The U.S. insurance regulatory system is in a state of major disrepair, an international body that monitors and makes recommendations about the global financial system said today in a new report.
The so-called “peer review” of the U.S. insurance regulatory system by the Financial Stability Board (FSB) said one option the country should strongly consider is “migrating towards a more federal and streamlined structure” as a means of “achieving greater regulatory uniformity.”
The report said that U.S. authorities should promote greater regulatory uniformity in the insurance sector by conferring additional powers and resources at the federal level where necessary.
It said the Federal Insurance Office (FIO) should enhance its monitoring of the insurance sector “and be further strengthened to be able to take action to address issues and gaps identified.” The report notes that FIO is scheduled to come out shortly with a report to Congress and the president will set forth how to modernize and improve the system of insurance regulation in the U.S. and, among other factors, will consider the degree of national uniformity of state insurance regulation.
It urges U.S. authorities, both state and federal, to further enhance insurance group supervision by introducing requirements for consolidated financial reporting for all insurance groups and by giving lead supervisors additional powers to fully assess the financial condition of the entire insurance group.
An excerpt from the report:
“The US authorities should carefully consider and provide recommendations to Congress as to whether migration towards a more federal and streamlined structure may be a more effective means of achieving greater regulatory uniformity. Moreover, the FIO’s current human resources may need to be augmented to fully address the tasks that it has been mandated under DFA. The FIO should also enhance its monitoring of the insurance sector through greater use of non-public information that it is able to access, and be given more resources and powers to be able to address issues and gaps that it identifies.”
Summing up the report, Mike Nelson, chairman of insurance law firm Nelson Levine, said the FSB report made a number of pointed comments about shortcomings in the U.S. regulatory landscape, particularly involving insurance issues.
The report said, “The architecture for insurance supervision in the U.S., characterized by the multiplicity of state regulations, the absence of federal regulatory powers to promote greater regulatory uniformity and the limited rights to pre-empt state law, constrains the ability of the U.S. to ensure regulatory uniformity in the insurance sector.”
Lastly, the FSB encouraged state governments to implement changes to those state laws that empower insurance regulators “so regulatory agencies can improve rule making powers and bolster departments of insurance with better funding and staffing.”
Given the current political barriers to imposing a more unified system, the report implied that, at the very least, states should implement changes to those state laws that empower insurance regulators so that regulatory agencies can improve rule-making powers and bolster departments of insurance with better funding and staffing.