State regulators want to put the kibosh on the Federal Insurance Office

Image shows Elon Musk and the U.S. Capitol — State insurance regulators want the Federal Insurance Office shuttered.

By John Hilton

State insurance regulators know what they want from the anti-government fervor inspired by the return of President Donald Trump: elimination of the Federal Insurance Office.

A coalition of insurance commissioners from nine states issued a joint letter to heads of the Department of Government Efficiency requesting the death of the FIO. Led by Elon Musk and Vivek Ramaswamy, the controversial DOGE is charged with streamlining federal operations and reducing inefficiencies.

Established under the Dodd-Frank Act, the FIO was tasked with monitoring the insurance industry, assessing systemic risk, and advancing global regulatory practices. In the years since, however, the FIO has made little headway beyond producing reports and studies that have little impact.

Commissioners argue that the FIO duplicates functions already performed effectively by state regulators and the National Association of Insurance Commissioners.

"State-based insurance regulation has successfully ensured consumer protection, market stability, and efficiency for decades," said New Hampshire Insurance Commissioner DJ Bettencourt. "The Federal Insurance Office has consistently failed to demonstrate its necessity, and its continued operation represents an unnecessary burden on taxpayers."

States signing the letter are Alabama, Arkansas, Kansas, Louisiana, New Hampshire, North Carolina, Oklahoma, Tennessee, and West Virginia.

'Not a transaction of commerce'

In 1869, the Supreme Court held, in the case Paul v. Virginia, that “issuing a policy of insurance is not a transaction of commerce.”

As a result, states were left responsible for the taxation and regulation of insurance. That led to the formation of the National Insurance Convention in 1871, which later became known as the NAIC.

In 1944, the Supreme Court ruled in United States v. South-Eastern Underwriters Association that the federal government could regulate insurance companies under the authority of the commerce clause in the U.S. Constitution and that the federal antitrust laws applied to the insurance industry.

Very quickly, Congress passed the McCarran-Ferguson Act, which essentially returned the regulation of insurance to the states. In the decades since state officials fiercely defended their oversight role of the insurance industry.

Initially, the Federal Insurance Office enjoyed widespread support. The NAIC endorsed the creation of the FIO in testimony to Congress.

The FIO was handed a set of nebulous duties to:

“Advise” the Treasury Department on insurance issues.
“Monitor all aspects” of the insurance industry.
“Identify issues or gaps” in the regulation of insurance that could contribute to a systemic crisis in the insurance industry.
“Receive and collect data” on and from the insurance industry.

Dodd-Frank also assigned international insurance issues to the FIO and, under Director Michael McRaith, that is where the agency focused much of its time and efforts in the initial years.

The FIO ended up producing several concepts that were ultimately adopted by the NAIC, such as covered agreements and permitted practices, an accounting practice that departs from the NAIC Accounting Practices and Procedures Manual and state-prescribed accounting practices.

First significant U.S. study

The FIO’s first major initiative in the U.S. insurance market came with a 2017 automobile insurance study looking at affordability and availability.

The study found that 6 million people live in ZIP codes where auto insurance is unaffordable, including more than half of the residents of underserved ZIP codes in five states: Michigan, New Jersey, Rhode Island, New York and Delaware.

But friction surfaced in October 2022 when Treasury Secretary Janet Yellen announced that the FIO would collect climate-related claims data from insurers. The effort came weeks after Hurricane Ian smashed the Florida coast, with projected insured losses of more than $60 billion, according to the trade group Insurance Information Institute.

The data call provided the FIO with a rare opportunity to play a significant role in the insurance rulemaking cycle. The FIO sought five years’ worth of ZIP-code-level data from 213 private insurers, collectively representing at least 80% of the homeowners’ insurance market in each state.

The plan encountered immediate resistance. Trade groups, insurers and the NAIC all wrote letters objecting to the data call.

This week's letter repeats concerns with FIO's attempts to collect weather-related data independently, claiming that it compromised data accuracy and transparency.

"Despite efforts by the NAIC to collaborate through a data-sharing agreement, FIO has opted to use incomplete information, risking consumer harm and undermining regulatory efforts," commissioners said in a news release.

The commissioners urged DOGE leaders to collaborate with newly elected Rep. Troy Downing, R-Mont. Formerly Montana commissioner of securities and insurance, Downing "has extensive knowledge of the FIO's significant shortcomings and can provide valuable insights to support this initiative," the release said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.