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June 25
09:22 2019

Public Policy Analysis & Opinion

By Kevin P. Hennosy


NAIC endorses bill to provide a vote for state insurance regulators on FSOC—before reading it

On May 2, 2019, the National Association of Insurance Commissioners (NAIC) welcomed and endorsed congressional legislation crafted to establish a state insurance commissioner as a voting member of the Financial Stability Oversight Council (FSOC).

One might not find this surprising except that the endorsement came before the legislation was put into writing. The NAIC endorsed a bill that did not exist as a written document.

The NAIC’s quick decision seems out of character for an association that is not known for unconstrained action. Some wags still insist that NAIC stands for “No Action Immediately Contemplated.” Consider that it took the NAIC until the late 1960s to decide to remove Civil War Era mortality data from the Life Actuarial Tables.

Who wants to volunteer to take that insurance regulator’s seat on the FSOC—which is rapidly losing its influence in policy circles under a laissez-faire administration?

The association appeared to be confident that the legislation would closely resemble a bill introduced in the 115th Congress (2017-2018) under the title Primary Regulators of Insurance Vote Act, which made the appointment of an insurance regulator as a member of the FSOC subject to the normal rules of presidential nomination and Senate confirmation.

In response to that earlier bill, the NAIC published an issue brief to explain why the association supported the legislation:

  • Insurance regulators have the necessary expertise regarding the sector to inform the FSOC’s risk monitoring work and are the only regulators who can commit to taking regulatory action across the insurance sector in response to any risks the council may identify.
  • Providing state insurance regulators a vote on the FSOC will ensure all primary financial regulators of the financial sector have a vote on the council.
  • A state insurance regulator vote on the FSOC will only benefit the council and its important work of monitoring and improving the financial stability of all the financial sectors in the United States.

The NAIC argues that without a vote from state insurance regulators on the FSOC, the council’s responses remain restricted when addressing concerns with an insurance firm: (1) apply the systemic risk designation or (2) do nothing.

The NAIC issue brief asserts: “State insurance regulators are the only regulators that can commit to taking regulatory action across the insurance sector to address any risks the Council may identify or other relevant regulatory concerns that may arise.”

The issue brief further states: “The Federal Reserve has limited regulatory authority within the insurance sector as they only regulate FSOC designated firms and Depository Institution Holding Companies with insurance operations.”

Particularly galling to the NAIC is that the Independent Representative with Insurance Expertise member of the council possesses no regulatory authority in any jurisdiction, but that representative holds a vote on the council’s policy decisions. This makes that member a presidential appointee and subject to confirmation by the Senate.

According to a letter from the NAIC that endorsed the legislation: “By providing a vote to state insurance regulators, the legislation would ensure that the insurance regulatory perspective is adequately represented in FSOC decisions that may affect the insurance sector and its regulation.”

Senator Tim Scott (R-S.C.), Senator Doug Jones (D-Ala.), Representative Denny Heck (D-Wash.) and Representative Barry Loudermilk (R-Ga.) sponsored the legislation.

Senator Scott opined: “To this day, state insurance agencies have no voting seat on the influential [FSOC]. This bill would ensure that they have a vote for any and all decision making that would affect the insurance sector and its regulation.”

Senator Jones chimed in: “When federal regulators consider rules that impact the entire financial industry, it’s important that state insurance commissioners not only have a say, but also a vote. These commissioners have been the primary regulators of the insurance industry for over a century, and their voting presence will result in better informed federal policies. Our bipartisan legislation will make this common-sense adjustment to the FSOC.”

Certainly now, at long last, ISIS will cease operations and the Kansas City Royals will hire a pitching staff?

On May 2, upon introduction of the legislation’s title to the Senate, the bill known as S.1278: Primary Regulators of Insurance Vote Act was assigned to the Senate Committee on Banking, Housing, and Urban Affairs. Then the waiting began to find out what was in the bill.

