FIO Unlikely to Remain a Spectator in Insurance Regulation

Saturday, April 18, 2015

FIO Unlikely to Remain a Spectator in Insurance Regulation

When Michael McRaith was originally appointed as the first Director of the Federal Insurance Office ("FIO"), then Deputy Treasury Secretary Neal Wolin stressed that the regulation of the insurance industry was not one of FIO's responsibilities, and that "nothing in the Dodd-Frank Act alters the fact that insurance is fundamentally regulated by the states."[1]

McRaith in 2006: "State regulation of the 'business of insurance' ... has protected consumers for over 60 years..."

In 2006, before the United States Senate Committee on the Judiciary, McRaith himself testified to the fact that insurance was a unique financial product that requires state regulation. At that time, McRaith was the Director of Insurance for the State of Illinois, and his testimony extolled the virutes of the long-standing practice of the state supervision of insurance, as coordinated by the National Association of Insurance Commissioners. He warned the U.S. Congress to carefully consider the "unintended consequences and potential pitfalls" of amending the McCarran-Fergusen Act to allow broader federal regulation of insurance, acknowledging that state regulation of the business of insurance "has protected consumers for over 60 years."[2]

In 2009, McRaith characterized the creation of a federal chartering system for insurance companies as "a solution in search of a problem."[3] Testifying before Congress on modernization of insurance regulation, McRaith emphasized the primary role and importance of state-based insurance regulation:

To be clear, any reforms to functional insurance regulation should start and end with the States. Federal assistance may be necessary if targeted to streamline insurance regulator interaction and coordination with other functional regulators, but that initiative should not supplant or displace the state regulatory system. The insurance industry, even in these difficult times, has withstood the collapses that echo through other financial sectors.[4]

As the Director of FIO, McRaith has changed his tune. Moving away from his previous comments on the long-standing practice and primary importance of state-based insurance, McRaith testified before Congress earlier this year that the U.S. should build on the "hybrid model of insurance regulation, incorporating both federal and state oversight."[5] Emphasizing this point further, McRaith said:

The question is not whether federal involvement in insurance regulation is necessary, but where and how that involvement should be calibrated. A federal role in insurance regulation would improve uniformity of regulation, address the realities of globally active, diversified insurance firms, and better serve national interests.[6]

McRaith declared the state-versus-federal regulation discussion as a "binary debate" that is a "relic" of a bygone era, according to the Insurance Journal. When pressed on the potential regulatory future of FIO, McRaith comments suggested that the role of mere spectator for FIO is not in the national interest:

McRaith’s characterizations of the global insurance market, however, make clear that FIO is unlikely to sit back and be a spectator, and that it will do what it believes is in the “national interest” for such a critical component of the economy and consumers’ lives.[7]

To be fair, even McRaith's earlier comments suggested some role of the federal government with respect to the regulation of insurance, but his concerns that federal regulation should not supplant or displace the state regulatory system seem to have withered away since his appointment as FIO Director.