FSOC Team Complete

The Financial Stability Oversight Council (FSOC) was created as part of the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (Dodd-Frank) and tasked with developing guidelines used to determine systemically important financial institutions (SIFIs), which will be subject to greater federal financial oversight. The FSOC may recommend to the Federal Reserve elevated financial standards and capital requirements for bank and nonbank financial institutions that potentially pose a “systemic risk” to the overall capital markets.

The FSOC consists of 15 members: 10 voting and five nonvoting. In addition to the Federal Insurance Office (FIO) director, there are two additional insurance representatives on FSOC: an independent voting member with insurance expertise and a nonvoting member who is a state insurance commissioner.

Just last month, the insurance members on FSOC were finalized and will be represented by Roy Woodall, John Huff, and Michael McRaith.

Roy Woodall was recently confirmed as the insurance expert with voting privileges on the FSOC. He is the former Kentucky insurance commissioner and was a U.S. Treasury Department official. Woodall has a long history of working on insurance policy issues at both the state and federal level.

John Huff is currently the director of the Missouri Department of Insurance, Financial Institutions and Professional Registration, and was selected by the National Association of Insurance Commissioners (NAIC) as their representative on the FSOC. Huff has a long and distinguished career in Missouri, nationally and abroad serving in insurance-related leadership positions.

Michael McRaith, former Illinois Insurance director, is the new director of the FIO. The FIO has no insurance regulatory oversight power but will act as an information gathering body. Housed in the U.S. Treasury and under the direction of McRaith, the FIO is also charged with updating the Treasury Secretary, the FSOC, Congress and the Administration on the status of national insurance issues. The office also assists the U.S. Trade Representative on the negotiation of certain international insurance agreements.

Along with many experts, the Big “I” continues to argue that insurance companies (especially property-casualty insurers) present very little systemic risk to financial markets. The Big “I” continues to play an active role in ensuring that the FIO does not exceed its limited mandate as established by the Dodd-Frank Act. The association also continues to advocate for the state-based regulatory system, which proved its strength and stability through the financial crisis.

In the aftermath of Dodd-Frank, the U.S. Treasury also created a Federal Advisory Committee on Insurance (FACI) to advise both the FIO and the Treasury. Specifically, the FACI is charged with providing advice, recommendations and analysis to the FIO on issues related to its responsibilities.

Up to 15 members are selected by the Treasury to serve on the FACI. Half of the committee seats are reserved for state insurance regulators. The remaining members represent a diverse range of insurance perspectives including: the property and casualty insurance industry, the life insurance industry, the reinsurance industry, the agent and broker community, consumer advocates, academia and other experts in the insurance field.

—M.T.

In October, the Obama administration ended efforts to implement the CLASS Act, a government-run, voluntary, long-term care insurance program that was included in the Patient Protection and Affordable Care Act (PPACA). The program was deemed unsustainable from the outset by many experts, including President Barack Obama’s own National Commission on Fiscal Responsibility and Reform.

The Big “I” fought against this ill-advised provision in the PPACA and felt that the program was an obtrusive government intervention that would displace the private marketplace, result in consumer confusion over needed coverage and ultimately result in an unnecessary drain on taxpayers. Since the PPACA was signed into law, the long-term solvency of the program has been called into question. It was charged to be funded solely by premiums collected, but its design made that impossible as it would have become a study in adverse selection. If the program benefits were designed to the specifications of the law, premiums would be so high that it would attract virtually no healthy workers. This failure to spread risk would eventually necessitate significant taxpayer funding of the program. The cost estimates for the program were also suspect, and although the program was scored as reducing the deficit by the Congressional Budget Office, that score was solely a result of a provision in the law requiring the government to collect premiums for several years before any benefits were to be delivered. HHS had until Oct. 1, 2012, to define the benefits of the program and resolve all of the serious issues that had come to light regarding the structure. After many months of studying the issue, HHS finally decided the program was completely unworkable.

The move by the administration to pull the plug marked the end of a rocky road for the CLASS Act. Although this was a big win for opponents of the PPACA, this piece of the law was a stand-alone program and its downfall will likely not affect implementation of the broader law.

—M.T.