Many of the recommendations for action that the FIO cites are already underway by the National Association of Insurance Commissioners (NAIC). This is appropriate, as it was the states' insurance regulators, along with industry that identified these reforms and shared their action plan with FIO. Because action is already being taken by the NAIC, FIO should have noted that its listing came from the NAIC and is duplicative of states' actions.  

One area in which FIO demonstrates it could be willing to overstep its responsibilities is regarding implementation of the National Association of Registered Agents and Brokers Reform Act of 2013 (NARAB II), if it is passed by Congress. PIA supports NARAB II, however we are concerned when the FIO says that it will monitor its establishment and implementation "consistent with its authority."  Again, FIO has no authority and its statement is not consistent with FIO's advisory role, and we believe authority for NARAB II should not reside within the purview of the FIO.

"As a strong supporter of our successful state-based system of insurance regulation, we are concerned that the FIO report may be driven by assumptions and assertions that do not hold up to scrutiny," said PIA National Executive Vice President & CEO Mike Becker. "Many of FIO's assumptions appear to have been contradicted by a Government Accountability Office (GAO) report that concluded that the state insurance regulatory system worked well to help mitigate the negative effects of the 2007-2009 financial crisis on the insurance industry."

"On first blush, this looks like 'the camel's nose under the tent,'" Becker said.

Related: Read "GAO vs FIO"

NAIC vs. FIO

That nose does not belong in insurance regulation, according to NAIC CEO and former Senator Ben Nelson. "The Dodd-Frank Act established the Federal Insurance Office (FIO) within the Treasury Department and makes clear that FIO is not a regulatory agency and its authorities do not displace state insurance regulation," Nelson said. "While we appreciate FIO's suggestions for improvement, the states have the ultimate responsibility for implementing regulatory changes."

Since taking the executive helm at the NAIC, Nelson has been a staunch advocate for the state regulatory system and he has been in the position of having to restrain the FIO.

At a March 8, 2013 meeting of National Conference of Insurance Legislators (NCOIL) in Washington, D.C., Nelson issued a warning to the FIO. "We are determined to see that FIO does the job it was intended to do, but not our job," Nelson declared to the state insurance legislators from around the nation, adding the FIO should "stay in their own lane."

In testimony before Congress in June of last year, Nelson declared, "FIO does not speak for insurance regulators." Then in July of last year, Nelson said FIO Director Michael McRaith had attempted to speak on behalf of state insurance regulators on international issues and had "taken positions that run contrary to the state regulatory mechanism."

In November 2013, Nelson, Connecticut Insurance Commissioner Thomas B. Leonardi, NAIC President Jim Donelon and North Carolina Insurance Commissioner Wayne Goodwin met with President Obama at the White House. Nelson and Leonardi raised issues they have had with the FIO. Nelson told the president that state regulators were not getting support from the Treasury Department as global policy directives, international capital and other standards are being meted out from afar.

President Barack Obama said he was supportive of state regulation and told the NAIC to take its issues with the FIO up in a meeting with Treasury Secretary Jack Lew.

Different Visions

Attempts by the FIO to go beyond its mandate to only "monitor" the insurance industry and expand into regulatory activities in which it is prohibited from engaging may have provided some of the backdrop for the controversy that erupted at the December 2013 meetings of the NAIC.

Connecticut Commissioner Leonardi criticized what he described as a unilateral decision by a past NAIC president to give the FIO one of the NAIC's three seats on the International Association of Insurance Supervisors (IAIS). Leonardi said that after the seat had been given up, "the FIO director [McRaith] had the audacity to demand that he take the seat held by our NAIC CEO." This is an example of high-level bureaucratic hand-to-hand combat.

It is clear that the FIO is not satisfied remaining a benign entity. It has one agenda, while the NAIC has another. The difference is not about personalities, it is about philosophies.

The NAIC for the most part believes in the state-based system of insurance regulation. The FIO seems to believe that increased federalization of insurance regulation is desirable. Each paints a different vision for our industry.

The current system of state-based insurance regulation has been a resounding success—for consumers, for our industry and for our nation's economy. The improvements it needs are being made by state regulators, who for more than a century have served our industry, carriers, consumers and our economy very well.

The competing vision of federalization contends there are too many insurance companies, that everything would be better if – instead of having many carriers of all sizes, meeting the needs of consumers in all areas of the country – we would have just a handful of interconnected global mega-carriers, similar to how there are only a handful of big banks. This would undermine competition, with consumers, the economy and our local communities all being the losers.

One thing is clear: The attempt by the FIO to recast this debate as something other than state versus federal is disingenuous.