The Obama administration’s sweeping regulatory reform proposal, released on June 17, 2009, contemplates the creation of a federal-level insurance regulator tasked with gathering information, developing expertise, negotiating international agreements, and coordinating policy in the insurance sector. The proposal creates the Office of National Insurance (ONI) within the U.S. Department of the Treasury (Treasury) and tasks the Treasury with developing proposals to modernize and improve insurance regulation in accordance with six principals outlined in the president’s report.
Citing the impact of the insurance industry on the country’s financial system, the proposal notes that the 135-year-old system of state regulation lacks uniformity, reduces competition across state and international boundaries, and has resulted in inefficiencies that must be cured by the development of a national “modern regulatory framework for insurance.” The ONI would be responsible for monitoring all aspects of the insurance industry and would work to identify the emergence of any problems or gaps in regulation that could contribute to a future crisis. Further, the ONI would be tasked with recommending to the Federal Reserve any insurance companies that it believes should be supervised as “Tier 1 FHCs.” Tier 1 FHCs are defined as “any financial firm whose combination of size, leverage, and interconnectedness could pose a threat to financial stability if it failed.” Under the president’s proposed plan, Tier 1 FHCs will face heightened consolidated supervision and regulation by the Federal Reserve Board. Finally, the ONI will be responsible for carrying out the government’s existing responsibilities under the Terrorism Risk Insurance Act.
The centralized regulatory authority also is cited as being a boon for the nation’s effectiveness in engaging internationally on issues related to insurance. As the European Union prepares to implement Solvency II legislation, many U.S. companies engaging in the insurance business in the European market will be subject to supervision in the company’s home country that is comparable to that required in the EU. The proposal argues that this will be better accomplished if one entity, namely ONI, is empowered to work with other nations to better represent American interests, is given the authority to enter into international agreements, and can work to promote international cooperation on insurance regulation.
ONI’s primary task will be to “modernize and improve” our system of insurance regulation by incorporating six principles supported by both the administration and the Treasury:
The full text of the reform proposal is available here: http://www.financialstability.gov/docs/regs/FinalReport_web.pdf
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Please contact your Foley attorney or the individuals listed below if you have any questions about these issues or want additional information regarding insurance matters:
Kevin G. Fitzgerald
Sarah E. Molenkamp