Has anyone in the insurance industry ever heard about a conflict of interest? Does anyone remember 2008 and 2009?

The recent dust-up between federal officials and state insurance regulators over use of captive insurance companies by insurers to reinsure perceived excess reserves has exposed the anachronism inherent in state insurance regulation.

In recent appearances, state and federal officials and interested parties have debated a variety of contentious issues, including agent licensing, enhanced capital reserves for large financial institutions, the use of balance sheet captives by insurers to reinsure long-tail guarantees on annuities, flood insurance, terrorism risk insurance, capital standards.

At a hearing on efforts to streamline agency licensing, for example, a rigidly objective Congressional Research Service official said one-stop licensing instead of the current state-by-state system would certainly enhance competition.

But, he added, “that there are insurance legislators out there in the country that do not trust the federal government that much.”

Their concern, he said, was that it would turn out to be like the 1987 legislation that pre-empted risk retention groups from state regulation, and, therefore, robbed the states of revenues.

Similar concerns were raised about the captive issue. Ben Nelson, NAIC CEO, recently warned the Federal Insurance Office (FIO) to “stay in their own lane,” and not get involved in statutory accounting principle issues, the turf of state regulators.

He was talking about creation by a FIO unit of a group to monitor the use of captives to reinsure long-tail liabilities. Tom Leonardi, Connecticut insurance commissioner, raised the same concerns.

What Leonardi did not mention is that Connecticut is now chartering and overseeing captive insurers, joining a number of states, including Montana, Vermont and Washington, D.C. in seeking this business.

In another appearance, Monica J. Lindeen, Montana’s securities and insurance commissioner and an NAIC vice president, acknowledged that states are “cash-strapped.”

In creating the task force to monitor the use of captives in reinsuring reserves, Michael McRaith, director of the FIO said, “Let’s be honest—for some states—It’s an economic development tool.”

Indeed, state regulation is an economic tool. Insurance companies are charged hidden taxes, users of insurance company financial reports must pay fees that finance the NAIC to see them, and agents pay annual fees to be licensed in each state for each line of insurance they sell.

Agents also pay fees for biannual reeducation courses, and companies must also pay to have outsiders conduct routine financial inspections.

And, talking about state legislators “not trusting the federal government very much,” the issue of the recent loan to the National Flood Insurance Program must be raised.

The program’s borrowing authority was raised by 50 percent to finance the payment of claims for hurricane Sandy, and the money is mostly depleted, raising fears amongst some state officials that another major event will create the need for additional loans—loans according to federal officials the program is unlikely to ever be able to pay.

 McRaith’s office was specifically created in the wake of the need for the federal government to expend huge sums to bail out AIG—even though federal officials were barred at the time from overseeing insurance holding companies.

And, those state officials “who don’t trust the federal government” were not around when those federal officials overseeing the AIG bailout were grilled by members of Congress about what was going on at the company, including the payment of huge bonuses to those who worked at the unit that caused such large losses at the company, subsidiaries fully within the purview of state officials—but not federal ones—to examine.

“You should resign!” and “I have no confidence in you!” various Texas members of Congress railed at Treasury secretary Timothy Geithner, who oversaw the AIG bailout as both president of the New York Federal Reserve and secretary of the Treasury.

Sorry, but as a veteran reporter, I always remember the sign that greeted those who visited the offices of the House Energy and Commerce Committee when Rep. John “Mean John” Dingell, D-Mich., was running the show. It quoted George Santayana: Those who cannot remember the past are condemned to repeat it.