The Congressional website ( advises visitors: “Bills are generally sent to the Library of Congress from GPO, the Government Publishing Office, a day or two after they are introduced on the floor of the House or Senate. Delays can occur when there are a large number of bills to prepare or when a very large bill has to be printed.”

The version of the bill filed in the 115th Congress ran about three pages depending on formatting. So no observer expected the version introduced in the 116th Congress to be a particularly long document. Still, days passed and no one saw the text of the bill.

The passage of time was so extraordinary that the administrators of the congressional website posted the following advisory: “As of 05/07/2019 text has not been received for S.1298—A bill to amend the Financial Stability Act of 2010 to include the State insurance commissioner as a voting member of the Financial Stability Oversight Council, and for other purposes.”

On the morning of May 13, Congress posted the text of the Scott-Jones Act, which did echo the provisions of the 2018 legislation.


The legislation contains a straightforward statutory directive: The President would fill a position on the FSOC with a state insurance commissioner, subject to the advice and consent of the Senate.

Of course, the presidential appointment process is festooned with practices designed to protect the public from appointees who bring parochial interests to public service. The procedural rules begin with the U.S. Constitution. Article II delegates certain aspects of the people’s sovereign power to the Executive Branch.

Article II Section 1 says that the President “shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the Supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law.”

Then the fun begins! Welcome to the world of political patronage at its apex.

The Scott-Jones Bill does not mention the NAIC, but a provision of the bill all but invites the NAIC to play a role in the nominating process. It reads:

In selecting an individual to appoint as a State insurance commissioner under paragraph (1)(J), the President shall request a list of recommendations for the individual from State insurance commissioners through a process determined by the State insurance commissioners. The recommendations shall not be binding on the President. If the State insurance commissioners fail to submit a list of recommendations within 15 business days after the date of the request, the President may select an individual to appoint without considering the recommendations.

It will come as a surprise to most observers if state insurance commissioners do not designate the NAIC to provide the list of recommendations to the President.

From that point in the process the Office of Presidential Personnel will review the NAIC-recommended candidates and present its counsel to the President. The office conducts an initial merit review, but mostly it filters recommendations for ideological and political considerations on a President’s behalf.

Candidates for presidential appointment must provide information about their finances by filling out the Public Financial Disclosure Report. Candidates must report sources of outside income—which some state insurance regulators might hesitate to provide—under penalty of perjury. Candidates also must complete questionnaires as part of a background check.

When talking to someone who has completed the paperwork for a presidential appointment, it is rare to hear tales of laughter and enjoyment. At the very least, the exercise of completing those forms is tedious, and the questionnaires ask for details about persons, places, and dates that the candidate has not thought about for a long time.

The candidate does not want to provide any inaccurate information because some field office of the FBI will verify every date, location, and name on the questionnaire.

When inaccuracies are identified, more questions must be answered, and the candidate starts to hear reminders about that paragraph next to his or her signature that mentions perjury and incarceration. Suddenly the candidate receives questions about that old real estate investment under a limited liability corporation and how the K-1 income appeared on a couple of federal income tax forms.

Before long the candidate receives a phone call during which an unbelievably young-sounding voice incessantly mentions that the call is “from the White House.” The childlike voice becomes more menacing as the caller informs the candidate that the White House “strongly suggests” that the candidate should spend more time with his or her family rather than accept a presidential appointment.

Let us keep in mind that the purpose of the questionnaires is to identify problems before the candidate appears in front of a Senate committee. A smart candidate for presidential appointment will call some former appointees before making the rounds of the committee members’ offices. Also candidates might subject themselves to a few “Murder Boards”: practice sessions to prepare for the actual hearings.

Now, who wants to volunteer to take that insurance regulator’s seat on the FSOC—which is rapidly losing its influence in policy circles under a laissez-faire administration? The FSOC is much less powerful than it was three years ago.

As W. W. Jacobs began his horror story The Monkey’s Paw: “Be careful what you wish for; you may receive it.”

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.

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