Academic journal article Texas Law Review

The Federal Deregulation of Insurance

Academic journal article Texas Law Review

The Federal Deregulation of Insurance

Article excerpt

Deregulation has been prioritized by the Trump Administration from the very beginning. It was touted in some of the first executive orders issued by the President, less than two weeks after his inauguration. 1 It began to be realized by Congress's unprecedented use of the Congressional Review Act (CRA) to rescind signature rules promulgated in the last year of the Obama Administration, beginning with seven House votes in the first week of February 2017.2

The pursuit of deregulation has continued with a string of presidential appointees signaling their intentions to cut rules and reduce enforcement.3 The head of the Consumer Financial Protection Bureau has vowed to stop "pushing the envelope" when it comes to enforcement and has reassigned enforcement resources to education and advocacy roles, and he is not alone in making these sorts of choices.4 The Treasury Department has issued a series of white papers designed to reduce regulatory burdens; these white papers are becoming a customary way to set forth a deregulatory roadmap for agencies and departments.5

Perhaps the most dramatic example of deregulation has been the effort to abandon the federal role in the supervision of insurance companies. That oversight, less than a decade old and cautious even during the zenith of the Obama Administration, has become the subject of deregulatory attentions from all three branches of government. The goal, at least domestically, has not been to reduce the burdens of federal regulations of the industry but to eliminate them entirely.6 Despite these ambitions, the retreat of federal oversight of the insurance industry during the Trump Administration has been comprehensive but not entire.

The experience so far of federal deregulation of insurance offers two different insights. The first concerns the right way to do deregulation domestically, for federal insurance regulation has been challenged by all parts of the government. The insurance experience suggests it is better done by agencies than by courts or Congress. The second serves as a reminder of the increasing importance of international relations in domestic regulation. It is only the fact that the United States has committed itself to obligations to the European Union that has ensured that the federal regulatory role in insurance will remain at least somewhat relevant during the Trump Administration. In many ways, the two tools the federal government has to regulate insurance-the domestic one made dormant and the international one still important-are quite different. Papers could be written about either; this Essay considers both because the changing federal role in insurance is important in its own right. Federal insurance supervision can also serve as an example of how to do domestic deregulation and the consequences of regulatory globalization.

Although states have traditionally had the exclusive power to regulate insurance, the federal government was given a role in 2010 through legislation responding to the financial crisis, which the collapse of the insurance giant AIG had exacerbated.7 The federal government received the power to designate some insurance firms as "systemically important financial institutions" (SIFIs).8 It then designated the three largest American insurance firms, and in so doing began to roll out a message to the industry about what sort of prudence it expected, as well as what kind of size would amount to systemic significance. In addition, a newly created Federal Insurance Office (FIO) was given the power to represent the United States before international organizations of insurance and financial regulators, centralizing in the federal government an international role that had previously been left to the insurance commission of the states and federal territories.9

SIFI designation has been attacked by all three branches of government, beginning in 2016. However, the federal role in insurance regulation will remain relevant as long as the Administration lives up to the so-called "covered agreement" concluded with European insurance regulators in the waning days of the Obama Administration and signed by the Secretary of the Treasury on September 22, 2017. …

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