You are here:HomeIssuesProtecting State Insurance Regulation 2017A Contradiction Within the CHOICE Act

A Contradiction Within the CHOICE Act

When does legislation that is supposed to scale back onerous federal regulation actually end up strengthening it? When it contains a provision that has the potential of creating a federal insurance czar...
May 2, 2017
By Jon Gentile
Vice President, Government Relations
National Association of Professional Insurance Agents


When does legislation that is supposed to scale back onerous federal regulation actually end up strengthening it? When it contains a provision that has the potential of creating a federal insurance czar.

The Financial CHOICE Act is designed to reform Dodd-Frank and get rid of the many restrictions it places on the ability of our financial system to function in a manner that will grow our economy. In most respects, it does an excellent job of this. But inexplicably, the CHOICE Act contains a provision that could increase, rather than reduce, federal encroachment on insurance.

The provision in question merges the Federal Insurance Office (FIO) with the independent member with insurance expertise on the Financial Stability Oversight Council (FSOC), to create the Office of Independent Insurance Advocate. This provision runs completely counter to the intent of CHOICE reform by creating a new, expansive, and equally unnecessary structure with the potential to grow quickly into a full-fledged federal insurance bureaucracy.

Reading the draft of the CHOICE Act, we cannot help but be struck by how powerful the Office of the Independent Insurance Advocate would be. The director of the new office would be a Senate-confirmed presidential appointee with a six-year term. The new office would have its own budget and would be able to hire its own employees, including attorneys, analysts, and economists.

Perhaps most significantly, although the new position would be housed in the Treasury Department, the Secretary of the Treasury would be prohibited by statute from taking any action to “delay or prevent the issuance of any rule or the promulgation of any regulation by the Independent Insurance Advocate” or from intervening “in any manner.”

The FIO is one of the creations of Dodd-Frank that was not needed in the first place and is still not needed. Its involvement in the insurance industry over the past seven years has been confined mainly to attempts to expand its own influence. It has busied itself attempting to devise ways to extend its reach and exceed its limited congressional mandate—behavior typical of many federal agencies that are, in fact, superfluous.

Our nation’s vibrant insurance industry is the envy of the world. For more than 150 years, the insurance sector has been regulated successfully by the states. During the financial crisis of 2007-09, when banks and investment firms were collapsing, the insurance sector weathered the crisis. Insurance companies survived because they are regulated prudently and conservatively by the states.

A 2013 report by the Government Accountability Office (GAO) found that the state insurance regulatory system worked well to help mitigate the negative effects of the financial crisis on the insurance industry, noting that state insurance regulators took various actions to identify and lower potential risks, and help provide capital relief for insurers.

Over the years, repeated attempts have been made to transfer regulatory authority over the business of insurance from the states to the federal government. These efforts, all of which have failed, have been spearheaded by those few who would stand to gain financially from such a change: a handful of major international financial services firms that regard insurance as merely another global banking product. Fortunately, Congress has always appreciated the fact that all insurance is local, and that banking and insurance are inherently and fundamentally dissimilar.

CHOICE is supposed to rein in an unneeded federal bureaucracy, not create a new one with even more power over the private sector. If one were to draft a proposal to extend the reach of the federal government over the insurance industry, this provision of the CHOICE Act would fit the bill. Fortunately, there is still time for lawmakers who believe in reducing, rather than greatly increasing, federal regulation to consign both the existing Federal Insurance Office and the prospective Office of Independent Insurance Advocate to the nearest trash can.


Jon Gentile is vice president of government relations for the National Association of Professional Insurance Agents, based in Alexandria, Va.