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December 02
07:41 2019

Public Policy Analysis & Opinion

By Kevin P. Hennosy


Senator Brown calls for a return to Safety and Soundness tenet

“We want international regulators to recognize our insurance regulatory system as credible. So it is imperative that our regulators recognize credible threats to financial stability.”

—Senator Sherrod Brown

As the American financial sector evolves and integrates into an international system, both policymakers and practitioners seek consistency. Efforts to define what “consistency” looks like present a predictably difficult problem.

For nearly a century and a half, insurance sector lobbyists have herded state insurance commissioners into a pen we now refer to as the National Association of Insurance Commissioners (NAIC). That framework produces policy suggestions aimed at “harmonizing” the regulatory approaches used by the states. States can use, amend, or ignore those NAIC suggestions. The result is a complex and sometimes conflicting policy framework to which one cannot rationally apply the term “standard setting.”

So imagine the fools’ errand of developing and implementing international standards for insurance regulation. Obviously, countries bring competing interests to the debate. For example, a liberal democracy will advocate for a very different public policy environment than an oligarchy because the two structures depend on power bases that hold different expectations from government.

Because no sovereign world government exists, any effort to establish international standards relies on local adoption of general suggestions. Parochial concerns and interests shape the process of drafting, adopting, and implementing standards.


In the spirit of Don Quixote of La Mancha, the International Association of Insurance Supervisors (IAIS) dreams the impossible dream of crafting worldwide standards for insurance public policy.

Or maybe Don Quixote is not the appropriate literary reference? According to an IAIS strategic plan that covers the years 2020 to 2024: “The Mission of the IAIS is to promote effective and globally consistent supervision of the insurance industry in order to develop and maintain fair, safe and stable insurance markets for the benefit and protection of policyholders and to contribute to global financial stability.”

Further, “The IAIS coordinates its work with other international financial policymakers and associations of supervisors or regulators and assists in shaping financial systems globally. … In recognition of its collective expertise, the IAIS also is routinely called upon by G20 leaders and other international standard-setting bodies for input on insurance issues, as well as on issues related to the regulation and supervision of the global financial sector.”

With all these references to “global” influence, we might start conjuring visions of an extinct volcano on a remote island where nameless staffers wear taupe uniforms and carry clipboards under the gaze of a sociopathic genius ensconced in a glass office. If we violate an IAIS standard, a laser beam probably will blow up our office or home.

Or maybe not …

Like the NAIC, the IAIS does afford a framework for discussing policy issues; however, neither group possesses the power to implement recommendations. Neither “sets” standards.

Team USA

Now the reader should understand that the public officials who attend the IAIS tend to hold a more prominent place in governmental hierarchies than do state insurance commissioners. Because most countries possess a reasonable understanding of the role of insurance in their national economies, public officials at the IAIS tend to hold national offices.

The United States manages to send public and private officials to IAIS meetings under the informal moniker Team USA. The officials include representatives of the Board of Governors of the Federal Reserve System, U.S. Treasury’s Federal Insurance Office, and state insurance regulators through the patronage of the NAIC.

The Team USA group seeks to represent the major sub-areas of government jurisdiction over insurance in the United States. Of course, the constitutional jurisdiction for insurance remains with the U.S. Congress.

To provide oversight of the state and federal agencies that receive pieces of that constitutional jurisdiction through statute, Congress conducts oversight hearings. For example, in mid-September 2019, the Senate Banking Committee conducted a hearing where it heard testimony from Team USA. Senator Mike Crapo (R-Idaho) opened the hearing and welcomed the Team USA representatives:

“[W]e welcome to the Committee the three members of ‘Team USA’ representing the U.S. in international insurance supervisory and regulatory forums, including: Steven Seitz, director of the Federal Insurance Office in the Treasury Department; Thomas Sullivan, associate director at the Board of Governors of the Federal Reserve System; and Eric Cioppa, superintendent of the Maine Bureau of Insurance, on behalf of the [NAIC].”

