Former Illinois Insurance Director Michael McRaith will appear before Congress for the first time since stepping into his new role as the first-ever director of the Federal Insurance Office, a U.S. Treasury Department agency created by the Dodd-Frank Act to monitor developments in the domestic insurance industry.
McRaith has been confirmed as a witness for the Oct. 25 hearing of the House Financial Service Committee’s Subcommittee on Insurance, Housing and Community Opportunity. Chaired by Rep. Judy Biggert, R-Ill., the subcommittee has scheduled the hearing as part two of their series of inquiries into “Insurance Oversight: Policy Implications for U.S. Consumers, Businesses and Jobs.”
The appearance might just kick off what could be an interesting year for the insurance regulatory reform debate. For more than a decade, the battle lines were sharply drawn on the question. Most large insurers, including virtually all life insurers, joined with banks, large brokers, reinsurers and large commercial insurance buyers in favor of an option to charter at the federal level and be subject to a single set of federally established rules. Smaller and regional insurers, independent agents, state regulators and lawmakers and a handful of larger insurers who were notable exceptions from the consensus (Aflac, CNA, Jackson National) opposed that proposal.
But in the wake of Dodd-Frank, the divisions are much more hazy. Two of the major trade groups that previously were gung-ho in favor of optional federal charter, the American Insurance Association and American Council of Life Insurers, have backed off that stance. And though OFC remains a goal for a number of international insurance groups, the fear of being swept into the bank-centric Dodd-Frank rules – including the potential for heightened capital requirements from the Financial Stability Oversight Council and scrutiny by the Consumer Financial Protection Bureau – as well as the potential for dual regulation at both the state and federal level, has left even many of the most fervent OFC-backers on the sidelines.
One exception to that trend has been the Financial Services Roundtable, whose membership includes a number of large insurers, as well as banks and other financial services providers. A new report financed by the Roundtable’s Cluff Fund, makes a firm case for establishment of a federal regulator as a long-term policy goal, while also setting out a number of shorter-term proposals – such as expansion of interstate compacts, deregulation of commercial insurance and removal of state rate controls – as steps toward a more competitive industry.
All of which leaves McRaith as something of a wild card. It’s still unclear just how large of a role the new FIO will play in insurance oversight, and Biggert and the rest of the subcommittee are likely to focus on trying to answer that question. Among the first tasks McRaith will have to take on in his new job is authoring a report to Congress, which must be completed by January, on the state of insurance regulation and ways that it could be improved. Toward that end, in the Oct. 17 edition of the Federal Register, FIO posted a request for public comment on how the current regulatory system addresses, among other topics, systemic risk and insurance, capital standards, consumer protection, national uniformity, consolidated regulation and international coordination.
The bulletin also asks for input on:
- The feasibility of regulating only certain lines of insurance at the federal level, while leaving other lines of insurance to be regulated at the state level;
- The ability of any potential federal regulation or federal regulators to eliminate or minimize regulatory arbitrage;
- The impact that developments in the regulation of insurance in foreign jurisdictions might have on the potential Federal regulation of insurance;
- The ability of any potential federal regulation or federal regulator to provide robust consumer protection for policyholders;
- The potential consequences of subjecting insurance companies to a Federal resolution authority.
In his years with Illinois, McRaith distinguished himself as among the most competent and thoughtful insurance regulators. In fact, he was the prime author of a proposal that went before the NAIC membership in 2009 (but was never forwarded) that would have endorsed federal standards as a means to promote greater uniformity in state regulation, particularly in thorny areas like reinsurance collateral and agent licensing.
It’s hard to predict whether he would forward a similar plan from his current post, but whatever recommendations he does ultimately put forth, the fireworks are sure to be interesting.