A Report to the Federal Insurance Office

Our country has been through economic Hell the past three years. (See the report of the Financial Crisis Inquiry Commission, www.fcic.gov.) The turmoil that began in 2008 with the collapse of Bear Stearns and Lehman Brothers and continued with the failure of American International Group (AIG), leading to implementation of the Troubled Assets Relief Program (TARP), set the stage for massive scrutiny, study and ultimately overhaul of federal regulation throughout the financial services sector. President Obama’s signing of the Dodd–Frank Wall Street Reform and Consumer Protection Act (DFA) on July 21, 2010 brought the most sweeping financial services legislation since the 1930s. While the majority of the focus has been placed squarely on banks, where the primary problems are believed to be, interest has also extended to the insurance sector. Banks and insurance companies have historically been two of the most regulated sectors in the U.S. economy. However, it is the banking community that has endured the brunt of frequent regulatory overhauls. Since the 1930s, banks have been subjected to significant regulatory changes every six to seven years, whereas the insurance sector has largely operated within the governing confines of the McCarran–Ferguson Act for more than six decades. This changed with the failure of AIG and the economic crisis. As a result, the Dodd–Frank Act will have repercussions that will be felt throughout the financial services sector, including by the insurance industry. At the center of these insurance repercussions will be the Federal Insurance Office (FIO), created by Title V of the Dodd–Frank Act, within the U.S. Treasury Department. For the first time, a federal office will be charged with the responsibility of knowing all things insurance and leading the country’s examination of how and by whom insurance should be regulated in the 21st century global marketplace. It will be the federal government’s eyes and ears in the insurance sector. Title V of the DFA requires that, by the end of January 2012, the FIO Director is to submit a report to Congress recommending changes to modernize and improve insurance regulation in the United States. This document focuses on the report the FIO is to make on the system of state–based insurance regulation. The FIO Director’s report, and any subsequent Congressional legislation based on the report, will have far–reaching implications for the insurance industry and insurance consumers. Networks Financial Institute (NFI) at Indiana State University (ISU) wants to be a resource for the FIO as it discharges its critically important mission. It is in this spirit that NFI presents its research and recommendations to the FIO.