State insurance overseers slam Paulson revamp plan

By Kevin Drawbaugh

WASHINGTON, March 31 (Reuters) - In a sign of the rough road ahead for a Bush administration proposal to overhaul financial regulation, state insurance authorities on Monday criticized the plan's call for a federal insurance regulator.

Calling the proposal "a solution in search of a problem," a group that represents state insurance commissioners warned Treasury Secretary Henry Paulson against trying to bring more federal power to a regulatory system now run by the states.

"State regulators are glad that someone at the federal level is finally paying attention to the financial crisis facing our nation," said Sandy Praeger, who is president of the National Association of Insurance Commissioners and the insurance commissioner of Kansas. "However, any change should not put the needs and convenience of Wall Street ahead of the cares and concerns of Main Street."

Amid a widening housing market crisis and recession fears, Paulson on Monday unveiled a package of proposals to overhaul how Washington polices commercial and investment banks and the financial markets. Several of Paulson's ideas have been kicking around Washington for years.

One is his proposal to create an optional federal charter for insurers, a long-standing goal of some of the largest competitors among the nation's more than 6,000 insurers.

States now regulate insurers, forcing companies with national scope to comply with more than 50 different rulebooks. These companies favor an optional federal charter, which would save them money and centralize their lobbying efforts. Under the Paulson plan, companies could continue answering to state authorities if they chose.

Supporters of an optional federal charter include Allstate Corp (ALL.N: Quote, Profile, Research) and others.

Asked about Paulson's backing of an optional federal charter, Senate Banking Committee Chairman Christopher Dodd on Monday said: "That's a matter we're already talking about up here."