The chairman of an influential House subcommittee said the federal government, not the states, should have the primary responsibility for overseeing the insurance industry.

Representative Paul Kanjorksi, a Pennsylvania Democrat, said the need for mandatory federal regulation is illustrated by the current economic crisis and the $182.5 billion taxpayer bailout of American International Group Inc.

"We can no longer ask the question about whether the federal government should oversee insurance. The answer here is clearly yes," he said at a hearing yesterday of a House Financial Services subcommittee that helps oversee the insurance industry.

His words will be welcomed by Bermuda insurance companies which have long questioned the wisdom of having 50 sets of rules - one set for each state - within one country.

In a CEO panel at the Risk and Insurance Management Society's annual conference in New Orleans two years ago, Ace Ltd. boss Evan Greenberg described the system as "nuts".

Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), said yesterday the bigger issue was the quality of insurance regulation in the US.

And he suggested that US regulators could learn a lot from the way that the Bermuda Monetary Authority regulates the industry on the Island.

"Bermuda does regulation right - focus on solvency, regulate to international standards, and allow capital to organise swiftly to meet market needs," Mr. Kading said. "The US historically has failed each of these tests.

"The key issue for US policymakers is not so much state versus federal regulation, but getting insurance regulation focused on solvency matters and to make the system efficient with either federal regulation or state-administered national standards."

The administration of former President George W. Bush last year proposed legislation authorising optional federal oversight of insurers to complement the 135-year-old system of state regulation.

Yesterday, Rep. Kanjorski said insurance activities must be addressed by Congress as part of a broader overhaul of financial regulations, including monitoring risks and how federal regulators could step in to prevent the failure of financial institutions beyond banks.

"Insurance is complex and it is time for the federal government to appreciate its importance," he said.

Republicans on the panel warned against a rush to regulation that may have unintended consequences. Rep. Scott Garrett of New Jersey said Congress risks creating a complicated multi-layered bureaucracy of state and federal agencies.

"Federal regulation is not exactly a panacea," Jeb Hensarling of Texas said, citing the government's failure to prevent the government seizures of mortgage-finance companies Fannie Mae and Freddie Mac.