Federal Insurance Office Recommendations on Short-Term State Insurance Regulatory Reforms

Dec 18, 2013


In its long-awaited report to Congress on how to modernize and improve the system of insurance regulation in the United States released December 12, 2013, the Federal Insurance Office (“FIO”) recommended the following short-term insurance regulatory reforms for states:


Capital Adequacy and Safety/Soundness

1.  For material solvency oversight decisions of a discretionary nature, states should develop and implement a process that obligates the appropriate state regulator to first obtain the consent of regulators from other states in which the subject insurer operates.

2.  To improve consistency of solvency oversight, states should establish an independent, third-party review mechanism for the National Association of Insurance Commissioners Financial Regulation Standards Accreditation Program.

3.  States should develop a uniform and transparent solvency oversight regime for the transfer of risk to reinsurance captives.

4.  State-based solvency oversight and capital adequacy regimes should converge toward best practices and uniform standards.

5.  States should move forward cautiously with the implementation of principles-based reserving and condition it upon: (1) the establishment of consistent, binding guidelines to govern regulatory practices that determine whether a domestic insurer complies with accounting and solvency requirements; and (2) attracting and retaining supervisory resources and developing uniform guidelines to monitor supervisory review of principles-based reserving.

6.  States should develop corporate governance principles that impose character and fitness expectations on directors and officers appropriate to the size and complexity of the insurer.

7.  In the absence of direct federal authority over an insurance group holding company, states should continue to develop approaches to group supervision and address the shortcomings of solo entity supervision.

8.  State regulators should build toward effective group supervision by continued attention to supervisory colleges.


Reform of Insurer Resolution Practices

9.  States should: (1) adopt a uniform approach to address the closing out and netting of qualified contracts with counterparties; and (2) develop requirements for transparent financial reporting regarding the administration of a receivership estate.

10.  States should adopt and implement uniform policyholder recovery rules so that policyholders, irrespective of where they reside, receive the same maximum benefits from guaranty funds.


Marketplace Regulation

11.  States should assess whether or in what manner marital status is an appropriate underwriting or rating consideration.

12.  State-based insurance product approval processes should be improved by securing the participation of every state in the Interstate Insurance Product Regulation Commission (IIPRC) and by expanding the products subject to approval by the IIPRC. State regulators should pursue the development of nationally standardized forms and terms, or an interstate compact, to further streamline and improve the regulation of commercial lines.

13.  In order to fairly protect consumers in all parts of the United States, every state should adopt and enforce the National Association of Insurance Commissioners Suitability in Annuities Transactions Model Regulation.

14.  States should reform market conduct examination and oversight practices and: (1) require state regulators to perform market conduct examinations consistent with the National Association of Insurance Commissioners Market Regulation Handbook; (2) seek information from other regulators before issuing a request to an insurer; (3) develop standards and protocols for contract market conduct examiners; and (4) develop a list of approved contract examiners based on objective qualification standards.

15.  States should monitor the impact of different rate regulation regimes on various markets in order to identify rate-related regulatory practices that best foster competitive markets for personal lines insurance consumers.

16.  States should develop standards for the appropriate use of data for the pricing of personal lines insurance.

17.  States should extend regulatory oversight to vendors that provide insurance score products to insurers.

18.  States should identify, adopt, and implement best practices to mitigate losses from natural catastrophes.


To access the complete report, entitled “How To Modernize And Improve The System Of Insurance Regulation In The United States,” click here.