In any event, the banking industry, for its part, has taken note, girding for potentially strong administration action based on the "stress test" of their assets that is expected to be completed by mid-April.

And, in the context of American International Group, the notion that the insurance industry remains on high ground is na?ve.

Given the reaction to the AIG bonuses, and the fact that taxpayers are currently extending more than $182 billion in cold cash to keep AIG afloat, only the foolhardy can put any money on a bet that the insurance industry will escape some form of federal regulation because of its emphasis on "consumer protection."

In fact, an examination of AIG reveals that it was a casino that bet more than $3 trillion–with no hedging–while working atop an exquisite array of insurance and other profit-making assets.

Clearly, the anti-federal regulation lobby within the insurance industry retains considerable power and goodwill in Washington, D.C.

In fact, there are very few members of Congress, and probably within the administration as well, who totally support any federal intervention in insurance regulation.

But, while all members of Congress, and probably most officials within the administration camp, are loath to disturb the state regulatory system, they fear even more the potential consequences of taking no action and getting blindsided by another AIG.

And the notion that the industry can escape by giving up authority to regulate only insurers who pose a potential systemic risk doesn't withstand any kind of scrutiny.

Large insurance companies yield the greatest mass of income to the states that regulate them, and, in fact, to the whole system. Without them, the burden of being state regulated will be too great for the other institutions to absorb.

Equally important, at the just-completed G-20 meeting in London, the world's chief executives committed themselves to stronger cross-border financial services regulation. And at the Transatlantic Insurance Dialogue Symposium in Washington, European regulators made it clear that with the upcoming implementation of Solvency II they are revising their regulatory system to make home-based insurance companies more competitive globally than is possible under the current U.S. regulatory system.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has acknowledged in appearances over the past several years that European insurance interests have voiced growing frustration with the multiheaded U.S. insurance regulatory system, and asked for changes.

Some form of federal-state regulatory partnership is in the future of the insurance industry. And that is as good a bet as the president's prediction that North Carolina would win the NCAA tournament.

Arthur D. Postal is Washington Bureau Chief for National Underwriter. To respond to his column, e-mail [email protected].