The House Financial Services Committee passed a revised version of the Federal Insurance Office Act, H.R. 2609, earlier this week.  The bill will now head to the floor of the House of Representatives for a full House vote.  To win bipartisan support and pass unanimously, H.R. 2609 went through a transformation from the previously debated discussion draft, which we covered here.

A Federal Regulator of Insurance No More

Unlike the previous discussion draft, the version of H.R. 2609 passed this week contains language making it clear that nothing in H.R. 2609 should be construed to establish a general supervisory or regulatory authority of the Federal Insurance Office (“FIO”) or the Department of the Treasury over the business of insurance.

Regulation of Insurers as Bank Holding Companies Removed

The passed version also does not empower the FIO to recommend to the Board of Governors of the Federal Reserve System (the “Federal Reserve”) that it regulate certain insurers, including their affiliates, as Tier 1 financial holding companies under the Bank Holding Company Act.  Rather, the revised version permits the FIO to recommend to the Federal Reserve “or to any other entity identified under law as having systemic risk responsibility, that it designate an insurer, including its affiliates, as an entity subject to heightened regulation.”

Diminished Capacity to Preempt State Law

Other changes made to win support include limitations on the FIO’s ability to enter into international agreements on prudential measures that are inconsistent with existing state laws.  Specifically, before making the determination that an existing state law is inconsistent with an international agreement, the FIO must consider the effect of preemption on the following:

  • the protection of policyholders and policy claimants;
  • the maintenance of the safety, soundness, integrity, and financial responsibility of any entity involved in the business of insurance or insurance operations;
  • ensuring the integrity and stability of the United States financial system;
  • the need to establish a supervisory or regulatory authority of the FIO over any entity involved in the business of insurance or insurance operations in the United States;
  • the creation of a gap or void in financial or market conduct regulation of any entity involved in the business of insurance or insurance operations in the United States; and
  • any comments received.

Further, the passed version contains a minimum 90-day waiting period between the notice of the determination of inconsistency by the FIO and the effective date of the notification.  Industry commentators suggest this requirement was included to give Congress time to take action against any determination if necessary.  In addition, the passed version also provides that any determination of inconsistency by the FIO may be subject to a federal court challenge.

In its passed form, H.R. 2609 won the broad support of the National Association of Insurance Commissioners (NAIC), the Property Casualty Insurers Association of America (PCIAA), the National Association of Mutual Insurance Companies (NAMIC), and the Independent Insurance Agents and Brokers of America (IIABA).

Detractors of the passed bill advocate that H.R. 2609 either goes too far or does not go far enough to empower the FIO.  The National Conference of Insurance Legislators (NCOIL) opposes any legislation creating a national insurance office, stating that H.R. 2609 is part of “a systematic effort to try to supplant state insurance laws.”  On the other end of the spectrum, the American Insurance Association (AIA) has taken the position that FIO has not been given enough power, especially with regard to negotiating international agreements on prudential insurance matters.

We will continue to follow this bill and provide further updates on InsurerReinsure.com.