Indiana State University Newsroom

Networks Financial Institute helped shape Federal Insurance Office report

February 13, 2014

Indiana State University's Networks Financial Institute (NFI) provided significant input into the Federal Insurance Office's recently released report on modernizing and improving insurance regulation.

For more than a decade, NFI - an outreach of Indiana State's Scott College of Business - has been working to answer challenges surrounding the financial services industry. A 2011 NFI policy brief provided detailed recommendations for the insurance office's congressionally-mandated report on how to respond to questions posed by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The act brought the most sweeping changes to U.S. financial regulations since the 1930s. NFI's analysis and recommendations made an important contribution to the Federal Insurance Office, said Roger Schmelzer, president of the National Conference of Insurance Guaranty Funds.

"NFI has established itself among federal policy makers for its thoughtful work in understanding the evolving 21st Century financial services landscape and its impact on the world economy. For that reason, NFI's recommendations have been and will continue to be taken seriously by Director (Michael) McRaith and members of his staff," Schmelzer said.

"The Federal Insurance Office report breaks new ground as it suggests a new federal role in insurance regulation that will supplement state-based systems through monitoring, standard setting, and supervision," said Brien Smith, dean of the Scott College. "It makes a strong case for Congress to launch a federal initiative to improve insurance regulation. We are pleased that the college and NFI had the expertise in this area to be able to play a vital role in shaping this report."

NFI's strongest recommendation was for the new Federal Insurance Office to focus on the insurance industry and not become preoccupied with financial services issues that are not relevant to, or do not make sense for, the insurance sector, said John A. Tatom, an NFI consultant and former research director for the institute.

"The insurance office report follows this recommendation well," Tatom said. "While it provides an excellent review of the issues surrounding the failure and bailout of AIG, it downplays the notion that the insurance industry is a source or victim of systemic risk and that it requires close attention from federal regulators overseeing systemic risk regulation. Apparently, the office has followed our recommendation that it become a central proponent and educator for the unique role and characteristics of the insurance industry."

The report points out the relatively high cost of the state-based system and its lack of uniformity despite the efforts of the National Association of Insurance Commissioners. It suggests that Congress take strong measures to force uniformity if states do not act quickly and effectively.

The report also acknowledges the difficulties of a state-based system in responding to global competition. At the same time, Tatom noted, the report's starting point is on finding areas where federal involvement is warranted, where there is national interest, and where there is a connection of domestic regulatory issues and firms with the global marketplace. Still, the report recommends Congress "strongly consider direct federal involvement" if states do not act quickly.

Potential approaches include federal supervision of all large or nationally or internationally engaged insurance companies, an optional federal charter, or both. NFI's recommendations include the importance of regulating on a consolidated basis and strengthening the ability of regulators to monitor large companies across both national and domestic borders. The report recommends that the office "engage in supervisory colleges to monitor financial stability and identify issues or gaps in the regulation of large national and internationally active insurers."

The insurance office indicated in its report that it will conduct a new study of the use of personal information for insurance pricing and coverage. The office said it will also work with state regulators to establish new pilot programs for rate regulation seeking to "maximize the number of insurers offering personal lines," and will work to develop personal auto insurance policies for U.S. military personnel that are enforceable across state lines.

The office's recommendations for immediate federal action include passage of the National Association of Registered Agents and Brokers Reform Act of 2013 and that the Treasury Department and the U.S. trade representative pursue an agreement for reinsurance collateral requirements. The office also recommends the development and implementation of federal standards and oversight for mortgage insurers, many of which failed as a result of the foreclosure crisis that began in 2006.

"We are pleased that the Federal Insurance Office appears to have considered many of NFI's recommendations in completing its much anticipated report to Congress," said Indiana State University President Dan Bradley. "We are proud of the work NFI has done since its launch in 2002 and look forward to many more years of thoughtful, well-researched input into oversight and regulation of the financial services industry.'

In addition to leading debate on regulatory reform, "NFI's national reputation in the insurance sector has led to nearly 100 percent placement in well-paying careers for Indiana State's financial services graduates," Bradley noted.

NFI's flagship event, its 10th Insurance and Public Policy Summit, is set for March 12 at the Ronald Reagan Building and International Trade Center in Washington, D.C. Michael McRaith, director of the Federal Insurance Office, will be the keynote speaker. He is expected to focus on the content of his office's new report and the influence it will have on the direction of insurance regulation. Details about the summit, including registration information, are at

Contact: Brien Smith, dean, Scott College of Business, Indiana State University, 812-237-2000 or

Writer: Dave Taylor, media relations director, Office of Communications and Marketing, Indiana State University, 812-237-3743 or