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FACI's First Objective: Focus on the Silver Tsunami

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With the inaugural meeting of the Federal Advisory Committee on Insurance (FACI, pronounced “fah-key”) now in the record books, it is clear that at least initially, the group’s focus will reflect FIO Director Michael McRaith’s perspective on broad, global themes.

McRaith steered the group’s first meeting – a nearly 3.5-hour-long conversation between a collection of disparate forces from across the insurance industry – toward one of the overarching trends he believes needs attention: the demographics of Western society, with its growing middle class and aging/longevity issues.

While McRaith spotlighted the importance of internationalization of insurance, and the priority of the U.S. to receive fair play globally, he cautioned participants to not focus on specific countries or to get enmeshed in overly specific issues in their FACI advisory roles. Instead, McRaith suggested, they should look at supervision on a broad scale, and to address insurance supervision systemically.

There is ample evidence that insurance is now viewed at Treasury as part and parcel of a growing global financial sector. Indeed, McRaith cautioned after the meeting that he doesn’t want the FACI to get lost in the “minutiae” of policy forms and reserving debates, but rather, to address large issues viewed as part of the international landscape.

(McRaith, it should be noted, is seeking ever-more knowledge and coordination at all levels. He recently hosted a meeting across federal agencies on their supervisory role in insurance. The group, a self-styled new assembly called the “Federal Government Insurance Forum,” met March 22 and revealed the massive internationalization of the insurance markets, according to McRaith, who noted the “numbers are staggering.” The Forum, which included representatives from over 20 U.S. agencies – as far-flung across the supervisory spectrum as the Federal Aviation Administration, the United States Trade Representative’s office and the Overseas Private Investment Corp. – will continue to meet.)

The scope of his grasp of insurance regulatory matters reaches far beyond any of the participants’ specific issues, as they were all representing their constituency’s interests, from state regulatory regimes to the insurance industry itself, to consumers, to shareholders to policyholders. As such, McRaith was able to turn the meeting’s direction on its head by bringing the focus to the demographics issue, and away from the pet issues of many of those on the FACI, sich as international regulatory hurdles for larger insurers or aligning global systematically important financial institutions’ (G-SIFI) capital requirements with domestic SIFI requirements.

McRaith, at the outset of the issues discussion – after a seemingly interminable time spent on necessary housekeeping and bylaws, and ethics rules – asked if interest rates, demographic trends and the aging population would be an area the committee would like to talk about. The so-called “silver tsunami” – the wave of people in the U.S. who are either at or are nearing retirement age – is of deep interest to the life insurance and retirement industries.

McRaith later reassured the group by noting that the International Association of Insurance Supervisors (IAIS) does not intend to recommend any companies for designation as G-SIFIs until first quarter 2013 at the earliest, and that there will be some coordination. FIO is now a member of the IAIS Executive Committee.

Other insurance issues raised included market access, accounting issues, affordability, international trade, credit-related insurance and market conduct data collection and analysis, surplus lines and catastrophes’ financial reserving and coverage issues. McRaith let the 14 participants have their say on these (Monica Linden, Montana’s insurance and securities commissioner, could not attend, while Connecticut Insurance Commissioner Tom Leonardi attended via teleconference from overseas) and then circled the discussion back to the umbrella issue of Western aging/demographics and its promises and challenges.


“I hope this committee will be a forum for discussion as we and the U.S. and the Treasury Department face some of these international developments and the macroeconomic issues as well,” McRaith said. “My hope is to have thoughtful discussion on one or two issues of the day; … we identify four, five, or six high-level issues this committee feels are important. Then we [designate them to a subcommittee or subcommittees to look at issues] of one macro issue,” he said.

Throughout the meeting, after the group continued to exhort McRaith to tell them what was important to him, or to the FIO, before McRaith ultimately returned to the theme of to the aging of the Western population, which he characterized as a driving factor “It is driving much of what’s happening internationally, nationally, and … [has] international implications.” His question to the group was, “How is it effecting what we do in the insurance sector today?”

“Should we acknowledge it differently than we are?” McRaith asked. If so, how–or should we maintain the status quo, he posed to the FACI.

The group, having not pursued this line after the first suggestion, attempted to rally to the cause.

Brian Duperreault, the designated chair of the FACI group and CEO of Marsh & McLennan Cos., responded “If it’s interesting to you, it’s interesting to us.”

The two subcommittees the FACI formed are focusing on the balance regulatory and supervisory efforts ought to strike between domestic and foreign insurers, a nod to trade issues and the U.S. insurance sector’s longstanding claim that the playing field is tilted against them by European-driven equivalence standards. These issues will be discussed through in the context of insurance accessibility and affordability, with the aging of Western populations (particularly in the U.S.) in mind. Each of the members will choose to work in one subgroup, with Duperreault playing a part on both subcommittees.

Each group is to draft some sort of consensus document that reports back to FIO by the next meeting. The documents should each provide advice and recommendations to the FIO on how the issues under exploration may influence how the FIO could evaluate these issues both domestically and internationally, and to think of the implications of the demographic realities.

The goal, according to McRaith, is to bring clarity on the path forward for the U.S. sector by the end of the calendar year.

After, members chatted about looking forward to finding consensus and working together, and started offering ways they could approach their issues through the new lens offered by McRaith, although some were worried the demographics mega-filter wouldn’t address all aspects of subjects like affordability and availability of insurance.

“I realize this is a subject none of you came in here thinking about. The last thing we want to be doing is going through the Looking Glass,” said McRaith in one of several references to Alice in Wonderland. He said FACI should avoid going down “rabbit holes,” ostensibly a warning to disappear into a maze of details and tangents. As New York Superintendent of Financial Services Benjamin Lawsky added, “There is a risk of biting off more than we can chew and disappearing for two years and coming back with a 1,000-page report.”

But Lawsky was the first to vocally embrace the new tack on which McRaith had set the insurance advisory group.

With the AIG fallout and the market crash, Lawsky noted, regulators and industry-watchers are constantly looking backward. “What I like about this, is it has us looking at the future,” Lawsky said. “This is focused on where we are headed.”

We “are all trying to get our arms around it,” Duperreault said afterwards.

FACI determined it would meet quarterly, in lengthy sessions.

Discussion of the FIO report to Congress was off the table. Divergent reports on the release or submission to Congress of the Dodd-Frank deliverable ranged from mid- to late April to even after the Presidential elections in the fall.


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