The insurance industry has emerged relatively unscathed from the financial regulation reform process that culminated in the passage last year of the Dodd-Frank Wall Street Reform and Consumer Protection Act. But Title V of the legislation establishes a federal body to deal with insurance matters. The Federal Insurance Office (FIO) has no regulatory powers per se, but it has been granted broad information gathering powers that some industry participants fear could eventually result in onerous data calls.
If it weren't for AIG's involvement in the financial crisis, it's questionable whether the Title V section on insurance would even have made it into the Dodd-Frank legislation. AIG's credit default swaps were not insurance in the strict, regulatory sense of the word and were not covered by the existing state-based insurance regulatory system. Despite that important fact, AIG's problems gave the impression that the insurance industry also included companies of "systemic" magnitude, and that the industry also was implicated in the crisis along with other financial services sectors.
As Congress investigated the matter further, insurance lobbying groups successfully made the case that the insurance industry's existing regulatory framework served it well during the crisis and that, in fact, the insurance industry was not part of the problem. That acknowledgment, however, didn't guarantee that Title V would be an entirely perfunctory insurance inclusion within broader financial reform legislation. On the contrary, the financial crisis provided an opportunity to resurrect previous efforts to introduce an element of federal oversight of the U.S. insurance industry.
Proponents of an optional federal charter (OFC), which would allow insurers to choose whether to be regulated by the state departments of insurance or a federal insurance regulator, have supported Title V and the creation of the FIO. OFC was last proposed in 2009 in the form of the National Insurance Consumer Protection Act bill (H.R. 1880), also known as the Royce-Bean bill, as it was sponsored by Rep. Ed Royce (R-Calif.) and former Rep. Melissa Bean (D-Ill.).
The American Council of Life Insurers (ACLI), a strong advocate of OFC, also strongly supported Title V. "We knew that OFC wasn't in the offing anywhere in Dodd-Frank, so we saw Title V as a starting point, a building block for representation of the insurance industry at the federal level," comments Maurice Perkins, the ACLI's vice president for federal relations, financial services.
In 2008 Paul Kanjorski, then the Representative (D) from Pennsylvania, introduced the Insurance Information Act of 2008 (H.R. 5840) to establish a body, called the Office of Insurance Information, much like the FIO within the Treasury. The bill never became law, but Kanjorski was influential in shaping the Dodd-Frank language establishing the FIO. Following the financial crisis, Kanjorski made the case for an Office of Insurance Information:
"While most other pieces of the national economy have some sort of knowledge center within the federal government, insurance currently stands without a central office," he said in a statement reported by A.M. Best. "The Office of Insurance Information would help Congress and the federal government make better decisions regarding national and international insurance policy, as such knowledge of the industry does not exist at this time."
Kanjorski, who lost his seat in the House in the 2010 midterm elections, sometimes explained his advocacy for some kind of informational federal insurance office through an anecdote, according to Dylan Jones, federal affairs director, National Association of Mutual Insurance Companies (NAMIC). Jones says Kanjorski would recall that after both the Sept. 11, 2001, terrorist attacks and Hurricane Katrina, when the appropriate congressional financial services committees met, requests to hear from the insurance industry emphasized the absence of any federal insurance body to contribute to the discussion.
"Kanjorski said that he supported the state regulatory system but believed that there ought to be an insurance body to which Congress and others at the federal level could turn to get information about the insurance industry," Jones relates. "His idea was that an Office of Insurance Information would have no regulatory powers but would simply serve as an informational clearinghouse for the federal government on insurance issues."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio