January 12, 2012

Download - FIO Focus, Issue No. 3 [.pdf]

FIO Focus is a periodic newsletter providing information about, and updates related to, the Federal Insurance Office. Prior issues of the FIO Focus have included summaries of public comments submitted in connection with the FIO's study of the insurance industry and discussions concerning the FIO's responsibilities. 

Interested Party Comments

As part of its study of the insurance industry, the Federal Insurance Office (FIO) requested comments from interested parties on twelve different subjects. The comment period closed on December 16, 2011, although comments are still being accepted. Below is a brief summary of comments made available on Regulations.gov between December 14, 2011, and January 1, 2012, pertaining to the following subjects: national uniformity, regulation of insurance companies on a consolidated basis, international coordination, regulation of certain lines at a federal level, regulatory arbitrage, international developments impacting federal regulation and resolution authority.

• State legislatures and regulators should adopt uniform national standards and rules (e.g. market conduct examinations, use of credit scoring, disclosures for long-term care products, disclosures for annuities, rate and form filings, standards for claims adjusters, company and agency licensing).
• Reforms should include a passport approach to licensing, the universal adoption of the Interstate Insurance Product Regulation Compact, the implementation of the State Modernization and Regulatory Transparency Act or an optional federal charter.
• State regulations that affect insurance company pricing should be eliminated.
• War zone exemptions in life insurance policies should be eliminated.
• U.S. reinsurance collateral requirements should be uniform.

• Insurers should be regulated at a group level as opposed to an entity level.
• A single regulator should be assigned to regulate each "group."
• The Model Insurance Holding Company System Regulatory Act provides sufficient authority for a regulator to regulate insurance groups.

• The FIO should actively participate in the International Association of Insurance Supervisors (IAIS), G20, International Monetary Fund, World Bank and other international bodies.
• The FIO should be involved in conversations regarding the designation of Global Systemically Important Financial Institutions (G-SIFIs), U.S. reinsurance collateral, IAIS ComFrame, international supervisory colleges and data confidentiality.
• The FIO should act as an advocate to ensure that the U.S. approach to solvency regulation is understood by other jurisdictions and is judged equivalent under international standards.
• The FIO should be a strong voice against foreign regulations that discriminate against U.S. insurers abroad.
• The FIO should assist U.S. insurers in enforcing U.S. court judgments against foreign insurers operating domestically.

• The FIO should examine ways in which the federal government can support private markets in protecting again financial losses from major catastrophic events.
• The National Flood Insurance Program should be reformed.
• Reinsurance should be regulated at a federal level.
• The Federal Crop Insurance Program should continue.
• The FIO should become involved in creating uniform requirements for surplus lines, including but not limited to, the definition of home state, the development of reporting forms, and the reporting and remittance of surplus lines tax revenue.
• A federal regulation should be enacted regarding whether a ceding insurer can take credit on financial statements for risks ceded to a reinsurer.
• Reinsurance, marine, aviation and transportation insurance should be regulated at the federal level.
• The FIO should study the multitude of state laws, regulations, interpretations, administrative practices and "desk drawer" rules that exist as well as the compliance costs of those rules, in contrast to a uniform system.

• Federal regulation of certain lines of business may create conflicting and overlapping regulation and possibly lead to regulatory arbitrage.
• Federal regulation promoting uniformity across state lines will eliminate regulatory arbitrage.
• There is a risk of regulatory arbitrage if there is a federal insurance regulator or an optional federal charter.

• Concerns about the EU's Solvency II equivalence assessment, International Accounting Standards, international data confidentiality rules, International Supervisory Colleges, IAIS developments regarding the common framework for the supervision of internationally active Insurers, ComFrame and Basel III.
• The FIO should closely monitor Solvency II's regulation regarding group solvency, group supervision and reinsurers.

• A federal resolution authority would undermine the state system by excluding the largest insurers from state insolvency assessments.
• A Federal Guaranty Insurance Corporation modeled after the Federal Deposit Insurance Corporation (FDIC) should be created.
• A discussion regarding the priority status of creditors, including whether policyholder claims should be given priority.
• The size of claim payments available through guaranty funds should be increased.
• Federal resolution authority will disrupt the current protections offered by the requirement that annuity assets and funds dedicated to retirement plans be sequestered from other company assets.
• The FIO and the FDIC should include state insurance commissioners when they develop procedures for the liquidation of an insurer.

• The FIO should encourage the NAIC to be more transparent regarding the deliberations of their members.
• Criticisms of the NAIC's Financial Regulation Standard Accreditation Program.
• Opposition to the FIO's preemption authority.
• The McCarran-Ferguson Act's anti-trust exemption should be repealed.
• The FIO should support adoption of the NAIC's model for commission sharing with non-licensed individuals.
• The FIO should support uniform regulation of debt protection and credit products when such products are offered by non-bank lenders.
• The FIO should recommend changes that will facilitate the sale of insurance products by banks.
• There should be federal involvement in the development of professional standards and training for insurance agents and advisors.
• The FIO should provide information and education to consumers about annuity and retirement income products
• The FIO should encourage the Securities and Exchange Commission (SEC) to adopt consumer friendly annuity disclosures.
• A national compact to provide regulation for the acquisition of large multistate insurers should be established.
• Staffing and funding for the FIO.
• Concerns regarding the Consumer Financial Protection Bureau's regulation of credit insurance products through the use of Regulation Z (Truth in Lending Act requirements).
• Stranger oriented life insurance transactions should be eliminated.
• The FIO should play a role in informing SEC and Department of Labor regulators of intricacies regarding the insurance business and ensure the two agencies coordinate with one another regarding their upcoming determination on the Fiduciary Standard of Conduct for Investment Advisers and Broker-Dealers.
• Insurers should be required to disclose the way in which climate change impacts financial health, solvency, and insurance availability and affordability for consumers.

FIO Resource Team