banking reform bill (S.1255) was potentially undermined by a signing statement from President Trump indicating he sees the insurance [section 211(a)] as an infringement on his executive power to conduct foreign affairs and he does not feel obliged to adhere to it. Trump’s accompanying statement said that the insurance section “purports to direct my subordinates in the executive branch to take certain positions” before international bodies and to “achieve consensus positions with state insurance regulators” in negotiations before foreign bodies, directives he wrote “contravene” his constitutional authority in international negotiations. Trump added that his administration will give “careful and respectful consideration” to the guidance and will consult with state officials but it will implement this section in a manner consistent with his constitutional authority to conduct foreign relations.

The signing statement triggered a protest from a group of state insurance legislators who believe international agreements must reflect state insurance regulation. Tom Considine, CEO of the National Council of Insurance Legislators (NCOIL), criticized Trump for “suggesting he will direct federal officials to ‘opt out’ of the sections of this legislation most essential to preserving the McCarran-Ferguson doctrine of state regulation of insurance.”

Considine, a former state insurance regulator, insisted Trump “has no ability to sign and disregard the portions he happens to dislike.” However, Trump is not the only president to have asserted executive authority in foreign affairs using signing statements.

The Duffy bill gives the insurance industry another shot at boosting state regulation vis-a-vis global supervision.

The Duffy bill has 15 co-sponsors—13 Republicans and two Democrats, Reps. Denny Heck of Wash., and Henry Cuellar of Tex.

In addition to curtailing international activities of FIO, the Duffy bill would retain FIO’s existing authority to monitor all aspects of the insurance industry and advise the Treasury Secretary on the administration of the Terrorism Risk Insurance Act (TRIA).

it would also continue the authority of Treasury and the U.S. Trade Representative (USTR) to enter into covered agreements but would give the Treasury Secretary, not the FIO director, the authority to determine whether a covered agreement preempts state law.

It would limit the number of FIO employees to five.

During the Obama Administration, the FIO issued reports on auto insurance availability and regulatory modernization that some critics felt were too critical of the insurance industry and of state insurance regulation.

Also, the Trump Administration in 2017 signed an agreement with the European Union over insurance and reinsurance regulation that was negotiated by the FIO under Obama. That pact divided the insurance industry while state regulators and legislators stood against it.

Last October, the Treasury Department issued a report in response to Trump’s deregulation initiative in which it supported a revision in FIO’s mission to “ensure consistency with the long-established U.S. policy of state-based insurance regulation.” The report said Treasury and FIO are committed to “more regular and consistent engagement with state insurance regulators and stakeholders on developing issues of importance to the insurance industry, state regulators, and U.S. policyholders.”

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