State insurance commissioners are objecting to a Bush administration proposal to give insurers and producers the option to choose to be regulated by a federal agency.

The U.S. Treasury Department’s included the proposal in its new Blueprint for Financial Regulatory Reform.

Sandy Praeger, president of the National Association of Insurance Commissioners, Kansas City, Mo., and Kansas commissioner, appeared on a televised debate on CNBC that also included Marc Racicot, president of the American Insurance Association, Washington, a former Montana governor.

Commissioners watched the debate here during a session at their annual meeting.

Susan Voss, the Iowa commissioner, said after watching the CNBC segment that she has sent a letter to all 150 Iowa state legislators about the blueprint report and the “optional federal charter” issue.

The blueprint is a “stepping stone” for discussions about state insurance regulation, Voss said.

But “nobody is talking about the consumer,” Voss said.

Voss asked whether consumers with a problem would rather call an in-state number of 1-800-Washington, D.C.

If constituents call state legislators for help with insurance concerns, the legislators will have to tell them, “Talk to your congressman,” Voss said.

Joel Ario, Pennsylvania insurance commissioner, said the recent financial services regulations problems have been the result of problems with federal regulation, not state regulation.

“To drag the state system into the federal system makes no sense,” Ario said.

Mary Jo Hudson, Ohio insurance director, called the blueprint report “a red herring to hide the failings of the federal system.”

Establishing a second insurance regulatory system “will result in a race to the bottom,” Hudson predicted.

Meanwhile, NAIC and state initiatives in areas such as speed to market reform, insurance solvency issues and the creation of the Interstate Insurance Product Regulation Commission show that state regulation is working, Hudson said.

Sean Dilweg, Wisconsin commissioner, referred directly to an issue on everyone’s minds: The problems in the U.S. mortgage market.

The problems in the mortgage market are the result of problems with banks, Dilweg said.

“I don’t see where the federal government stepped in to deal with the problem,” Dilweg said.

The weakness of federal regulation of Medicare Advantage programs by the Centers for Medicare and Medicaid is just one example of the idea that state regulation can be more effective than federal regulation, Dilweg said.

Mila Kofman, the new Maine insurance superintendent, said she needs more time to review the blueprint insurance provisions and the likely effects of the provisions on specific business lines.

But “any effort to federalize the regulation of insurance at the expense of existing state-based oversight and consumer protections is bad public policy,” Kofman said.

Kevin Lembo, an individual who gets financial support from the NAIC to represent consumers in NAIC proceedings, said he likes some aspects of the blueprint report.

“One element of the report that makes no sense at all, however, is the creation of an optional federal regulator for insurance companies,” Lembo said.

“This industry-driven call for an optional federal charter moves regulation and intervention further away from consumers, leaving them with only an 800 number to protect them from abuses in the insurance market,” Lembo said. “The only one to benefit from such a move is the insurance industry.”

Today, Lembo said, consumers can vote against weak insurance commissioners, or vote against the governors who appoint those commissioners.

“Once insurance in lost in the Washington abyss, who will we hold accountable?” Lembo asked.