The Point Logo

If You Can’t Beat ‘Em, Preempt ‘Em

Posted: Apr 17, 2024

On Wednesday, the House Financial Services Committee held a markup on 13 separate bills and resolutions related to various issues within the committee’s jurisdiction. At the top of the list is the “Insurance Data Protection Act,” which would curtail the authorities of two relatively obscure offices created by the Dodd-Frank Act in 2010.

Dodd-Frank created the Federal Insurance Office (FIO) and the Office of Financial Research (OFR) as part of an expansive new federal oversight and regulatory regime. These offices are charted to serve principally as advisory and monitoring agencies. The FIO generally serves as a federal monitor of the insurance industry, but also serves as the primary U.S. representative in international insurance regulatory fora. Nevertheless, the FIO is not an insurance regulator. Indeed, the agency is expressly barred in statute from acting as a regulator of the U.S. insurance market. The director of the FIO also serves as a nonvoting member of the Financial Stability Oversight Council (FSOC), the primary coordinator for federal financial regulation.

Similar to FIO, OFR is not chartered as a regulatory agency, but rather as a research and data collection body subordinated to the Department of the Treasury. OFR also provides research support to the FSOC. Both FIO and OFR have subpoena power but have generally not invoked it. 

Or at least such was the case until 2022, when FIO proposed compelling insurance carriers to report to the agency granular, zip-code level data relating to climate risks. In its proposed data collection, the agency notably cited its authority to collect data through subpoena. Dodd-Frank specifically requires FIO to publicly available data and to coordinate its data collection with state-level insurance regulators before collecting data directly from insurance carriers. Conveniently, FIO determined that the desired data was not otherwise available in a timely manner, and went ahead with proposing for directly extracting the data from carriers. 

This effort was championed by progressives, who have otherwise sought to undermine the state-based insurance regulation model that has been a mainstay of the U.S. insurance market for over a century. From its inception, insurance stakeholders have been concerned with the potential for overreach from the FIO, concerns that appear to be well founded. In 2017, FIO committed U.S. insurers to new capital requirements designed to mimic European standards, directly preempting state-level regulators

In 2024, FIO backed down from its data collection effort, after having faced opposition from insurance market participants, as well as the National Association of Insurance Commissioners, a standards-setting body composed of state insurance regulators. Despite this retreat, it’s clear that the FIO is increasingly willing to push the limits of its statutory authority, to the delight of progressives. 

That the House Financial Services Committee is moving legislation to strip the FIO and OFR of subpoena authority should be welcome news to any observer concerned with increasingly activist federal agencies.