Nearly two years after its initial deadline of January 2012, the Federal Insurance Office has released its vision for the future of insurance regulation in the US. While initial fears that the FIO would use the report as a power grab seem to be assuaged, the strongest recommendations for federal oversight seem to focus on the agent and broker sector.
The 65-page report, mandated by the 2010 Dodd-Frank Act, characterized the future of insurance regulation as a hybrid model, in which state and federal authorities play complementary roles in improving the insurance sector’s solvency and conduct. However, the FIO did outline nine areas in regulation in which the federal government needed direct involvement—one of which was the monitoring of the National Association of Registered Agents and Brokers Reform Act (NARAB) and its implementation.
The FIO acknowledged that licensing and regulating producers was an “important activity for states” and that many areas of the US had adopted efficient, uniform licensing practices through NARAB. However, the report noted that “inconsistencies and inefficiencies” persist, largely due to a lack of full participation by some states.
Such differences “detrimentally affect” consumers, the FIO said—particularly those who move across state lines. The FIO pointed out that 80% of surveyed members of the National Association of Insurance and Financial Advisors were unable to serve a client who moved across state lines.
The FIO recommends swift passage of NARAB II and an “efficient and streamlined multistate licensing mechanism,” as well as monitoring by federal agencies, including the FIO itself. However, it gave no comment on its intended oversight beyond “monitor[ing] the establishment and implementation of NARAB II to ensure that these priorities are achieved.”
Greg Wren, president of the National Coalition of Insurance Legislators, told Insurance Business NCOIL was grateful for the report, but its recommendations for producers came as something of a shock.
“To me, it was somewhat unexpected. The FIO has now decided to swallow the entire elephant—not just parts of it,” Wren said. “That was a large gulp, including the NARAB piece. The elephant is kind of stuck in the neck of the python and all of us will have to get in there and try to wedge its way out.”
Wren said he anticipated “an awakening of 50-plus sleeping giants in the form of consumers, companies, agents and brokers” on the issue.
“I think with the Affordable Care Act, we’ve just seen what can happen in the insurance industry if the states aren’t included in the action, and we weren’t,” he said. “We were never asked our thoughts on Dodd-Frank, yet we’ve been having to live in that network.”
More official industry responses to the report were rather measured, with the AIA and NAIC expressing gratitude for the report’s release and a promise to consider the FIO’s recommendations more thoroughly during NAIC’s meeting in Washington, D.C. this weekend.
Other areas warranting direct federal involvement include establishing oversight and standards for mortgage and reinsurance firms, as well as the use of personal information for insurance pricing and rate regulation for personal lines products.