WASHINGTON BUREAU — For state regulators and legislators, the new Federal Insurance Office (FIO) is certainly “at least a new cousin in the federal government,” according to Neil Alldredge.
Alldredge, a senior vice president at the National Association of Mutual Insurance Companies, Indianapolis, made that remark here this weekend at the spring meeting of the National Conference of Insurance Legislators (NCOIL), Troy, N.Y.
The Dodd-Frank Wall Street Reform and Consumer Protect Act created the FIO to help the U.S. Treasury Department keep tabs on the insurance industry and negotiate insurance trade agreements with other countries.
The Obama administration is supposed to hire an FIO director soon, and the FIO director is supposed to be a member of the Financial Stability Oversight Council (FSOC), an agency that is supposed to help all federal financial services regulators monitor events and trends that could affect the stability of the U.S. financial system. The FSOC is supposed to have an Office of Financial Research (OFR) to help it monitor financial services trends.
Dodd-Frank Act drafters limited that the authority of the FIO would be limited, but Dodd-Frank
“will impact state insurance regulation,” Alldredge said.
The “often talked about but the far off threat of federal regulation is so much closer, and …state legislators ought to respond to the Dodd-Frank Act as a rally cry for reform,” Alldredge said.
The “shape and form of the Federal Insurance Office and Office of Financial Research are not clear, but we do know that they will likely try to gain more authority over time and will likely report that state insurance regulation needs federal partners, if not full blown federal regulation,” Alldredge said.
The FIO and OFR “do have fairly limited powers but their mere presence now changes the landscape and the old debate about state vs. federal insurance regulation,” Alldredge said.
Most of the insurance industry – with the exception of the very largest insurers who might be swept into the new systemic risk regulatory regime – is left out of the legislation, Alldredge said.
“But the potential expansion into the insurance regulatory work is not far-fetched,” Alldredge warned.