Senator Sherrod Brown (D-Ohio), who serves as ranking minority member on the committee, expressed this aim for the oversight hearing:

“Today, I hope to hear about how our regulators are working to curb financial risks at the largest insurance companies so that working families aren’t forced to bail them out again, and how they plan on restoring American leadership on these issues.”

Senator Brown explained that his view on the source of American leadership in finance is still based on the terms “safety” and “soundness.”

“The United States has a long history of financial stability and independent regulation of our financial markets. That’s why other countries trust our markets and our currency. I am concerned that this administration has eroded that trust and is diminishing our leadership role in global financial regulation,” observed Senator Brown.

When following congressional testimony, it sometimes helps to understand the lingo. At times the language used in testimony seems to be drawn from some version of the dictionary based on George Orwell’s dystopian masterpiece, 1984.

For example, “public” and “stakeholders” generally refer to lobbyist attendees at meetings of the NAIC or IAIS. “Transparency” refers to the relative ease of access that lobbyists and other advocates have to an institution.

Steven Seitz devoted a material portion of his testimony to urging the IAIS to work on transparency:

“Before proceeding with comments regarding our engagement internationally, I would like to touch on efforts to promote transparency at the IAIS. As noted in our November 2018 joint report to this Committee, Treasury and the Federal Reserve support further increasing transparency and stakeholder input into IAIS decision making. We have advocated for this, and, consistent with this message, the IAIS noted in its 2020-2024 Strategic Plan that increasing transparency, particularly with respect to the decision-making process, continues to be a priority…. The IAIS has committed to build on the direction set forth in its 2017 Stakeholder Engagement Plan to proactively and effectively engage with its broad range of stakeholders. We will continue to engage in this area as the IAIS begins implementation of its new strategic plan.”

The stakeholders should be pleased with this commitment.

The testimony of Thomas Sullivan noted that the Fed works on international insurance issues through multiple channels. The IAIS is only one of those channels.

He too welcomed “transparency” reforms: “Recently, the IAIS has established a norm that these periods will be at least 60 days, allowing adequate time for the public to comment.” One can assume that many members of the “public” were in the room.

Director Sullivan’s perspective was also interesting, because it recognized the institutional nature of the IAIS. “The mission of the IAIS is to promote effective supervision of internationally active insurance companies. It is important to note that none of the standards set by the IAIS have binding effect on the United States.”

Competitive canard

Eric Cioppa also offered positive comments about the IAIS, even on topics where the NAIC disagrees with it. Superintendent Cioppa emphasized the importance of competition to the strength of the American insurance sector, which raises other issues.

“The U.S. insurance market is the single largest and most competitive in the world, with state insurance regulators supervising more than one-third of global premium, and taken individually, U.S. states make up more than half of the 50 largest insurance markets,” testified Cioppa.

The McCarran-Ferguson Act, the federal statute that governs the business of insurance and its regulation, presupposes that competition is not in the U.S. public interest. For that reason, the statute establishes a limited and contingent delegation of authority over the interstate commerce known as insurance and provides for the automatic recall of that authority to the extent that states fail to regulate the business of insurance.

Where states affirmatively regulate insurance, those engaged in that interstate commerce receive a limited exemption from federal antitrust laws. If Congress wanted competition rather than regulation to rule insurance, it never would have provided even the limited antitrust exemption.

Incredulous world

Nevertheless, this stress on “competition” and “competitive markets” is really a question of faith among American insurance regulators. Senator Brown commented on how international officials and businesspeople might view American reliance on competition.

“I can understand why international regulators might have the impression that we are not taking financial stability seriously here at home, or so those participants can at least claim,” Senator Brown opined.

The Buckeye State senator continued, “Some argue that a deregulatory race to the bottom is the only way for American insurance companies to be competitive.” Senator Brown warned the committee and others that American credibility is at stake. He advised a return to policies that fostered safety and soundness.

“We want international regulators to recognize our insurance regulatory system as credible. So it is imperative that our regulators recognize credible threats to financial stability,” said Senator Brown.

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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