Best's Review


Election Effects

A Biden administration might signal the return to a dual regulatory dynamic for insurers.
  • Howard Mills
  • January 2021
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Recent presidential elections have created a pendulum effect—dramatic reversals of policy and direction—with each new administration. So too has it been for regulation, particularly of the financial services industry since the financial crisis of 2008. President-elect Joe Biden's incoming administration seems certain to reverse the deregulation of the Trump administration, and the insurance industry may again find itself challenged by a dual regulatory system.

Through eight years of the Obama administration the federal government focused on strict oversight of the nation's financial system. The Dodd-Frank Act created agencies and offices, and the Obama administration filled these regulatory and oversight bodies with people who were energetic and muscular in their oversight. While our state-based insurance regulatory system was never supplanted by the feds, we did see a dual system develop for insurers large enough to be designated a Systemically Important Financial Institution (SIFI) by the Financial Stability Oversight Council (FSOC).

SIFI insurers retained their state regulators but now had an additional layer of federal oversight and the accompanying additional capital reserving requirements. At this time, the FSOC was very activist, and the expectation was that the SIFI designation was expanding. This impacted things like M&A activity, as a significant acquisition would invite scrutiny from the FSOC to determine if the new entity met SIFI standards. Likewise, insurers that had a bank holding company or a thrift were subject to the state-federal regulatory dynamic. The Federal Insurance Office was very active, particularly in the international arena, where it took seriously its charge under Dodd-Frank to be the international voice of the U.S. insurance regulatory system. This sometimes complicated efforts to present a unified front at the International Association of Insurance Supervisors.

For the past four years the dynamic changed dramatically. The FSOC stopped exploring new SIFI designations, then declassified existing ones. Today no insurers are so designated, and the FSOC has been quietly studying an activities-based approach to supervision. The Federal Insurance Office has been more in line with the “Team USA” approach of a strong NAIC-led international posture with the feds as partners. There was no concern about regulatory creep by the feds onto the turf of state regulators, who were recognized as the historic and proper regulators of the country's insurance industry—and largely left alone.

The regulatory environment is certain to experience a pendulum swing back. While a Biden administration may be constrained by a divided Congress, regulatory agencies wield enormous power given their ability to write and interpret rules and decide how strictly to enforce them. For example, the Treasury secretary could direct the FSOC to resume SIFI designations for insurers. The Federal Insurance Office could be directed to lead the way on issues such as international capital standards and the effects of climate change on the insurance industry. Biden's secretary of labor could revive the Department of Labor fiduciary rule, putting the feds back into the business of strict oversight requiring that best interests of the consumer be the only motivation behind the sale of financial products. The DOL fiduciary rule was set aside when the Trump administration came in, and the states, notably New York with its Regulation 187, picked up the baton on consumer best interests and suitability standards, with little interference or competition from the feds.

Proponents of stricter oversight say the time has come for the pendulum to swing back. How much change is coming is uncertain, but the likely result is an activist federal government seeking to rein in the Trump era deregulation of the financial system, and this will impact the insurance sector as well as banking. This may lead to friction with state regulators and a return to the dual regulatory dynamic, at least for large and global insurers.

Best’s Review columnist Howard Mills is a former New York state superintendent of insurance and an independent corporate director. He may be reached at

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