The Beginning of the End of McCarren-Ferguson
The Beginning of the End of McCarran-Ferguson?
his past fall, the Department of Treasury posted a notice in the October 17 Federal Register requesting public comment on “How to Modernize and Improve the System of Insurance Regulation in the United States.” Input collected from public comments will be included in a study being conducted by the Federal Insurance Office (FIO) on insurance regulation. Dozens of insurance professionals responded to Treasury’s request with comments from all over the insurance spectrum, from life and annuities to property and casualty.
The McCarran-Ferguson Act of 1945 exempts the business of insurance from most Federal regulations, thus deferring to the states the responsibility to regulate the insurance industry. For the most part, this system of regulation works, and NAILBA suggested as much in its reply to Treasury’s notice.
That the Treasury is soliciting input from the public on the state of insurance regulation raises a host of questions: Why is a Cabinet-level Federal agency asking about what can be done to “better improve” a state-regulated industry? What is the Federal Insurance Office and why is it conducting this study? What kind of information do they seek? Does the FIO have the authority to preempt state regulation?
This kind of probing by the Feds wasn’t wholly unexpected. The Federal Insurance Office was established under the Wall Street Reform and Consumer Protection Act of 2010 (more commonly known as Dodd-Frank). The FIO is an office under the jurisdiction of the Treasury Department. Its purpose is to serve as an information clearinghouse for the government on matters pertaining to insurance regulation, as no such Federal office existed prior to the passage of Dodd-Frank. As part of this mission, the FIO is conducting a study (also mandated by Dodd-Frank) on the current state of insurance regulation, the results of which must be submitted to Congress no later than 18 months after the passage of Dodd-Frank, which means the study will go public soon if it hasn’t already. The Treasury Department is collecting comments to include in the study. Whatever actions Congress takes in response the study’s findings will be the topic of a future column.
The FIO director, former Illinois insurance commissioner Michael McRaith, is tasked with helping the Financial Stability Oversight Council identify insurance companies that are “too big to fail.” He also serves as the U.S. representative in negotiations involving international insurance matters. Beyond that, neither Mr. McRaith nor the FIO has any regulatory authority over the insurance industry or otherwise have the power to preempt the states in regards to the business of insurance.
Treasury asked for comments on a range of issues, including “the degree of national uniformity of State insurance regulation, including…methods for assessing excessive, duplicative or outdated insurance regulation or regulatory licensing process,” the “costs and benefits” of Federal regulation of insurance (excluding health), as well as the “feasibility” of regulating only certain lines of insurance at the Federal level.
In a number of public comments to Treasury, brokers and agents who operate in multiple states were quick to point out the burdens that come with getting licensed across state lines. Licensing fees and compliance costs can be exorbitant and leave some wondering whether it is worth the trouble and expense. One solution proposed by Congress several years back, Optional Federal Charter (OFC), would have given insurers the option of being Federally regulated and avoid the multi-state licensing process. Multiple attempts to make OFC law were not fruitful.
Treasury’s intent with its request for comment is not to go after agents and brokers, or otherwise disrupt independent wholesale distribution of life and annuity products. It is trying to assess systemic risk in the insurance markets and prevent another catastrophe such as the collapse of AIG, which nearly caused the failure of the U.S. financial system. In order to do this, it needs a comprehensive understanding of how the marketplace works, from product innovation to distribution and sales. NAILBA used the public comment period as an opportunity to educate the Federal government on the importance of independent wholesale distribution and influence the outcome of the FIO study.
Mark Valentini is the Director of NAILBA Government Affairs.