WASHINGTON–Rep. Paul Kanjorski says the federal government should have a role in regulating insurance.

“I will act quickly, yet deliberatively, in developing a new game plan to involve the federal government in direct oversight of the insurance industry,” Kanjorski, D-Pa., chairman of the House Financial Services Committee capital markets subcommittee, said today at a subcommittee hearing with the title “How Should the Federal Government Oversee Insurance?”

Kanjorski said Congress should start by establishing a legislative regime for monitoring the systemic risks posed by failures of non-bank financial institutions.

“The events of the last year have demonstrated that insurance is an important part of our financial markets,” Kanjorski said. “AIG taught us that the business of insurance has become complex and no longer fits nicely in the state regulatory box.”

Because so many insurance products are either of national importance or uniform in nature, the federal government “should have a role in regulating the industry,” Kanjorski said. “As such, we now must ask how the federal government should oversee insurance going forward.”

The reaction of other subcommittee members was mixed.

Rep. Jackie Speier, D-Calif., the newest member of the committee and a strong advocate for California’s proposition-mandated insurance consumer protection laws, said she opposes federal regulation of insurance.

She called proposals for federal regulation “seriously misplaced and misguided.” She also argued that AIG’s failure was due to its investments in derivatives, which she said was regulated by the federal Office of Thrift Supervision.

OTS “was largely asleep at the switch,” Speier said.

Rep. Brad Sherman, another California Democrat, voiced support for Rep. Kanjorski.

“I dream of the days when consumers complained of being denied insurance products on a timely basis” because of state regulations, Sherman said. “Today those problems seem quaint.”

Also at the hearing, J. Robert Hunter, a consumer advocate and former insurance commissioner, testified that the federal government should take over regulation of insurance company solvency, and that Congress should repeal the McCarran-Ferguson Act.

Hunter, director of insurance at the Consumer Federation of America, Washington, said Congress should give the Federal Trade Commission a role in studying insurance and in helping states identify consumer protection issues with national ramifications, but he said states should continue to oversee consumer protection matters, including rate and form regulation.

Hunter said he is opposed to “optional federal charter” proposals that would permit insurers to choose between the traditional state regulation system and a new federal insurance regulatory system.

“Such a system cannot control systemic risk, has failed miserably in protecting banking consumers, and sets up pressures that can only lead to reduced consumer protections through regulatory arbitrage,” Hunter said.

Hunter does support creating a federal insurance office.

A federal insurance office should “be a repository of insurance expertise, data collection and analysis” and “authority to engage in international insurance issues,” and it should “help Congress and the administration sort through the tremendous complexities of this industry,” Hunter said.

The “office should not be granted vague and open-ended powers of preemption regarding state consumer protection laws or rules in areas that Congress has chosen not to explicitly preempt,” Hunter said.

Patricia Guinn, a managing director in the New York office of Towers Perrin Forster & Crosby Inc., said any federal regulatory scheme for insurers should address the weaknesses exposed by the problems at American International Group Inc., New York.

Federal regulation should mandate capital requirements for the entire company and should include enterprise stress testing, Guinn said.

The govrnment also should create a resolution authority that can handle conglomerates, “in coordination with state authorities,” Guinn said.

Guinn objected to the idea of creating a regulatory system for insurers that would be similar to the current bank regulatory system.

“Simply extending a regulatory regimen designed for banks would not work well for insurers,” Guinn testified. “The insurance industry has many distinctive features and market practices. The federal government should build a knowledge base about the insurance industry by collecting information and by leveraging the collective knowledge and expertise of state regulators and industry associations.”