But, quietly, parts of the law are indeed moving forward, albeit with few headlines and little fanfare. This very morning, a new Dodd-Frank office got underway with work to reform one of the country’s most complex regulatory systems: insurance regulation.
The Federal Insurance Office was created by Dodd-Frank to bring a more national voice to how we oversee insurance. Until now, a federal agency to focus on insurance regulation just didn’t exist.
“Despite the sector’s size and important,” said deputy Treasury Secretary Neal Wolin, “the federal government had no central repository for comprehensive insurance expertise.”
The new office doesn’t make many headlines; you won’t see many mentions outside of some trade journals. But industries understand its important: The FIO drew a standing-room-only crowd to its first ever meeting at Treasury this morning. And at that meeting, insurance executives asked the Dodd-Frank agency to bring more federal regulation into their industry — not exactly an everyday affair in Washington.
It’s not a normal request, but insurance isn’t exactly a normal industry when it comes to regulation. States tend to oversee all insurance products, from health to life to homeowners. And that worked fine decades ago, when insurance companies tended to be more localized. But for any national company operating now, having 50 state regulators set 50 different standards has made it a complex system.
“The current system is highly inefficient,” says John Johns, chairman of the Protective Life Corp., which sells life insurance policies. Or, as Consumer Federation of America’s J. Robert Hunter put it, “If Nebraska is regulating hurricane insurance in Florida and flood insurance in Georgia, we have a problem.”
It’s also costly. Another insurance executive, Markham McKnight of BancorpSouth Insurance Services, told the meeting that he employes the equivalent of three full-time employees and spends hundreds of thousands of dollars coming into compliance with all the disparate regulations. He has to maintain licenses in 50 states to do his business. “The lack of uniformity comes with a burden of cost,” he said.
In that sense, it’s not so surprising to see insurance companies clamoring for more federal involvement; one regulatory scheme, or at least some more uniformity between a few of them, would be a whole lot easier to comply with than 50 of them.
Now, under the Dodd-Frank law, they have an agency to press those concerns to.
At this morning’s meeting, multiple insurance executives asked the office to recommend to Congress more federal standard-setting in insurance oversight. “There’s an emerging support for a middle ground that would acknowledge the state system, but would utilize and federal government in a way to address some of the problems of fragmentation,” says Johns. “It presents the opportunity to resolve a lot of these concerns that we have with uniformity.”
The Federal Insurance Office does not have the authority to regulate the insurance industry; it serves more of an advisory role. But that’s more than has existed in Washington before. Early next year, it will make recommendations to Congress about what’s broken in insurance regulation and what may fix that. It’s convened advisory boards, bringing together various stakeholder voices in the industry in a way that, prior to Dodd-Frank, didn’t really happen.
Insurance regulation matters. Back in September 2008, it was the collapse of the massive American Insurance Group that was one of the major events that catalyzed the ensuing banking crisis.
Some parts of Dodd-Frank are certainly under siege. But some parts, like the Federal Insurance Office, are dutifully trudging forward — with the strong backing of of industry behind it.