The U.S. Federal Insurance Office (FIO) should study how much funding state insurance departments receive from their legislatures and recommend appropriate levels, a bipartisan policy group said in a report on Wednesday.
State insurance departments collect significant revenues from insurers through regulatory fees and insurance premium taxes, but most of the funds are "channeled to state programs rather than to insurance regulation," according to the Washington-based Bipartisan Policy Center report.
The FIO should grade states on how well they are achieving recommended funding levels and report findings to Congress, which would have to authorize such a study.
The recommendations come as many states grapple with tight budgets that leave insurance regulators short on funds. At the same time, insurers are operating increasingly complex, global businesses. Those changes, among others, are triggering mounting questions about the U.S. government's role in insurance regulation, an industry long overseen by states.
Cost-savings measures have forced many states to rely on outside contractors to perform routine examinations of insurers, an issue the FIO should also study, according to the report.
State insurance regulators have long been allowed to hire outside consultants for dealing with occasional "technical issues" for which they lack expertise to analyze.
"However, these provisions were never designed to enable departments to cut back on expenses associated with core regulatory competencies," the group said.
The FIO, a U.S. Department of Treasury arm, was created by the 2010 Dodd Frank financial reform law to monitor insurance markets and inform Congress of developments. The FIO also represents the U.S. in a group of international regulators and is allowed to enter into certain international regulatory agreements.
"There are some significant issues with the findings and recommendations," said Peter L. Hartt, director of New Jersey's Insurance Division, during a Bipartisan Policy Center event in Washington on Wednesday.
"I wonder whether a line is being crossed," said Hartt, who also represents state insurance commissioners on the Financial Stability Oversight Council, a federal body that determines how large insurance companies are regulated. The recommendations suggest that states become "instruments of the federal government, which isn't our system," Hartt said.
What's more, operations of insurance regulators in a "large majority of states" are self-funded through mechanisms such as fees and fines, said Hartt.
Other recommendations in the report include providing tools to consumers that can help them to compare claims payment histories among insurers and to modernize data collection by states.
(Reporting by Suzanne Barlyn; Editing by Chizu Nomiyama)