State Insurance Regulators and the Dodd-Frank Act

A recent edition of the National Conference of State Legislatures’ Stateline describes concerns raised by state insurance regulators regarding the federal Dodd-Frank fiscal regulation law.  The law rewrites many of the federal rules covering banks and insurance companies to prevent businesses from becoming “too big to fail.”

Many of those changes give the federal government more power. While the bulk of insurance regulation remains at the state level, new federal agencies now have a role too. The new Federal Insurance Office (FIO) will oversee the insurance industry, monitoring it and recommending improvements. The office was scheduled to publish a comprehensive review of how to “modernize and improve” insurance regulation earlier this year, but the much-anticipated document still has not been released nearly six months after it was due.

Depending on what it says, the report could revive a long-simmering debate over whether insurance companies should operate with a national charter —  something that is not currently allowed — instead of submitting to the rules of individual states.

Some insurance regulators have expressed concerns regarding the potential for the FIO to increase its power, especially because it must offer suggestions to improve the insurance market nationally. Another concern is that the federal Financial Stability Oversight Council is allowed to determine which, if any, insurers are “too big to fail.” A number of state insurance regulators and legislators have argued that the council lacks adequate state representation.