September 13, 2011
Networks Financial Institute at Indiana State University has issued a report of insurance industry oversight recommendations to help the newly-created Federal Insurance Office with its mandated report to Congress.
"A Report to the Federal Insurance Office" includes recommendations based on the six topics required to be included in the report, along with seven "optional" elements. Among other recommendations, NFI suggests that the insurance office should "focus squarely on the insurance industry and not become unnecessarily burdened with" issues pertaining to the financial services industry. The office was created in last year's Dodd-Frank Wall Street Reform and Consumer Protection Act, which focused mostly on the financial services industry. Also, while the office was created, its oversight role was largely undefined, said Terrie Troxel, interim executive director of NFI.
"One of the tasks that the Federal Insurance Office director has been charged to do is essentially define what the function of the office should be," Troxel added. "Essentially, you are asking a bureaucrat to define the scale and scope of his bureaucracy, which is pretty unique."
Despite the questions surrounding the Federal Insurance Office, it will not be able to directly regulate insurance companies; however, it will have a significant role in the process.
"The FIO can make recommendations to Congress, and it would then be up to Congress to pass any legislation that would actually impact the insurance industry," Troxel said. "There is a lot of uncertainty about what regulatory suggestions and proposals the Federal Insurance Office would forward to Congress."
NFI also recommends that the Federal Insurance Office "should take the lead in developing solvency standards and liquidity requirements" for the insurance industry, and also ensure that any new regulations and requirements support the insurance industry and provide for "effective financial risk management," rather than being a detriment to the industry.
"The FIO director's report, and any subsequent congressional legislation based on the report, will have far-reaching implications for the insurance industry and insurance consumers," officials wrote in the NFI report, which is available on the NFI's website at networksfinancialinstitute.org.
NFI's publication also includes abstracts of policy briefs and working papers about insurance regulation and regulatory reform that are available through NFI's website. It also includes a summary of presentations and discussions from several NFI events, which included topics related to the new Federal Insurance Office headed by McRaith, who was director of the Illinois Department of Insurance until he was named to his current post earlier this year.
He was considered an effective state regulator in Illinois, said Troxel, who pointed out that McRaith is an attorney and knowledgeable of many of the challenges affecting the insurance industry.
During an NFI regional event in September 2010, McRaith advocated for the federal office, suggesting that it could help the U.S. government better comprehend issues affecting states in large claim situations.
"It's absolutely ridiculous that the federal government does not have access to the economic impact of disasters on the insurance sector, such as the costs that Sept. 11, 2001 and Hurricane Katrina imposed on our industry," McRaith said at the event.
Earlier this month, Troxel and Tatom discussed NFI's recommendations with industry representatives and stakeholders. The telephone conference included opening remarks and then a synopsis of the organization's recommendations to McRaith.
The Dodd-Frank Act, which created the office, is one of the biggest legislative reforms to financial services industry regulation in a century, Troxel said. While the majority of reforms within the act affect the banking industry, the troubles encountered by the American International Group, the financial and insurance services giant known as AIG, led to reforms influencing the insurance industry also. Yet AIG's banking products - rather than insurance products - led to the company's financial troubles, Troxel said.
Not everyone in the industry opposes the new office. Some larger companies prefer an optional federal charter system for insurance similar to the federal charter system in the banking industry, Troxel said. He explained that in a national charter system, companies would be able to adhere to one set of regulations, rather than laws that vary by state.
"There is unnecessary regulation of rates and forms in commercial insurance, and the industry would actually like to have some relief from that," Troxel said, "and that's one of the things that the Federal Insurance Office could promote."
Contact: Terrie Troxel, executive director, Networks Financial Institute, Indiana State University, 812-237-2028 or firstname.lastname@example.org.
Writer: Austin Arceo, assistant director of media relations, Office of Communications and Marketing, Indiana State University, 812-237-3790 or email@example.com.
NFI suggests that the insurance office should