Federal Insurance Office Bill Passes With Greater State Role

The House Financial Services Committee passed legislation by voice vote on December 2, 2009, that will establish a Federal Insurance Office in the Department of the Treasury with limited authority over all lines of insurance save for health insurance. H.R. 2609, The Federal Insurance Office Act, is sponsored by Capital Markets Subcommittee Chairman Paul Kanjorski (D-PA) and co-sponsored by Rep. Judy Biggert (R-IL). Under the legislation, the Federal Insurance Office (FIO) would be led by a Treasury-appointed director and would monitor the insurance industry for regulatory gaps that could lead to systemic risk. The agency would be authorized to gather data from insurers for this and other purposes, and could coordinate information collection with state regulators. The FIO would also represent the U.S. at the International Association of Insurance Supervisors.

The legislation has undergone several iterations on its path to Committee approval, with its latest iteration regaining bipartisan support. The bill was initially put forward on a bipartisan basis to create an Office of Insurance Information with a more limited mission of gathering and reporting on insurance data. The original bill did not provide the FIO with representational authority at the International Association of Insurance Supervisors, and it did not include systemic risk monitoring as a duty of the agency. The legislation also created an advisory group which included NAIC-appointed insurance commissioners, state legislators, and industry and consumer representation.

Rep. Kanjorski's updated bill, which represented an amendment in the nature of a substitute to the original legislation, stated only that the FIO director would consult with state regulators to the extent the director deems appropriate, included the new international powers, and also granted the Treasury Secretary the authority to negotiate international insurance agreements on prudential measures. The updated legislation also provided the FIO with the authority to pre-empt state insurance prudential measures if the FIO director found those measures to be inconsistent with international agreements.

Markup of the legislation was delayed when Ways and Means Trade Subcommittee Chairman Sander Levin (D-MI) claimed at least partial jurisdiction over the legislation (though it is unclear what input Rep. Levin had on the legislation). The National Association of Insurance Commissioners then successfully added several of its priorities to a manager's amendment to the bill, including limiting federal pre-emption of and increasing state/federal coordination on international agreements, greater judicial review of and Congressional consultation on prudential pre-emption, and a general reclamation of state regulatory authority.

The manager's amendment also includes language which specifies that the FIO has no regulatory authority over the business of insurance and requires the FIO to consult with the U.S. Trade Representative and Congress when entering into international agreements. The manager's amendment would also require the new office to confirm with state regulators and the National Association of Insurance Commissioners that information is not already publicly available prior to making an information request of an insurer. The amendment indicates that the FIO can pre-empt state prudential insurance measures only in instances when a foreign insurer is treated less favorably than a U.S. insurer. These changes, along with additional amendments also approved on December 2, 2009, helped to regain bipartisan support and allowed the bill to pass via voice vote.

Additional changes to the legislation include:

• An amendment from Rep. Travis Childers (D-MS) and Erik Paulsen (R-MN) which would remove insurance agents and agencies from the definition of the term "insurer" with regard to which entities would be required to submit data for information collecting purposes.
• An amendment from Rep. Melissa Bean (D-IL) and Rep. Ed Royce (R-CA) which would require the FIO Director to conduct a study on how to improve and modernize insurance regulation, the results of which would be reported to Congress no later than one year from the passage of the legislation.
• An amendment from Rep. Dennis Moore (D-KS) and John Campbell (R-CA) which would call for an FIO study of the global reinsurance market and its affect on U.S. insurance, the results of which would be reported to Congress by September 30, 2011.
• An amendment from Rep. Moore, Rep. Lynn Jenkins (R-KS), and Rep. Suzanne Kosmas (D-FL) which requires the FIO to obtain insurer information or data from regulatory agencies when possible before requesting it directly from insurers.

Chairman Frank expects the full package of reform bills passed by his committee (including the Federal Insurance Office Act) to reach the Rules Committee by Tuesday, December 8, 2009, and to reach the House floor for debate by Wednesday, December 9, 2009.