WASHINGTON (Bloomberg) — The chairman of the House panel that oversees insurers said he will introduce legislation to create a federal regulator for the industry for the first time in more than 135 years.

The plan by Representative Paul Kanjorski, a Pennsylvania Democrat, falls short of a full-fledged federal insurance charter backed by some reformers. It closely follows part of US Treasury Secretary Henry Paulson's proposal to create a federal office to oversee international issues and advise the Treasury Department on insurance policy.

"The status quo for insurance regulation no longer works," Kanjorski said. "We must move quickly, but we must also be smart about it." The proposal for optional federal insurance oversight, which has been around for almost two decades, gathered new momentum when Paulson included the idea in an overhaul to US financial regulation unveiled last month. Kanjorski's Subcommittee on Capital Markets and Insurance asked regulators, insurers and brokers today for their take on how to reform regulation.

Insurance companies clashed with their regulators about the implications of adopting the full range of Treasury proposals, which would switch much of the industry's oversight from states to the federal government.

Insurance executives said in prepared remarks today that allowing insurers to set their own prices under federal supervision would free companies from unnecessary regulation. State insurance departments, the primary watchdogs of the industry for the past 13 decades, are opposed to the idea.

"The states have put in place sweeping and stifling regulatory regimes," Alastair Shore, the chief underwriter for CUNA Mutual Group, said in written remarks. As a result, he said, regulators are "unduly focused on government intrusion in the market." Shore spoke on behalf of two trade groups, the American Insurance Association and the American Council of Life Insurers.

Both the House and Senate are considering legislation that mirrors Paulson's so-called optional federal charter, a step further than Kanjorki's proposal. Under those bills, insurers would set their own prices under federal supervision, rather than negotiate with each state's regulators. Some companies say the market would force them to charge competitive prices, while opponents warn that industry oversight will be compromised.