Federal Regulation “Conceivable”

Title V of the Dodd-Frank Act created the Federal Insurance Office (FIO) and requires that such office report to Congress how to modernize and improve the system of Insurance Regulation in the United States by January 2012. This month, the Networks Financial Institute (NFI) of Indiana University presented a report to the FIO on this subject. One of the issues that Congress has mandated for discussion is 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. This issue, as addressed by NFI, indicates the possibility of a lot of future regulatory changes in the life insurance and annuities world.

In their report, NFI states that they recommend FIO “examine the characteristics of the various products under each line of business and consider the relative importance of maintaining state consumer protection.” They state that it is “conceivable” that some lines of insurance may one day be regulated by a federal regulator and others by state regulators. Specifically, they point out that when you consider efficiency, large life and annuity insurers have more to gain than small property and casualty insurers from a single federal regulator (health insurance is outside the scope of this discussion as mandated by the Dodd-Frank Act) because they operate throughout the country. Further NFI states that “the case for a federal regulator of non-life insurers is less strong than for life and annuity insurers because of differences in tort law across states, according to some leaders in the property and casualty field.”

We look forward to learning what the FIO reports to Congress in January, and bracing ourselves, and our clients, for whatever changes may be coming.