FIO seeks Advisory Comittee recommendations by March

A Washington regulatory affairs lawyer in attendance suggested the modernization report might come out in December, but the more interesting question is not the timing, but what is in the report and whether it includes a vision of an increased or clarified federal role for the FIO, which serves U.S. interests domestically and abroad.  Some of that role has been muddied, perhaps by virtue of the way the FIO statute is written in Dodd-Frank, in recent discussions abroad concerning measures like ComFrame's proposals on group supervision and any form of capital requirements.

Also, before the next FACI meeting, if things are as on schedule as stated, the Financial Stability Board will be getting recommendations from the IAIS for the identification of Global Systemically Important Insurers (G-SIIs) by the end of the first quarter 2013. McRaith, a key IAIS policy player now, said during the FACI meeting that the FIO is advocating that they adopt a process like the U.S. process for identifying systemically risky insurers.

McRaith told the group he would participate on the next subcommittee conference calls – formerly he had posed questions and the groups had had discussions that pondered more than pointed, according to some members.

For example, consumer advocate Birny Birnbaum, Center for Economic Justice, pointed out that Superstorm Sandy is yet another indication that the U.S. is lacking a national policy on catastrophe insurance and loss mitigation and those problems will be made manifest in the coming weeks and months as claims come in. He discussed privatizing flood insurance and not having people have to figure out if destruction to ravaged homes was done by the wind or someting else after a big storm—it should all be in the homeowner's policy, he figures. However, this did not come in the form of a recommendation from the subcommittee.

McRaith is looking for substantive recommendations and advice like this, for example, whether he develops it further or not.

Birnbaum, on the accessibility and affordability subcommittee chaired by Washington, D.C., Insurance, Securities and Banking Commissioner William White, wants to advise the FIO on such a comprehensive federal policy in dealing with catastrophes even as a presentation from a FEMA official made it clear the agency was running out of money to pay claims and would not be able to meet all claims without some intervention.

Ed Connor, FEMA's Deputy Associate Administrator for Insurance, noted the National Flood Insurance Program has $2.9 billion left on its borrowing authority, with $840 million cash on hand; it expects to need an increase in borrowing authority very soon.

While some said that New York insurance regulator Rob Easton, standing in for Department of Financial Services (DFS) Superintendent Ben Lawsky, who is devoting his time to Superstorm Sandy issues in stricken areas of the state, had the most substantive of the three subcommittee reports in his discussion of ComFrame, group supervision and U.S. versus European-imposed and/or bank-centric capital standards, and was cheered by fellow state regulators although none of them really did anything more than share opinions and thoughts, however thoughtful or superficial, on issues, one lawyer stated.  

"There was no consensus reached and no advice given to McRaith/the FIO. My sense was that McRaith was looking for more … He wants to avoid 'sloganeering' in favor of substance," one industry representative and observer noted.

Expect that to change and for the FIO to interpret what is in the best interests of the United States as it sees it when it takes the recommendations.