Federal Insurance Office (§ 502)

For the first time, Congress has created a federal agency charged with monitoring and, to a very limited extent, regulating the insurance industry. Specifically, the legislation creates a Federal Insurance Office (FIO) within the Treasury Department. The role of the FIO is focused on national coordination of the insurance sector, mitigation of systemic risk, and facilitation of international regulatory cooperation. The FIO’s authority extends to all lines of insurance other than health insurance, certain types of long-term care insurance, and crop insurance.

What will the Federal Insurance Office do?

The FIO’s principal functions will include:

  • declaring state insurance laws to be preempted by
    international agreements regarding insurance regulation
  • monitoring the insurance industry, including identifying regulatory gaps that may expose the financial system to systemic risk
  • recommending specific insurance companies for designation as nonbank financial companies (and thus supervised by the Federal Reserve) for systemic risk mitigation purposes
  • developing federal policy on international insurance matters
  • reporting to Congress on domestic and international reinsurance markets, as well as the report discussed below regarding potential steps to modernize and improve insurance regulation in the United States
  • monitoring access of underserved communities and certain other groups to affordable insurance products
  • consulting with states on national and international insurance matters

Noteworthy among the FIO’s regulatory powers is the authority to deem state insurance laws preempted by international agreements regarding insurance regulation. The Director may exercise that authority to the extent he or she finds that a state insurance law results in less favorable treatment to non-US insurers domiciled in jurisdictions subject to international agreements regarding insurance regulation than to domestic insurers. Excluded from this preemption authority are state laws relating to rates, premiums, underwriting, sales practices, coverage requirements, and (unless discriminatory against non-US insurers) capital and solvency requirements. Although the Treasury Secretary has long had the authority to negotiate for increased access to foreign markets for US insurers and reinsurers and to prevent discrimination against foreign insurers and reinsurers by state regulatory bodies, this authority arguably has been eclipsed by the overall lack of federal regulation of the insurance sector. Congress has now accordingly granted the Treasury Department further authority to preempt state law in negotiating international agreements with foreign countries.

Within 18 months after the enactment of the legislation, the FIO must conduct a study and issue a report of its legislative, administrative, and/or regulatory recommendations to modernize and improve insurance regulation in the United States. This report will also outline the potential impact of federal regulation in this arena. To facilitate this study, the FIO has been provided with subpoena power to obtain industry and company information from insurers when the information is not publicly available or possessed by a state insurance regulator.

Despite conferring these considerable powers on the FIO, Congress has left state-based insurance regulation for the most part undisturbed. The legislation does not grant the FIO or the Treasury Department general supervisory or regulatory authority over the business of insurance, but rather aims to streamline state regulation with uniform national and international insurance regulations and standards. The legislation represents a relatively narrow, but nonetheless significant, toe-hold by the US government in insurance regulation.