Insurance regulation: Dodd-Frank and the tension between federal and state oversight
A friend of ours says she has just two memories of her 50th birthday. First, she was sworn in to the bar in front of her neighborhood coffee shop. Second, the federal government seized insurance giant American International Group Inc. in an $85 billion effort to stave off a complete financial meltdown here and abroad.
Our friend never had any illusions that she was too big to fail. Lawmakers thought AIG was, of course. Congress would attempt to make sure it never fell into that trap again by passing the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.
Dodd-Frank did a lot of things, but here we are interested in just one: the establishment of the Federal Insurance Office. It's important to note that the FIO should not be confused with the FOIR, the Florida Office of Insurance Regulation. There are myriad differences, even if the acronyms are confusing. For our purposes, the Florida regulator will be referred to as the OIR.
One of the charges to the FIO is to report to Congress “on how to modernize and improve the system of insurance regulation in the [U.S].” The report was due in January 2012, but, as industry headlines have screamed for the past 18 months, the FIO "needs a little more time." Naturally, the insurance industry is anxious to see what's included in the report.
For consumers, the idea of the FIO may be a little confusing. Once the office identifies the shortcomings -- that is, areas for improvement -- of the insurance industry, will the FIO start mandating changes?
The short answer is, "No." The McCarran-Ferguson Act of 1945 put the states firmly in charge of insurance regulation, and Congress does not seem to want that to change. The OIR will continue to regulate Florida's insurance companies for the foreseeable future.
So what's the deal with the FIO? We'll get into that in our next post.
Source: Carrier Management, "Myths About The Federal Insurance Office," Michael R. Nelson and Lawrence H. Mirel, July 10, 2013