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Commenters Find Fault with State Regulation; Look to FIO to Lead

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In comments to the Federal Insurance Office, a branch of the Treasury Department, insurance and financial services groups, consumer advocates and others are clamoring for changes to the state regulatory system, with varying roles played by the FIO in addressing them.

Some want a strong FIO to be able to manage the interplay among other federal agencies such as the Federal Reserve and the Securities and Exchange Commission in Washington, and to also be a voice with which to be reckoned with on the international stage. 

Others want the FIO to remedy perceived disclosure inadequacies, collect more information and streamline licensing. Almost all comments reviewed identified perceived deficiencies in state regulation as they promote streamlining and greater transparency in the name modernization, although statutory accounting still wins the day, according to comments received.

Trade associations with bigger members, such as the Financial Services Roundtable, want the FIO to beef up its staff and add some heft in Washington in order to accomplish its goals, whatever they are projected to be.

“Our hope is that, from the outset, the FIO will play a significant role, in concert with insurance experts on the Financial Stability Oversight Council (FSOC), in ensuring that any new regulation imposed on insurers is commensurate with the risk posed by the regulated entity,” stated the Roundtable in comments submitted Dec. 15.

Comments are due today, Dec. 16, before midnight, for a statutorily required report by FIO to Congress early next year, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“… we strongly support increased funding, staffing and stature for the FIO, and believe those goals should be made part of the FIO’s study recommendations,” said the group, which represents large financial entities such as Allianz Life Insurance Company of North America, John Hancock, Lincoln National, Protective Life, The Principal Financial Group,  Nationwide Axa Financial and Allstate, Chubb Corp., Citigroup, Charles Schwab Corp. and Suntrust.

The American Council of Life Insurers also recommended a strengthened FIO staff in its comments earlier this week. The FIO is hiring or has hired for at least four positions requiring strategic or financial regulatory expertise.

Some major insurance companies want to strengthen the FIO as their lead regulator, as they do not want too many cooks in their kitchen, and prefer FIO to take point as the regulator who would best understand their industry, filed comments suggested. 

To wit, “companies are concerned that existing federal oversight by the Treasury, SEC, Financial Industry Regulatory Authority (FINRA) and Department of Labor (DOL), added to new oversight imposed by implementation of Dodd-Frank rules and regulations by various federal agencies, combined with existing state regulations, is making the life insurance regulatory regime increasingly complex, fragmented and difficult to coordinate,” the ACLI commented to FIO earlier this week. An ACLI study did find that CEOs did respond more favorably to statutory accounting than to most other elements of state regulation, and a majority thought it good or better. 

These sentiments were echoed by industry panelists at the FIO conference in Washington Dec. 9 at the Treasury building, and hosted by FIO Director Michael McRaith in his first public appearance as FIO director. The Roundtable submitted as part of its comments results from the Cluff Fund study it completed in October.

Also, today, the National Association of Insurance and Financial Advisors submitted a comment letter urging the FIO to educate  federal regulators – from the Treasury Department to the SEC  to the Department DOL about the insurance  industry, how it works, and how it interacts with other financial industries and review state insurance  regulations and work with the states to eliminate redundant or inconsistent regulations.

“It’s important that our government officials really understand the industries they regulate, and the Federal Insurance Office has great potential to educate and inform those regulators whose decisions greatly affect consumers, advisors and the economy,” said NAIFA President Robert Miller.

The Roundtable concluded that the FIO should be charged with identifying overlaps in the ways that the federal government already engages in insurance supervision activity, and it should use this information to coordinate and consolidate federal involvement in insurance. The Roundtable also said the FIO should serve as a strong voice on international issues facing the industry but that “these  international efforts should be focused on assuring that international accords are made in the best interests of the U.S. insurance market participants, and not simply to harmonize our laws with international standards.”

The Roundtable would have the the FIO define and use its pre-emptive authority granted under the Dodd-Frank Act to negotiate national standards. 

Like other associations representing multi-state insurers tired of duplicative state regulations, the Roundtable said a majority of its members continue to support the creation of a single, national market for those insurers who operate on a national or regional basis. 

It cited the cost of inefficient state regulation numbering in the millions annually for national companies just for agent licensing.  

“The regulatory burden of duplicative and overlapping regulation has not been justified by sound reasoning and has resulted in inconsistent consumer protection. Indeed, consumers are harmed as they are denied products that may be of use based often on subjective regulatory requirements that have no bearing on solvency or consumer protection,” the Roundtable stated. 

The Insured Retirement Institute (IRI) also called for uniformity this week when it told the FIO that it should recommend Congressional adoption of NARAB (National Association of Registered Agents and Brokers Reform Act) II legislation and continued state pursuit of full reciprocity and uniformity in the agent licensing process.

NAIFA also said it supports the enactment of NARAB II because it would allow insurance producers who are licensed to operate in multiple states to comply with a single set of non-resident licensing and continuing education rules.

Joseph Belth, known as the “professor” of insurance and editor of the Insurance Forum, identified five disclosures that insurance laws and regulations do not require with regard to life insurance prices, yearly rates of return, various charged for nonstandard payments or cash and basic financial strength ratings reporting.  

Belth told the FIO that if state regulators are unable to get life insurers to make these disclosures, the federal authorities should, in order to provide the consumer with vital information.

Many more comments are filed, including those by Bob Hunter of the Consumer Federation of American who expressed concern about unregulated modeling systems by private companies that modeled everything from claims paying to catastrophic risk models. He also found much amiss in state regulation, as he also discussed at the FIO summit last week. Ironically, on the day comments were due, the site was down for maintenance most of the day and into the weekend, frustrating other consumer advocates who were trying to file by midnight, and others who were trying to read the comments. (sorry, Bob!) 

It is not known if the NAIC is filing comments or not, but its representatives did meet with McRaith and staff in two lengthy meetings here in Washington recently.


On Dec. 1, the NAIC presented recent enhancements to the regulatory system including the model holding company system act, accreditation holding company system financial analysis guidelines effective in 2012, stress testing and ORSA–the NAIC’s Own Risk and Solvency Assessment Manual (think self-assessments). The NAIC also noted in its presentation the major reserving issue of the year–AG 38 use/abuse centered around  reserving (or under-reserving as some state actuaries hold) for universal life with secondary guarantees–as well as international insurance activity. NAIC President-Elect and Florida Insurance Commissioner Kevin McCarty was in attendance at the meeting, as was John Huff, the director of the NAIC’s capital market bureau, and Missouri’s state regulator designee to FSOC.  

On Dec. 7th, in a meeting attended by NAIC President Susan Voss of Iowa, key areas of discussion included market conduct exams, anti-fraud and consumer service activities, catastrophe response, an overview of the producer licensing regime and the Interstate Compact, as well as recent issues like retained asset accounts, surplus lines implementation and life insurer use of the SSA death master file, a hot button issue still playing out among the states. 


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