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Nearly all insurance groups and experts say they agree with the report's conclusion that insurance regulation needs to be reformed in some capacity with an aim toward greater uniformity.

Joel Wood, senior vice president, government affairs for the Council of Insurance Agents and Brokers, even championed the report's recommendations for finding “areas for direct federal involvement in regulation.”

Wood says, “In particular, we believe the case for a unified voice in international insurance negotiations is persuasive and, in many respects, irrefutable. The stakes are too high on the international regulatory environment for our industry to be represented in a confusing, disjointed; competitive way.”

Wood says he believes the FIO “hits the right notes of balance” in its report.

Most other insurance groups, though, were cautious about how a greater federal role would be pursued, and some felt the report either attacked or did not do enough to highlight the positives of the current state-based system.

David Sampson, president and CEO of the Property Casualty Insurers Association of America, notes that the report “starts by listing a number of attacks on state regulation that PCI believes does not adequately reflect the strengths and historical success of the current state-based system.”

He adds, “Any discussion of insurance regulatory modernization needs to start with the recognition that the state-based system has benefited consumers by creating the largest insurance market in the world and one that is innovative, competitive, financially sound and comprehensively regulated.”

The National Association of Professional Insurance Agents says the report failed to properly highlight conclusions of a June 27 Government Accountability Office report stating that the state-based system worked well to help mitigate the negative impacts of the 2008 financial crisis on the insurance industry.

But Howard Mills, chief advisor with Deloitte LLP's insurance industry group, tells PC360 that while the report could have gone further in pointing out the strengths of state regulation, that was not really its aim. The report, rather, was intended to point out weak points and inconsistencies in the current regulatory model.

He also notes that given the desire of some within the federal government to pursue a larger role in regulating insurance, it is not surprising the FIO report did not spend more time celebrating the strengths of state regulation.

Overall, Mills says he felt the report contained no big surprises, was fairly limited and its recommendations stuck to what one would have expected.

Robert Hartwig, president of the Insurance Information Institute, says he understands how some might view the report as critical of the state-based model. “I can see that,” he says. “At the same time, I think the report is trying to identify areas for improvement.”

He also says he would not be surprised if the report resurrects passions on both sides of the state vs. federal debate “that have existed quite frankly for over a century.”

PIA National Executive Vice President and CEO Mike Becker, while noting the group needs to take a closer look at the FIO report, wonders if it is merely a first step in a march toward expanded federal regulation. “On first blush, this looks like 'the camel's nose under the tent,'” he says.

Others, including National Association of Mutual Insurance Companies president and CEO Charles Chamness, echoed that concern.

Hartwig, though, contends that day has come and gone. “The camel's nose is under the tent; in fact the camel's head is under the tent,” he says, noting that Dodd-Frank is the law of the land for the indefinite future, and it already codifies parts of the hybrid approach to regulation that the FIO report contemplates.

The Federal Reserve, for example, is the ultimate regulator of systemically important financial institutions, including insurers, Hartwig notes.

“Other parts of the body are coming under the tent from the Consumer Financial Protection Bureau or HUD, and maybe other areas as well,” he adds.

Hartwig says, in fact, that it is almost a positive that the FIO report was delayed as long as it was, as the industry got to see the hybrid approach play out through implementation of the Dodd-Frank Act.

“So we have clearer understanding of how this hybrid approach will operate,” he says.

NAMIC's Chamness took a cautious approach to the FIO report's release, especially where it explores areas in which a federal role may be beneficial. He notes that policymakers should be careful when considering changes to a regulatory system that has proven itself in favor of untested alternatives.

Hartwig and Mills also note strengths in the state-based system, with Hartwig stating, “I think there's no question that, during the financial crisis, in terms of solvency and prudential regulation, the current system of state regulation performed very, very admirably in the face of extraordinary adversity.”

Mills, himself a former superintendent of insurance for New York, says the state-based system is very good at monitoring for solvency. He also said having multiple state regulators provides a certain level of oversight in itself, where regulators check each other.

But he also says having so many regulators leads to inconsistencies. “Some of the strengths are, in fact, some of the challenges as well,” he says.

Federal regulation brings its own challenges, he notes, such as the lack of insurance expertise at the federal level and thus a difficulty in acknowledging the differences between banks and insurers.

Dodd-Frank, in fact, recognized the lack of expertise when it created the FIO, Mills says, but at the same time Congress passed the law without that needed experience and input.

Charles Symington, Independent Insurance Agents and Brokers of America senior vice president of external and government affairs, summed up the thoughts of most industry groups, stating, “While we agree with the report's conclusion that insurance regulation could be improved and modernized in certain areas, we strongly believe that any federal action should be targeted and limited with day-to-day regulation left in the hands of state officials.”

Interestingly, one group that did not question the report's views on the state-based system was the National Association of Insurance Commissioners, made up of state-based regulators. NAIC President and Louisiana Insurance Commissioner Jim Donelon says in a statement, “Like the recent GAO report…we note that [the FIO report] acknowledges the effectiveness of state-based insurance regulation and the improvements states have made.”

The American Insurance Association, noting it needs more time to examine the report, struck a neutral tone in its response, although President and CEO Leigh Ann Pusey did offer words of caution, saying that “any movement toward proposing binding risk-classification standards would be counterproductive.”

CIAB's Wood says he realizes the report's recommendations for a stronger federal role in mortgage insurance and nondiscrimination “will no doubt create a stir,” but he contends that “all stakeholders in our industry should be very pleased at the careful, methodical, thoughtful recommendations that have been made in this document. In short, it was worth waiting for. We hope and trust that this report will be well-received by Congress.”