A new bill, HR 3682, would ensure state insurance commissioners remain involved in discussions about financial stability in the insurance sector and counteract a shift toward industry oversight by the US Federal Reserve.
A bipartisan bill advancing through Congress would protect the state-based insurance regulatory system from unnecessary federal oversight.
The bill, named the Financial Stability Oversight Council Improvement Act (HR 3682), would ensure state insurance commissioners stay involved in discussions about the insurance sector. These commissions are vital to a properly functioning insurance industry because they combine local accountability, technical expertise, and proven resilience while promoting innovation and consumer protection.
The bill was introduced by Rep. Bill Foster (D-IL) and Rep. Bill Huizenga (R-MI) and enjoys broad support among both parties.
In an era of heightened partisanship in our nation’s capital, it is encouraging to see bipartisan recognition of quality legislation. The following is what all federal legislators should consider and what the US insurance industry needs to know as this bill moves forward.
HR 3682 would require the Financial Stability Oversight Council (FSOC) to determine whether a potential systemic threat posed by an insurer or other non-bank financial firm to the nation’s financial system could first be mitigated through means other than supervision by the US Federal Reserve. Those alternative approaches could include a different action by the company's primary regulator or by the company itself.
This is not a de-regulatory measure; rather, it ensures the FSOC explores all options before defaulting to Federal Reserve oversight. Most importantly for insurers, it keeps existing, experienced state regulators in the conversation.
The House Financial Services Committee voted 47-4 in favor of the bill, with support from both Republican Chairman Rep. French Hill (R-AR) and the committee’s top Democrat, Rep. Maxine Waters (D-CA). The bill was co-sponsored by both of Missouri’s members of Congress on the committee, Republican Rep. Ann Wagner and Democrat Rep. Emanuel Cleaver.
Though well-intentioned, periodic actions by the federal government sometimes threaten to disrupt the state-based system that has functioned effectively for more than 150 years and, in so doing, to undermine the regulatory soundness of the insurance industry, leaving consumers vulnerable and stunting the ability of insurers to close the protection gap nationally.
Updated guidance from the previous administration’s FSOC is an example of one such action.
The guidance increased the likelihood that insurers and reinsurers would be designated for supervision by the Federal Reserve, supplanting the lead role of state agencies, due to perceived systemic risk.
The FSOC was enacted in the wake of the 2008-2009 economic crisis, which exposed gaps in regulatory coordination and system risk oversight. It was designed to prevent future crises by monitoring risks across the financial system and promoting market discipline. In essence, it sought to end any expectation of “too big to fail.”
The insurance industry has never had such expectations. In fact, it was precisely the decentralized state system that helped mitigate the damage to the insurance sector during the 2008 financial crisis, according to a follow-up report by the Government Accountability Office.
State regulators are closest to consumers, which enables a rapid response to evolving challenges and allows for nuanced oversight that federal agencies, which are bank-focused, cannot match.
This state system has been governing the US insurance market since the 19th century and was reinforced by the McCarran-Ferguson Act (1945), which declared state oversight to be in the public interest. The model’s most recent laws and accreditation standards, developed in the 1980s and 1990s by the National Association of Insurance Commissioners (NAIC), have harmonized solvency oversight and risk-based capital requirements across states, reducing insolvency risk without federal intervention.
The state-based system has enabled localized, tailored legislation that reflects diverse market conditions across states. If insurers were placed under the purview of the Federal Reserve, a one-size-fits-all approach would replace a locally driven, flexible system that has worked for more than a century.
While the state system is not without flaws, any large-scale oversight system will have areas in need of improvement. But an independent review of that state system shows those improvements are, indeed, being made without federal oversight.
The R Street Institute’s Insurance Regulation Report Card annually evaluates each state’s insurance regulatory system. The framework grades states based on:
The 2024 edition was the organization’s 11th annual report. It noted 20 states that improved their grades compared to previous years, signaling a state-based system that is becoming even more effective with time. Twenty-eight states received grades ranging from A+ to B. Even historically low-performing states such as Louisiana, Georgia, and Colorado have shown improvements due to reforms that streamlined rate approvals and enhanced resiliency programs.
This validates the central point behind HR 3682: Federal intervention is unnecessary when states are already achieving the desired outcomes.
The state-based insurance system demonstrably works. Created more than 150 years ago and updated to ensure it remains aligned with the public interest, this system leans on deep local expertise to tailor regulations that reflect the widespread diversity among our states. It has performed consistently well under stress to ensure solvency, consumer protection, and competitive markets.
Because of that, RGA strongly supports HR 3682 and encourages its clients to review the legislation to see how it provides a much-needed safeguard against what could prove to be a dangerous federal overreach.
RGA’s hope is that Congress will soon pass the bill and that it will be signed into law.
Contact us today to learn more about HR 3682 and how you can help promote its passage.
