The Federal Insurance Office Has a Face. Now What?

Reuters reports that Michael McRaith, the director of the Illinois Department of Insurance, will be named head of the new Federal Insurance Office (FIO), a body set up by Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The office isn't endowed with any regulatory powers. Its raison d'etre is to monitor the insurance industry, presenting information to Congress and other federal organizations as requested. However, even this mostly superficial power has technology implications. In Anthony O'Donnell's writeup on the Dodd-Frank act, Howard Mills, chief adviser for Deloitte's national insurance group, expresses concern that frequent data calls could weigh down insurers.

"The industry is very conscious of the need to meet regulatory compliance given the country's mood, but we hear concerns from many of our clients that complying with [FIO data calls] could be difficult," Mills told Anthony.

McRaith has shown his comfort with data call requests in the past. When the use of credit scores in auto insurance underwriting was investigated last year, McRaith testified in his capacity as the chair of the P&C Insurance Committee of the National Association of Insurance Commissioners that the organization was preparing such a call to "obtain information from insurance companies regarding the development of an insurance score and the range of premium differences among consumers based on the insurance scores."

However, before the FIO may collect any data from insurers, it first must "coordinate with each relevant Federal agency and State insurance regulator … and any publicly available sources to determine if the information to be collected is available from, and may be obtained in a timely manner by, such Federal agency or state insurance regulator … or publicly available source," according to Section 313, Subsection 4.

The FIO is mandated to "conduct a study and submit a report to Congress on how to modernize and improve the system of insurance regulation" by January of next year. Dylan Jones, federal affairs director for the National Association of Mutual Insurance Companies, told Anthony that carriers fear the FIO using that study to expand its power. Under McRaith's leadership, however, it seems unlikely that would happen. In testimony March 17, 2009, on the subject of modernizing insurance regulation, McRaith said:

…[We] urge caution in any Federal initiative that may jeopardize the State-based platform for such oversight. 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.

McRaith endorsed at the time a federal Office of Insurance Information, a concept introduced by then-Rep. Paul Kanjorski (D-PA) the previous year, whose duties would be similar to the FIO as it stands today. The main role of such an office would be to provide information on the insurance sector to other federal financial services regulators to monitor and address issues of systemic risk.

"We agree that, as a key component of financial stability, insurance must be factored into an all-inclusive view of the financial system at the Federal level," McRaith testified. "This shared objective can, of course, be achieved without a Federal insurance regulator and without preempting state authority over the fundamental consumer protections, including solvency standards."

In his testimony, McRaith came out against the concept of an optional Federal charter (OFC), which would require the creation of a federal insurance body that insurers could choose as their main regulator. (Maurice Perkins, the American Council of Life Insurers' VP for federal relations, financial services, told Anthony that his organization supported Title V and the FIO as a "building block for representation of the insurance industry at the federal level.")

"The current climate of instability and insolvency in the banking sector illustrates this concept cannot work," McRaith said in 2009. "The State-based system benefits both consumers and industry participants."

I sent an e-mail to McRaith's Illinois office requesting comment, which was not returned by publication. See Anthony O'Donnell's blog for reaction from around the industry.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio