A key lawmaker says he is about to start the process of establishing a federal insurance regulatory agency.

Rep. Paul Kanjorski, D-Pa.., chairman of the House Financial Service Committee’s Capital Markets Subcommittee, said today at a subcommittee hearing on insurance regulation that he will introduce a bill Thursday that will seek to create an interim federal insurance oversight agency, the Office of Insurance Information, within the U.S. Treasury Department.

Treasury officials have called for the creation of an interim agency in their financial services reform blueprint report, which was released March 31.

The interim office could focus on gathering information about the insurance industry and coordinating with state regulators on issues such as reinsurance collateral, Treasury officials suggest in the blueprint.

The interim federal regulator also would advise the Treasury secretary on domestic and international policy issues, officials write.

David Nason, an assistant secretary at the Treasury Department, said he is delighted to hear about the Kanjorski OII bill and looks forward to working with him on that piece of legislation.

Earlier, at the Capital Markets Subcommittee hearing, Nason endorsed the idea of giving insurers and producers the option of choosing to be regulated by state regulators or by a new federal insurance regulatory agency.

The National Insurance Act of 2007 bills, H.R. 3200 in the House and S. 40 in the Senate, “contain many of the core concepts surrounding the establishment of an OFC structure,” Nason said at the hearing. “We look forward to evaluating further the specific provisions of these bills…. The establishment of a dual federal/state system with an OFC provides the best opportunity for the establishment of a modern and comprehensive system of insurance regulation.”

New York Insurance Superintendent Eric Dinallo, who appeared at the hearing for the National Association of Insurance Commissioners, Kansas City, Mo., defended the current state-based regulatory system.

“The current system is not perfect,” Dinallo said. “We are equally mindful of the need for further changes in the law and the need to standardize.”

But “insurance regulators have been improving their skills and policies, and enhancing resources over the past several years,” Dinallo said.

Moreover, “states have the expertise and proximity to consumers necessary to form a standardized body of oversight without sacrificing consumer protections,” Dinallo said. “Local markets demand local regulation, despite the globalizing economy…. So it is essential that if it is necessary to create or empower a regulatory entity to develop and implement reforms or uniform standards, that entity must be controlled by state regulators.”

Alastair Shore, chief underwriter at CUNA Mutual Group, Madison, Wis., appeared at the hearing to support the OFC concept and the National Insurance Act bills for both the American Council of Life Insurers, Washington, and the American Insurance Association, Washington.

Consumers would be the “major beneficiaries of an OFC system of insurance regulation, enjoying strong, national consumer protection standards and a more competitive and efficient marketplace,” Shore said.

The Treasury Department’s blueprint report “notes that the disjointed state insurance regulatory system imposes increased cost and efficiency burdens on insurers and consumers alike,” Shore said.