Biden Administration Gives Federal Insurance Office New Responsibilities

The Federal Insurance Office (FIO), created by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), is an ongoing threat to the state insurance regulatory system. Back in 2016, PIA was the first national insurance association to advocate for the full repeal of the FIO. In pursuit of that work, PIA led the effort to develop the Federal Insurance Office Abolishment Act (S. 524), which was introduced in March. This bill would eliminate the FIO and give the Treasury Department responsibility for the few legitimately federal, insurance-related duties currently assigned to the FIO.

Since 2010, the FIO has offered policymakers who are hostile to state-based regulation of insurance a vehicle by which they can extralegally assign insurance-related oversight to the federal government instead of state insurance departments. State insurance regulation has been in place for 150 years, and it has created and sustained a thriving, competitive industry that protects consumers and gives businesses a chance to compete for market share. The Government Accountability Office (GAO) even concluded that state-based insurance regulation helped mitigate the effects of the 2008 financial crisis on the insurance industry.

The Biden administration recently assigned new tasks to the FIO in an Executive Order on Climate-Related Financial Risk that issues climate-related instructions to both the FIO and the Financial Stability Oversight Council (FSOC), another Dodd-Frank creation. Specifically, the Executive Order (EO) directs the Treasury secretary to have the FIO “assess climate-related issues or gaps in the supervision and regulation of insurers, including as part of the FSOC’s analysis of financial stability, and to further assess, in consultation with States, the potential for major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts.” The FSOC, whose members include the director of the FIO, is supposed to examine the possible effects of climate change on financial institutions and determine whether climate change could affect insurers’ financial stability. The FSOC is also expected to ask state insurance regulators what they are doing to mitigate climate-related financial risk. The EO requires the FSOC to report its results to the president within 180 days.

In issuing this EO, the Biden administration has assumed the oversight role of state insurance regulators and improperly delegated the tasks associated with that role to the FIO and the FSOC. If an inquiry into the potential effects of climate change on the stability of the insurance industry is warranted, it should be undertaken at the state level by state insurance regulators, not the federal government. This EO is another example of opponents of state insurance regulation using the FIO as a means of asserting federal authority over the insurance industry.

PIA is continuing to encourage support in Congress for the repeal of the FIO by seeking cosponsors for the Federal Insurance Office Abolishment act and urging House members to introduce a companion bill.