The discussion draft makes significant changes to the previous version in the following areas: (i) provides the FIO with the power to recommend certain insurers be regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve”); (ii) grants the FIO influence over international treaties regarding global insurance regulation; and (iii) deletes language that assured that the FIO would not regulate the business of insurance.
Regulation of Insurance Holding Companies
The FIO would be similar to the Office of National Insurance (“ONI”) in that the FIO would be authorized to recommend to the Federal Reserve that certain insurers be designated as entities subject to regulation as a Tier 1 financial holding company under the Bank Holding Company Act. A similar concept was introduced by the U.S. Treasury Department’s “Financial Regulatory Reform, A New Foundation: Rebuilding Financial Supervision and Regulation,” released on June 17, 2009. However, the FIO is not to be confused with the Office of National Insurance proposed in the National Insurance Consumer Protection Act of 2009, which would establish an optional federal regulator for federally chartered insurers and insurance agencies and insurance producers holding a national license.
International Treaties
Hereinafter, the OII and the FIO are collectively referred to as (the “Office”). Similar to the previous version, the discussion draft would allow the Office to collect and study insurance data and advise the President, Treasury, and Congress on domestic and international policy-making regarding insurance. Similarly, the Office would coordinate federal efforts and establish federal policy on international insurance matters, including working with the International Association of Insurance Supervisors. The discussion draft adds the concept of International Insurance Agreements on Prudential Measures, defined as, “a written bilateral or multilateral agreement entered into between the United States and a foreign government, authority, or regulatory entity regarding prudential measures applicable to the business of insurance or reinsurance.” This is similar to the term “covered agreement” in the previous draft.
Preemption of State Insurance Laws
The discussion draft also removes language from the previous version that expressly stated, amongst other things, that nothing in H.R. 2609 “may be construed to establish a general supervisory or regulatory authority of the Office or the Department of Treasury over the business of insurance.” It was the inclusion of such language in the previous version that assured proponents of state-based insurance regulation that H.R. 2609 would not lead to the federal regulation of insurance, but that the Office would serve mainly as mechanism to gather insurance industry information on behalf of the federal government for use in policy making and as a conduit for agreements between the United States and other countries. The removal of such language in discussion draft has drawn the ire of supporters of state-based insurance regulation who are concerned that the FIO may lead to a new federal insurance regulator.
Outlook
While the previous version enjoyed wide support from industry groups such as the National Association of Insurance Commissioners, testimony given before a recent House Financial Services Committee appears to indicate that the new draft has turned many one-time supporters into opponents of H.R. 2609. Given the recent drop in support for H.R. 2609, it is uncertain whether the discussion draft or a version introduced in May will make it out of committee and to a floor vote.
