Special Report: Treasury Releases Report on Insurance Regulation

The United States Treasury Department released its report to the president on the regulatory environment for the asset management and insurance industries on Oct. 26. This report was issued in response to President Trump’s Executive Order 13772 of Feb. 3, which established the administration’s policy that financial regulation in the U.S. should be conducted in accordance with several “Core Principles,” including:

  1. Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
  2. Prevent taxpayer-funded bailouts;
  3. Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses the systemic risk and market failures, such as moral hazard and information asymmetry;
  4. Enable American companies to be competitive with foreign firms in domestic and foreign markets;
  5. Advance American interests in international financial regulatory negotiations and meetings;
  6. Make regulation efficient, effective, and appropriately tailored; and
  7. Restore public accountability within federal financial regulatory agencies and rationalize the federal financial regulatory framework.

The report was the result of several months of identification and examination of any laws, treaties, regulations, guidance, reporting, and record-keeping requirements or other government policies that do not comport with the Core Principles. Treasury consulted extensively with a wide range of stakeholders, including trade groups, financial services firms, consumer and other advocacy groups, academics, legal experts, and others with relevant knowledge. NAMIC submitted extensive comments to the department and met with key officials involved with the report over the summer to provide further feedback.

In general, NAMIC was very encouraged by the report and can clearly identify the various areas where the association was able to help shape the policy of the current administration with regard to insurance regulation. First, Treasury issued a strong and clear endorsement of the state-based system of insurance regulation in the U.S. – “Treasury endorses the state-based regulatory model for the U.S. insurance industry and recommends narrowing the scope of federal involvement.” This language represents a tectonic shift in federal policy direction from the last 25 years, spanning three administrations from both political parties.

The report does note that the state-based system of regulation is far from perfect and makes specific recommendations to the states on making “regulation efficient, effective, and appropriately tailored.” However, the administration makes clear that it believes the states should enact these reforms themselves, rather than creating an alternate federal system to address the perceived problem. This is a significant contrast to previous reports such as the Federal Insurance Office’s November 2016 consumer protection report that highlighted some issues with workers’ compensation insurance and essentially recommended federalizing the entire system.

With such a wide-ranging report, there are of course other conclusions and recommendations contained within which will require more details on specifics and implementation to fully analyze. But on the whole there were a number of very positive conclusions throughout. Some key highlights include:

Refocused Federal Insurance Office

The report acknowledges NAMIC’s many concerns with the activities of the FIO to date, by suggesting that it needs to “better align … with its statutory framework and … ensure consistency with the long-established U.S. policy of state-based insurance regulation.” To that end, Treasury has outlined five “pillars” that will guide FIO’s mission:

  • Promote the U.S. state-based insurance regulatory system and advocate for the U.S. insurance sector in international forums and negotiations and in foreign markets;
  • Provide insurance policy expertise and advice to the federal government, state insurance regulators, and industry through research and analysis, consultation, and evaluation of federal insurance programs;
  • Provide enhanced coordination between the federal government and state insurance regulators;
  • Advise the secretary and the Financial Stability Oversight Council on matters that threaten financial stability; and
  • Promote access to insurance products and administer the Terrorism Risk Insurance Act.

In general, the administration makes clear that the Treasury is committed to the FIO’s increased transparency and stakeholder engagement, by being more accessible to various stakeholders through both public and private forums. The report also commits the FIO to more regular and consistent engagement with state insurance regulators in line with NAMIC’s recommendations that the functional regulators have a more leading role.

It is important to remember that the approach of a more-focused FIO during this administration could easily be reversed under different leadership. This is why NAMIC has been calling for a statutory solution to our concerns – if not outright elimination of the office, then a very clear restructuring along the lines of legislation introduced by Reps. Sean Duffy, R-Wis., and Denny Heck, D-Wash., which NAMIC Chairman Paul Ehlert testified in favor of at an Oct. 24 hearing.

International Standard-Setting Processes

NAMIC has been raising significant concerns with the international insurance regulatory discussions that have been taking place for the better part of the last decade. Treasury acknowledged those concerns and made several positive recommendations for the U.S. posture internationally. First, the report argues that the Financial Stability Board’s activities should be limited to monitoring and enhancing global financial stability. Due to its view that the FSB sometimes fails to take into account the differences between banking and insurance, Treasury also suggested that the FSB should better utilize the expertise of insurance supervisors, as well as increase transparency and stakeholder engagement at the FSB. Though the report stopped short of recommending a U.S. insurance member of the FSB, these recommendations would go a long way toward improving the process.

