Summary
The Federal Insurance Office’s Report to Congress on “How to Modernize and Improve the System of Insurance Regulation in the United States” recommends additional federal involvement in the regulation of insurance.

In its Report, which was released almost two years late, the FIO recognized that “[t]he absence of uniformity in the U.S. insurance regulatory system creates inefficiencies and burdens for consumers, insurers and the international community.” Notwithstanding this lack of uniformity, the FIO conceded that “[t]he limitations inherent in a state-based system of insurance regulation, however, do not necessarily imply that the ideal solution would be for the federal government to replace state regulation completely.” Ultimately, the FIO reframed the question as “whether there are areas in which federal involvement in regulation under the state-based system is warranted” and concluded that the U.S. system of insurance regulation can be modernized and improved by a combination of steps by the states and certain actions by the federal government. In addition to 18 recommendations for the states (entitled “Areas of Near-Term Reform for the States”), the FIO made the following nine recommendations entitled, “Areas for Direct Federal Involvement in Regulation”:

1) Federal standards and oversight for mortgage insurers should be developed and implemented.

2) To afford nationally uniform treatment of reinsurers, FIO recommends that Treasury and the United States Trade Representative pursue a covered agreement for reinsurance collateral requirements based on the National Association of Insurance Commissioners Credit for Reinsurance Model Law and Regulation.

3) FIO should engage in supervisory colleges to monitor financial stability and identify issues or gaps in the regulation of large national and internationally active insurers.

4) The National Association of Registered Agents and Brokers Reform Act of 2013 should be adopted and its implementation monitored by FIO.

5) FIO will convene and work with federal agencies, state regulators, and other interested parties to develop personal auto insurance policies for U.S. military personnel enforceable across state lines.

6) FIO will work with state regulators to establish pilot programs for rate regulation that seek to maximize the number of insurers offering personal lines products.

7) FIO will study and report on the manner in which personal information is used for insurance pricing and coverage purposes.

8) FIO will consult with Tribal leaders to identify alternatives to improve the accessibility and affordability of insurance on sovereign Native American and Tribal lands.

9) FIO will continue to monitor state progress on implementation of Subtitle B of Title V of the Dodd-Frank Act, which requires states to simplify the collection of surplus lines taxes, and determine whether federal action may be warranted in the near term. 

With respect to “Areas of Near-Term Reform for the States,” which deal with capital adequacy and safety/soundness, reform of insurer resolution practices, and marketplace regulation, the Report also opens the door for additional federal involvement, concluding, “should the states fail to accomplish the necessary modernization reforms in the near term, Congress should strongly consider direct federal involvement.”