WASHINGTON–A Treasury Department official said the agency istaking an increased interest in insurance matters, but has yet todetermine what steps should be taken to bring regulation of theU.S. market more in line with the rest of the world.

The comments came from David G. Nason, Treasury deputy assistantsecretary of financial institutions policy, speaking at a legalseminar in Baltimore, Md., held by the National Organization ofLife and Health Insurance Guaranty Associations.

“Treasury is spending more time studying insurance regulationand the insurance marketplace than it has in the past,” hesaid.

“Some of this is required–Congress gave us the responsibility toimplement and manage the Terrorism Risk Insurance Program–and someof it is simply because we at Treasury recognize that insuranceplays a critical and growing role in our financial marketplace,”added Mr. Nason.

He explained that Treasury is still looking at how the varyingregulatory reform proposals would affect the U.S. insurance marketand its relationships with foreign-based carriers.

Mr. Nason noted that, like much of the industry and regulatorycommunity, the Treasury does realize some action needs to betaken.

“The regulatory system for the insurance industry should beconsistent with the efficient and cost-effective provision of itsservices, and there appears to be virtually no disagreement thatthe current insurance regulatory system needs to be modernized,” hesaid.

“While Treasury has not made a decision as to which approachwould be most appropriate, everyone seems to agree that a thoroughreview is in order. We are in the process of that evaluationnow.”

Mr. Nason said there are two main areas the Treasury is focusingon. First, he noted the potential economic inefficiencies in U.S.insurance regulation, resulting from either the varying stateregulatory regimes or the substances of their regulations, such asprice controls.

Secondly, he said, the Treasury is examining the internationalaspects of the issue, seeking to ease operations for internationalfirms operating in the U.S. and for U.S. firms operating elsewherearound the globe.

“At the most fundamental level,” he said, “the question posed ineach of these areas is whether our current state-based system ofinsurance regulation is up to the task of meeting the challenges oftoday's evolving and increasingly global insurance market.”

In terms of regulatory inefficiencies, Mr. Nason pointed to thepotential negative consequences of price controls, which heexplained can reduce competition and availability as insurersdecide they cannot price their coverage adequately, ultimatelyleading to an overreliance on state-run insurers of lastresort.

On the international level, Mr. Nason said that foreigncompanies face significant hurdles in trying to cooperate with over50 different regulatory regimes, and that the issue has been raisedin trade talks.

Mr. Nason also noted the efforts of the National Association ofInsurance Commissioners to resolve problems with the insuranceregulatory system on an ongoing basis.

“We must acknowledge some of the good work the NAIC is doing toattempt to address these issues,” he said.

“The NAIC engages in regulatory cooperation with internationalinsurance regulators and through memoranda of understanding, andsupports individual members by providing technical assistance toregulatory agencies.

“The NAIC also coordinates closely with the Office of the U.S.Trade Representative in international financial servicesnegotiations, and it participates in Treasury's financial marketsregulatory dialogues with various countries, including China, Japanand the EU,” he said.

While Treasury has not made a decision to endorse either theoptional federal charter approach or the federal guidelines forstates approach, outlined in the State Modernization and RegulatoryTransparency Act bill in the House, Mr. Nason said the departmentdoes recognize that changes need to be made to the regulatorysystem.

“It is clear to us, and we think it is to most observers, thatour current system of insurance regulation requires modernizationto meet our current challenges,” he said. “The existing system ofregulation has the potential to lead to inefficient economicoutcomes. That raises the cost and reduces the supply of insuranceproducts to consumers. It may deter international participation inour domestic markets and creates obstacles to our own insurancefirms' international expansion.”