Best? Maybe Not Good Enough
The U.S. international focus on
insurance shifts from 50 states to a new state of
Former Rep. Mike Oxley, R-Ohio, said, “Insurance is
the glue that holds our economy together.” Oxley is
right, and insurance deserves more respect. Our state-by-state
regulatory system lacks uniformity and is inefficient, costly
to the industry and consumers, and duplicative. Insurance is
the only major financial services industry in this country
without uniform rules and a federal strategic focus.
The Council has worked for 20 years to improve the
inefficiencies of the system for insurance brokers, by leading
the effort to establish the National Association of Registered
Agents and Brokers (NARAB) as part of the Gramm-Leach-Bliley
Act of 1999. The passage of the registry provision was pivotal
because it broke the taboo on federal intervention by requiring
the states to enact reforms and move towards uniformity.
The Council succeeded again when the Nonadmitted and
Reinsurance Reform Act (NRRA) was adopted by Congress in 2010.
The law requires the states to enact uniformity in surplus
lines regulation and tax collection. Under the NRRA, only the
home state can regulate (and tax) a surplus lines transaction.
It also encourages the states to create a national set of
uniform surplus lines rules and tax sharing system. Provisions
of the law went into effect July 21, 2011.
Council members place insurance for business clients
worldwide. To serve those clients as they expand abroad, we
need a system at home that is efficient, enables businesses to
manage their risks globally and doesn’t add to their
costs. We also need a system with a uniform set of rules that
works with other regulatory schemes around the world.
The NARAB and the NRRA are important milestones in
modernizing the country’s insurance system. But much more
needs to be done to harmonize our regulatory system and to move
insurance up the agenda at the federal level.
The Federal Insurance Office (FIO), created under the
Dodd-Frank Wall Street Reform and Consumer Protection Act, will
help fill the leadership gap. Dodd-Frank gives the FIO broad
authority to monitor all aspects of the insurance industry and
identify gaps in the state-based regulatory system. FIO is also
charged with coordinating and developing federal policy on
prudential aspects of international insurance matters,
including representing the United States in the International
Association of Insurance Supervisors (IAIS). In addition, FIO
will assist the Secretary of Treasury along with the U.S. Trade
Representative in negotiating certain trade agreements.
Other federal agencies also work on behalf of the industry.
The U.S. Trade Representative has championed insurance when
negotiating trade agreements and with good results. The
knowledge and expertise of the negotiation teams is critical to
our success in gaining access to growing markets. Likewise, the
Commerce Department and the International Trade Administration
play a critical role by supporting the industry’s
business interests abroad.
Despite the good work of these agencies, what has been
missing is someone whose sole job it is to monitor and
coordinate strategy for insurance at the federal level.
That’s where FIO Director Michael McRaith comes into the
picture. It’s his job to make it all happen. With his
experience as Illinois’ insurance director and his
diplomatic skills, McRaith can work with all the parties to
bring a coordinated federal voice to insurance. McRaith
understands what’s at stake. In his May testimony before
the House Finance Subcommittee on Insurance, Housing and
Community Opportunity, he said, “The growing global
market implies huge growth opportunities for the U.S. industry
and underscores the increased importance of FIO participation
in international fora to secure sufficiently robust
The Federal Insurance Office’s entry into the
“international fora” is a welcome voice to the
discussion on international standards underway at the IAIS. The
National Association of Insurance Commissioners (NAIC)
appointed itself to serve as the U.S. liaison to the IAIS. In
that role, the NAIC has acted as a technical advisor, but
(rightly) not as a policy advisor. The NAIC has no legal
authority to represent the U.S. government’s position on
insurance, which is why the role of the Federal Insurance
Office is so important.
The standards set for intermediaries by the international
supervisors has in part missed the mark. In some areas, the
standards reflect a narrow understanding of the
intermediaries’ role in the market, they rely too much on
a Euro-centric approach to regulation, and they are far from
the “best” regulations the world offers.
We’re also concerned that the standards will add
another layer of regulation, which conflict with local
regulation if not drafted at a high enough level. If
“best practices” are the goal, they need to be just
The Federal Insurance Office has a lot to offer to the
discussion, but its involvement has to be guided by a national
strategy on insurance. And that strategy needs to be developed
in concert with the industry.
McRaith raised another good point in his testimony.
“The U.S. economy and consumers benefit from fact-based
appraisals of best regulatory practices developed
elsewhere,” he said, “even if those practices
deviate from practices historically employed by state-based
Kemper is vice president of Industry Affairs.