How to Modernize and Improve the System of Insurance Regulation in the United States

“The U.S. Department of the Treasury’s Federal Insurance Office (FIO) today submitted to Congress and released a report on how to modernize and improve the system of insurance regulation in the United States.  Given the significance of the insurance sector in the U.S. economy, and the globally active nature of U.S. insurance firms, the report concludes that in some circumstances, policy goals of uniformity, efficiency, and consumer protection make continued federal involvement necessary to improve insurance regulation. However, the report concludes that insurance regulation in the United States is best viewed in terms of a hybrid model, where state and federal oversight play complementary roles and where the roles are defined in terms of the strengths and opportunities that each brings to improving solvency and market conduct regulation…The report, mandated under Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), makes recommendations in the areas of insurance sector solvency and marketplace regulation.  The recommendations outline near-term reforms that states should undertake regarding capital adequacy, safety and soundness, reform of insurer resolution practices, and marketplace regulation.  In addition, the report outlines areas for federal involvement in insurance regulation…In completing the study and report, the Dodd-Frank Act requires FIO to consider several factors, including systemic risk regulation with respect to insurance, capital standards, consolidated supervision, consumer protection and affordability, the degree of uniformity of state insurance regulation, and international coordination.  Among other things, the Dodd-Frank Act also expressly requires a consideration of the costs and benefits of federal regulation across various lines of insurance  and issues relating to regulatory arbitrage and competitiveness.  The report examines all elements of the insurance industry, with the exception of health insurance.  The report is organized into five principal sections.  The first section, an introduction, discusses the background to the report and the recommendations.  The second section describes the history of insurance regulation in the United States, highlighting significant events in its development and the debate over the need for uniformity in regulation across state jurisdictions.  The third and fourth sections include discussions of the specific recommendations regarding solvency regulation and market conduct regulation, respectively.  Section five assesses the report’s recommendations and the Dodd-Frank Act from the point of view of criteria set forth in the statute for measuring the effectiveness of a regulatory system for insurance.  Section six summarizes the report’s conclusion.”