Former D.C. Commissioner: Federal Insurance Office Currently a ‘Toothless Tiger’

There is little for the insurers to fear in the new Federal Insurance Office, but it nonetheless has the potential for long-term involvement in industry affairs, said panelists at a forum on federal insurance issues in 2011.

For now, the FIO is a “toothless tiger,” said former Washington, D.C. Insurance Commissioner Lawrence H. Mirel. Its only means of interfering with state regulation is if a state seeks to pre-empt an federal international agreement and even then the authority is shared with state regulators and the Office of the U.S. Trade Representative, he said. Also worth noting, he said, is that six months after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, there is still no director in charge of the FIO — and the clock is ticking on the industry report.

Congress explicitly limited the FIO’s authority for a reason, said Mirel, a partner with Wiley Rein LLP in the District. “[It] has no interest in regulating the insurance industry,” he said.

The office lacks the power to rival state regulators for oversight of the insurance industry. However, its mandate to develop a report on the state of insurance regulation after 18 months could pose long-term consequences, said Stephen Pociask, chief economist for the American Consumer Institute. These include the potential implications of legislative language to evaluate conditions in “traditionally under-served communities and consumers” and to evaluate the ability of the federal government to “eliminate or minimize regulatory arbitrage.”

“It’s hard to understand where an additional layer [of regulation] wouldn’t be duplicative,” said Lars Powell, the Whitbeck-Beyer Chair of Insurance and Financial Services at the University of Arkansas. Powell is also editor of the Journal of Insurance Regulation, a National Association of Insurance Commissioners-sponsored publication.

The insurance industry has reasons to mistrust the FIO, particularly because many in Washington lack detailed understanding of how insurance works and is regulated, said Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies. “One doesn’t know at this point,” he said.

The FIO’s responsibilities include issuing recommendations to the new Financial Stability Oversight Council, coordinating federal efforts and develop federal policy on prudential aspects of international insurance matters and determining whether state laws are pre-empted by those covered agreements and administering the federal terrorism risk insurance program.

The Cato Institute and the Heartland Institute sponsored the forum, which was moderated by Eli Lehrer, director of Heartland’s Center on Finance, Insurance and Real Estate.

(By Sean P. Carr, Washington Bureau Manager: sean.carr@ambest.com)