FIO Releases First Report
By Robert L. Redding Jr.
Rep. Ed Royce continues to press for insurance reform.
The U.S. Department of Treasury’s Federal Insurance Office (FIO) has released its first report since its founding. The Dodd-Frank Wall Street Reform and Consumer Protection Act established the FIO in 2010. This new, omnibus financial services law required the FIO to provide a report each year, in addition to other specific reports, but FIO has been slow in fulfilling its mandate.
U.S. Rep. Ed Royce (R-Calif.), House Foreign Affairs Committee chairman and senior member of the Financial Services Committee’s Subcommittee on Housing and Insurance, worked with former Rep. Melissa Bean (D-Ill.) in the 111th Congress to have some piece of the Dodd-Frank package headed toward insurance reform. The establishment of the FIO provided a conduit for a regular review of the insurance industry and possible reform of the current antiquated state regulatory system.
Royce touched on this with remarks before a recent SubcomÂmittee on Housing and Insurance hearing on “The Impact of International Regulatory Standards on the Competitiveness of U.S. Insurers.” Although Bean is no longer in the House of RepresentÂatives, Royce has continued to encourage more involvement of the FIO in the regulation of the insurance industry. A target of Royce, for some time, has been the National Association of Insurance Commissioners (NAIC), now headed by former Nebraska Democratic Sen. Ben Nelson. Royce highlighted in a July 2012 letter NAIC’s actions that appear to be regulatory in nature, yet the NAIC is a non-profit 501 (c)(3) organization.
In his letter, Royce noted, “NAIC members have repeatedly referred to NAIC as an organization exercising regulatory authority in their public statements and official regulatory documents …” He continued, “The very reason why Congress insisted that ‘nothing in’ McCarran-Ferguson ‘would authorize any private group or association to regulate in the field of interstate commerce’ was to avoid the application of authority by groups which do not follow the accountability and due process requirements of public bodies.”
The first, brief 53-page FIO report provided little on insurance reform, but prior to the release of the report, the subcommittee hearing highlighted the congressional interest in tracking the insurance industry and how it’s regulated. The NAIC continues to draw Capitol Hill fire as the self-appointed purveyor of uniform insurance regulatory policy.
ASA has been a longtime advocate of insurance reform including the repeal of the McCarran-Ferguson Act and moving the insurance regulatory system from a state-based scheme to a federal regulatory system. FIO’s weak authorization language has served as a roadblock to serious regulatory reform. Capitol Hill committees of jurisdiction still have voices of insurance reform, but no action has been scheduled in the committees for this Congress.
An important report still outstanding is what has been termed the Modernization Report. This report is past due and the administration has received much pressure from state regulators and others in opposition to the federal regulation of the insurance industry. Dodd-Frank Act language on insurance modernization included the following:
"Study and Report on Regulation of Insurance"
1) In General
Not later than 18 months after the date of enactment of this section, the director shall conduct a study and submit a report to Congress on how to modernize and improve the system of insurance regulation in the United States.
The study and report required under paragraph (1) shall be based on and guided by the following considerations: (A) Systemic risk regulation with respect to insurance. (B) Capital standards and the relationship between capital allocation and liabilities, including standards relating to liquidity and duration risk. (C) Consumer protection for insurance products and practices, including gaps in state regulation. (D) The degree of national uniformity of state insurance regulation. (E) The regulation of insurance companies and affiliates on a consolidated basis. (F) International coordination of insurance regulation.
3) Additional Factors
The study and report required under paragraph (1) shall also examine the following factors: (A) The costs and benefits of potential federal regulation of insurance across various lines of insurance (except health insurance). (B) The feasibility of regulating only certain lines of insurance at the federal level, while leaving other lines of insurance to be regulated at the state level. (C) The ability of any potential federal regulation or federal regulators to eliminate or minimize regulatory arbitrage. (D) The impact that developments in the regulation of insurance in foreign jurisdictions might have on the potential federal regulation of insurance. (E) The ability of any potential federal regulation or federal regulator to provide robust consumer protection for policyholders. (F) The potential consequences of subjecting insurance companies to a federal resolution authority, including the effects of any federal resolution authority – (i) on the operation of state insurance guaranty fund systems, including the loss of guaranty fund coverage if an insurance company is subject to a federal resolution authority; (ii) on policyholder protection, including the loss of the priority status of policyholder claims over other unsecured general creditor claims; (iii) in the case of life insurance companies, on the loss of the special status of separate account assets and separate account liabilities; and (iv) on the international competitiveness of insurance companies. (G) Such other factors as the director determines necessary or appropriate, consistent with the principles set forth in paragraph (2).
4) Required Recommendations
The study and report required under paragraph (1) shall also contain any legislative, administrative or regulatory recommendations, as the director determines appropriate, to carry out or effectuate the findings set forth in such report.
With respect to the study and report required under paragraph (1), the director shall consult with the state insurance regulators, consumer organizations, representatives of the insurance industry and policyholders, and other organizations and experts, as appropriate.”
FIO director Michael McRaith indicated at the subcommittee hearing that the Modernization Report should be available this summer. To review the FIO Annual Report and other related items, visit ASA’s legislative website, www.TakingTheHill.com.
Taking the Hill
Airbag Legislation Introduced in New York Senate
Recently, New York state Sen. Catharine M. Young (R-57) introduced Senate Bill 3779, a bill regarding airbag safety.
S.B. 3779 amends the vehicle and traffic laws in New York by adding the following sections, which change rules related to the replacement of inflatable restraint systems, changes rules related to selling recycled airbags and changes rules regarding information given to an insurer and the vehicle owner or purchaser regarding a replaced airbag.
These changes include that no one is to install or reinstall any object other than an airbag, sell a device with the impression that the device will replace an airbag in a vehicle if someone knows that the device does not meet federal safety requirements, sell any device that when installed in a vehicle gives the impression that a viable airbag is installed in the vehicle, or intentionally misrepresent the airbag when it doesn’t exist. According to the bill, anyone who does violate this will be guilty of a misdemeanor, and could have to pay a fine or face imprisonment for 180 days. Anyone who violates these terms and the situation results in a serious bodily injury or death will be guilty of a felony.
The bill also goes on to require that no one can knowingly possess, sell or install an airbag that has been stolen, one which the manufacturer’s part number labeling and/or vehicle identification number has been removed, altered or defaced, or an airbag taken from a stolen motor vehicle. The bill then authorizes that any accident report that is filled by law enforcement will clearly state whether the automobile’s airbag or inflatable restraint system was deployed during the accident. The bill states anyone selling or trading a motor vehicle who may know the airbag is inoperable must notify the buyer in writing. S.B. 3779 has been referred to the Senate Committee on Transportation.
Another bill in New York, Assembly Bill 6378, was introduced in March by Jeffrey Dinowitz (D-81), assembly member, regarding counterfeit airbags. This bill provides that it is unlawful to offer to distribute or sell a counterfeit or non-functional airbag. It also states that a violation of this would be a Class A misdemeanor. New York Assembly Bill 6378 recently passed the New York Senate.
– Kaitlyn Dwyer
Bob Redding is the Automotive Service Association's Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry.
For more information about the legislative activities of ASA, visit www.TakingTheHill.com.