Federal Insurance Office (FIO)

The Honorable Jacob J. “Jack” Lew
Secretary of the Treasury
U.S. Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220

Dear Secretary Lew:

Governors believe that states must maintain their long-standing authority as the functional regulators of the business of insurance.

The Treasury’s Federal Insurance Office (FIO) last December released its report on how to modernize and improve the U.S. insurance regulation system.  Governors are concerned by the FIO report’s suggestion of a greater federal role that could invite a dual regulatory system.  It is our position that federal laws and regulations must not preempt or undermine the strong state-based insurance regulatory system that for more than 140 years has protected consumers and safeguarded the capital adequacy and solvency of insurers.

Our state-based regulatory system is world-class.  States have developed deep regulatory expertise over the business of insurance, and state regulation subjects insurance companies that operate domestically to stringent solvency and capital requirements, limits on the nature and extent of investments, and quarterly analyses and periodic examinations. Moreover, states have sought to improve speed to market for insurance products.  Existing state consumer protection, antitrust, and unfair trade practice laws also provide necessary tools to help protect consumers and prevent anti-competitive conduct within the business of insurance.

Unfortunately, there are some who argue that state regulation of financial services, and insurance in particular, chills competition, creates a drag on this sector, and hampers the overall economy.  These arguments do not stand up to the facts.  The insurance sector, including its regulation, is a significant generator of high-skilled, well-paying jobs in the states.  In 2012, state insurance departments employed 11,532 professionals who fielded 2.3 million consumer inquiries and handled 271,000 consumer complaints.   In 2012, seven million individuals and entities were licensed to provide insurance services in the United States.  Those professionals were responsible for helping generate more than $1.8 trillion in premium volume resulting in $19.5 billion in state revenues.

In addition, despite recent years of economic headwinds, the business of insurance remained profitable and competitive in a functional regulatory environment, non-domestic firms continued to enter the U.S. market, and we saw the expansion of innovative products and services.  The U.S. insurance sector is a leader in global markets accounting for 34 percent of worldwide market share.  More impressive, there are 24 U.S. states that rank among the world’s top 50 insurance producing jurisdictions.

Recent global economic conditions and systemic risk concerns have elevated international attention to financial services regulation and the proposed convergence of solvency and market protection standards.  The Financial Stability Board, a G-20 advisory body established to help develop regulatory, supervisory, and other financial sector policies and standards, includes U.S. representation from the Federal Reserve, Treasury and the Securities and Exchange Commission.  Governors recommend that the United States seek to expand its FSB participation to include state insurance regulatory expertise because it has helped establish the U.S. insurance sector as a global markets leader.

For generations, states have protected consumers of insurance products.  We know that insurance is a special product that is essential to protecting not just the U.S. economy, but also the most-cherished personal effects of individual consumers. Insurance is part of the social fabric and financial safety net that enables citizens, small businesses, and global corporations to move forward each day with confidence.

We recognize the possibility for federal intervention should states fail to act collectively on issues of legitimate concern, but preemption of state regulatory authority must be the exception rather than the rule.  Governors stand ready to protect state-based insurance regulation. The diversity of consumers, financial services products and institutions, investors, and local market conditions are currently addressed by state regulators with a proven track record.


Governor Robert Bentley
Chair, Economic Development and Commerce Committee

Governor Earl Ray Tomblin
Vice Chair, Economic Development and Commerce Committee