A report expected from the Federal Insurance Office later this month, addressing how to modernize and improve insurance regulation, could significantly affect the insurance industry, according to an industry regulatory  expert.

The report from the new U.S. Treasury Department unit, ordered by the Dodd-Frank Act, is expected to guide public policy decision-making in the insurance industry at the federal level and perhaps even at the state level.

Michael Nelson, a lawyer with the New York law firm of Nelson Levine de Luca & Horst who represents insurers and reinsurers, said the new office “provides the federal government with a centralized structure to support its macro-level participation in the insurance industry.” That role could expand, he said.

More than 150 letters of recommendation regarding how the agency should proceed were submitted by the insurance industry.

Nelson notes that the Dodd-Frank Act explicitly states that the FIO does not have regulatory authority, leaving it short of the call by some in Congress to federalize all insurance. Instead of usurping state-based insurance regulation, the act provides the FIO powers and tasks consistent with its role as an advisor, coordinator, and information repository for the federal government on insurance issues.

Led by Michael McRaith, a former Illinois insurance commissioner, the insurance industry has given “almost universal support for the FIO to act as a point of contact and representative on international issues,” Nelson said. “There is much less consensus regarding whether the FIO should become actively involved in regulatory issues in the domestic market,” he said.

Some within the industry are strongly advocating for the FIO to institute an optional federal charter, allowing insurers and agents to be licensed in one state to be able to sell nationally, while others are vehemently opposed to any movement away from the current state-based system.

Nelson suggests that the report and the FIO could tackle the availability of insurance products to poor and minority populations, the transparency in underwriting processes and whether certain underwriting practices are unfairly discriminatory.

The FIO is tasked under the Dodd-Frank Act with monitoring the extent to which underserved communities and consumers, minorities, and low-to-moderate income persons have access to affordable insurance products. How the FIO will carry out this task is far from certain. Insurers rarely collect information about an insured’s ethnicity or minority status. In fact, some states even prohibit the collection of such information.

Additionally, it is not clear how the FIO will define the term “affordable.” Affordability is a relative concept—rates are usually determined by risk factors and insurer solvency considerations, according to Nelson.

Where the FIO might be most useful is in its mission to coordinate federal efforts, develop federal policy and consult with states regarding the prudential aspects of international insurance matters.

Prior to the FIO, there has never been a single, unified group or organization that could negotiate international agreements on behalf of the country. While the National Association of Insurance Commissioners (NAIC) has been active and involved internationally, it is not a government entity. The NAIC has members with diverse views and it cannot always speak for all members on international matters, according to Nelson. He added that the NAIC has no authority to enter into binding agreements with foreign countries on behalf of member states.

Both domestically and abroad, regulators are developing methods to monitor insurers beyond their national boundaries to ensure the financial stability of their domestic markets.

During the Property/Casualty Insurance Joint Industry Forum Jan. 10, McRaith explained that a priority for the FIO will be to ensure that the regulatory systems in other countries do not disadvantage insurers in the United States.

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