With regard to the International Association of Insurance Supervisors, the recommendations seek to:

  1. Redefine the FIO’s mission at the IAIS to, advocate for the U.S. state-based insurance regulatory system and market; coordinate the views of Team U.S.A., and promote greater transparency and stakeholder engagement.
  2. Change the IAIS structure in a manner that ensures proper U.S. recognition through appropriate and geographically balanced representation and committee leadership.
  3. Take additional action to further increase transparency and stakeholder input into IAIS decision-making.

Generally, the report calls for a coordinated, stakeholder-informed, unified position for the United States when it comes to international regulatory discussions, something for which NAMIC has long been an advocate.

Covered Agreement

Despite NAMIC’s concerns with the recently concluded Covered Agreement with the European Union, the association was encouraged by the accompanying Statement of Administration Policy reflecting Treasury’s view on implementation. The report strikes a similar tone and makes clear that Treasury believes appropriate transparency and regular, substantive engagement with stakeholders is necessary for the proper implementation of the U.S.-EU Covered Agreement. The report states that Treasury will continue to improve its coordination with state insurance regulators, the NAIC, and other stakeholders throughout implementation.

HUD’s Disparate Impact Rule

NAMIC has been strongly opposed to the use of a disparate impact standard being applied to homeowners’ insurance to determine liability for discrimination under the Fair Housing Act. The association was very pleased to see the report address the intention of the Department of Housing and Urban Development to apply this standard to insurance and agree with NAMIC’s position that the rule could impose unnecessary burdens on insurers and force them to alter practices in a manner that may not be actuarially sound. The report also recommends that HUD reconsider its disparate impact rule and points out that it could be inconsistent with McCarran-Ferguson and existing state laws, have a disruptive effect on the availability of homeowners insurance, and be irreconcilable with actuarially sound principles. All of these concerns are exactly what is at issue in the lawsuit against HUD that NAMIC continues to pursue and has been engaged in for almost two years.

Terrorism Risk Insurance Program

Insurers offering terrorism risk insurance are currently required to conduct two separate but very similar data calls for TRIA-related data, one through the state regulators and one through the FIO. NAMIC has argued for several years that a single data call should be conducted together to avoid unnecessary duplication. The Treasury Department has heard these concerns and is directing the FIO to coordinate with state insurance regulators and the NAIC to attempt to eliminate or reduce the inconsistencies between the existing data calls to attempt a single data call going forward.

Keeping the CFPB Out of Insurance

In line with legislation that NAMIC is currently working to move in both the House and the Senate, the Treasury report recommends that Congress clarify the “business of insurance” exception to ensure that the Consumer Financial Protection Bureau does not engage in the oversight of activities already monitored by state insurance regulators.

The Federal Reserve and Insurance

Since the Dodd-Frank Act was passed, insurance companies that also owned thrift institutions have been subject to oversight at the holding company level by the Federal Reserve. There have been some concerns with the way the bank-focused regulators at the Fed have been handling this responsibility, unnecessarily adding to compliance costs for those companies it regulates. The report calls on the Fed to reduce duplicative and inefficient oversight, leverage information from state regulators and the NAIC, harmonize its financial reporting and recordkeeping requirements with corresponding state regulatory requirements, and tailor examinations based on the unique features of each institution.

Further, the report supports NAMIC’s position that the group capital calculation being crafted by the states should be harmonized with the Federal Reserve’s Building Block Approach, to mitigate duplicative and unnecessary regulatory burdens for those insurers it oversees. NAMIC has long been in favor of ensuring any Fed oversight not impinge upon or duplicate the work being done by state insurance regulators and all these recommendations are in alignment with NAMIC views.

Systemic Risk and Insurance

In the section covering systemic risk in the insurance industry, the Treasury Department stated explicitly its belief that regulators should move away from an “entity-based approach” to systemic risk. Since the financial crisis, NAMIC has been very concerned that regulatory bodies like the FSOC would simply use something like size as a proxy for systemic risk, needlessly designating large property/casualty insurance companies as Systemically Important Financial Institutions. It appears this is not the direction that this administration will take.

This section of the report noted that the FSOC maintains primary responsibility for identifying, evaluating, and addressing systemic risks in the U.S. financial system. However, it also reaffirmed that the states are the primary regulators of the insurance industry and any type of insurance regulation at the federal level should be conducted in coordination with the states.


NAMIC has long supported the streamlining of agent licensing and was a supporter of the 2015 legislation crafting the National Association of Registered Agents and Brokers. The Treasury Department committed to expeditiously recommend nominees to the president and to soliciting nominee recommendations from stakeholders.

NAMIC is very pleased with this initial positioning by the Trump Treasury Department and looks forward to continuing to work closely with department officials to ensure the U.S. system of insurance regulation continues to work for insurers and their policyholders.

Article Posted: 10.27.17
Last Updated: 10.27.17


Jimi Grande
Senior Vice President - Government Affairs