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Insurers await modernization report; consumers wonder what FIO is - 3

The insurance industry is one of the most highly regulated industries in the country. As a result, insurers did not warmly embrace the idea of the Federal Insurance Office, created under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The federal government had to make it clear that the FIO would not be another regulator and would have only limited powers to affect an insurance company's operations.

The FIO does not do what the Florida Office of Insurance Regulation does. It does not approve forms or rates, it does not field consumer complaints about individual insurers, and it is not involved with licensing agents or agencies. It can, however, preempt -- that is, overrule -- state law under certain circumstances.

The FIO is involved with international insurance matters, sharing the responsibilities with the individual states and the U.S. Trade Representative. The FIO participates in the International Association of Insurance Supervisors, as well. If the agency formulates policy, it does so in collaboration with the states and state insurance regulators.

It is in international matters, though, that the FIO has its preemptive power. It may preempt a state law if the law treats foreign insurers less favorably than U.S. insurers and if those laws run counter to a "covered agreement."

Covered agreements are expected to be few and far between. They are the international accords, negotiated by the Treasury Department or the trade representative with the assistance of the FIO, that address how foreign insurance companies or reinsurers will conduct business here.

Just crafting a covered agreement is a complicated process -- Congressional committees must sign off -- so it follows that preemption is not accomplished with the stroke of a pen. Rather, preemption looks more like rulemaking. The FIO notes the inconsistency, notifies the trade representative and the states, publishes a notice and collects comments. After reviewing the comments, the FIO determines if there is an inconsistency. In time, if the inconsistency continues, the FIO issues a "notice of effectiveness" of the preemption.

The process could take months.

But enough about what the FIO can do! In our next post, we'll get back to what the FIO cannot do.

Source: Carrier Management, "Myths About The Federal Insurance Office," Michael R. Nelson and Lawrence H. Mirel, July 10, 2013