The force and promise of FIO was repeatedly trumpeted in testimony and throughout the hearing. Indeed, there was a chorus of support for FIO's role internationally and even domestically from all quarters.

"The FIO can be of particular help in ensuring the USTR's success by using its bully pulpit to advance the interests of the U.S. insurance sector and by coordinating efforts to resolve any conflicts between the federal government and states over insurance, stated The Council of Insurance Agents and Brokers (CIAB) in submitted testimony.

"The hearing helped assure that insurance issues have a high place on the US international-engagement agenda and puts Congress on the field of play in representing U.S. interests, along with the FIO, USTR, other federal agencies and the NAIC," says David Snyder, vice president of the American Insurance Association (AIA).  

Those who testified also waded into how to define systemically important financial institutions (SIFI), with insurers worrying that designations by the Financial Stability Oversight Council (FSOC) created by Dodd-Frank would further distort competition.

Lawmakers and insurers seemed troubled by the potential treatment of insurers by regulators under a bank-centric model with Federal Reserve supervision.

"When a traditional insurance business fails, not every car owner is going to get into a car accident immediately upon dissolving, … there is not the same prospect of a run," McRaith told the panel. FIO is working with the IAIS [International Association of Insurance Supervisors] on the "criteria, methodology and timing" of SIFI designations "so no U.S. insurer is disadvantaged through global designation of [SIFIs]," McRaith told lawmakers.

However, McRaith said that, if it had been around several years ago, the FSOC would have found AIG systemically risky. He stressed that it is important to look at a company as a whole, not just the traditional insurance enterprise "and look under the hood" to see if there is any systemic risk. 

NAIC President and Florida Insurance Commissioner Kevin McCarty told the panel that when an insurer, as opposed to a bank, is under stress, there is more of a chance for the insurance companies "to rebound." McCarty said to prevent systemic risk, the insurance enterprises of a company should be walled off.  

"For all these reasons, we urge the Federal Reserve and FSOC to work with the IAIS and the FSB, through the FIO and the NAIC, to coordinate the development of frameworks for the management of domestic and global SIFIs based on the existing insurance risk-based framework. This would avoid inefficiency, increased costs, the creation of an un-level playing field and resulting market distortion," Toppeta stated. 

At the global level, the IAIS is developing an insurance-specific assessment method to identify global systemically important insurers (SIIs, or G-SIFIS as they are known in the U.S. parlance). Its draft is expected to be released soon, and an IAIS November 2011 Report has already concluded that traditional insurance activities do not generate or amplify systemic risk, a MetLife representative pointed out at the hearing.

The IAIS continues its work on prudential measures to apply to global SIFIs with a target of end of 2012.

This story orginally appeared on our sister site, LifeHealthPro.com