As the recently released Federal Insurance Office (FIO) report came under scrutiny from the House Financial Services Committee yesterday, debate over the best approach to future insurance regulation reignited, with potential oversight of independent agents and brokers hanging in the balance.
The report, released nearly two years after its initial deadline of January 2012, laid out its vision for federal and state regulation of the insurance market. While the federal government deferred to state authority on many points, some felt the FIO indicated a push for a larger role relating to insurance producers.
Rep. Greg Wren, president of the National Coalition of Insurance Legislators (NCOIL), told Insurance Business the FIO report’s proposed areas of oversight for independents—including passage and “monitoring” of the National Association of Registered Agents and Brokers (NARAB)—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 added that he expected “an awakening of 50-plus sleeping giants in the form of consumers, companies, agents and brokers” on the issue, expressing frustration that states were never “asked [their] thoughts on Dodd-Frank, yet [they’ve] been having to live in that network.”
That state versus federal mentality—including its purview over independents—is something FIO Director Michael McRaith tried to dispel in the House meeting Tuesday.
While refusing to take a position on the McCarran-Ferguson Act, which delegates insurance regulation to states, he said administrators now need to “move away” from the state versus federal argument. Instead, McRaith wants to see a hybrid model of regulation in which both state and the federal governments play a role in overseeing key players in the industry.
If all the report’s recommendations for independents are enacted, insurance law expert Michael Nelson believes producer sales of personal insurance lines could be in danger.
“I think what will be particularly interesting to agents and brokers is recommendation six [which says the FIO will work with state regulators to ‘maximize the number of insurers offering personal lines products’], as it concerns rate-making for personal lines,” Nelson, chairman of Nelson, Levine de Luca & Hamilton said. “I think that’s a subtle opening for more uniformity on personal lines from state-to-state as opposed to very different approaches to personal lines insurance as it exists right now.”
Nelso added that “as personal lines products become more uniform, it might be something agents would be uncomfortable about…It would make them less integral in the buying process.”
