WASHINGTON--The effort by U.S. Treasury Secretary Henry Paulson to blame the events that led to the federal takeover of American International Group on state insurance regulators is improper and misleading, according to one consumer advocate.

Commenting at a session of the National Association of Insurance Commissioners here, Birny Birnbaum said federal regulators are to blame for ineffective regulation but state insurance regulators need to take steps of their own to improve their regulation of insurance.

Mr. Birnbaum, whose attendance at NAIC meetings is funded by that organization, is executive director of the Institute for Social Justice in Austin, Texas. His remarks were made during the NAIC/consumer liaison session at the fall NAIC meeting here.

"Secretary Paulson yesterday claimed that AIG was a classic example of the need for a federal solution. To be polite, Paulson's claims are Orwellian in nature," Mr. Birnbaum said. A reference to conditions described in the works of author George Orwell involving an attitude and a policy of government control by propaganda, misinformation, denial of truth and manipulation of history.

He noted the "aggressive attempts" to preempt state insurance regulation with federal controls and said that the political use of AIG is "even more shocking."

Mr. Birnbaum called on the NAIC to "quickly issue a resolution opposing the Paulson plan," noting that the Paulson plan is "flawed and does nothing to help consumers."

Discussing the $700-plus billion U.S. financial bailout plan, Birnbaum noted that Paulson's plan to buy "bad assets" won't work if they are bought at a fraction of their real worth.

Rather, in order for the plan to work, the government will have to overpay for them, he asserted. The government should be using the money to help consumers restructure their mortgage loans rather than bailing out big business, he continued.

The problem highlights the need for more public oversight and accountability, according to Mr. Birnbaum. State insurance regulators should note the need for more accountability by improving NAIC public meetings policy and revolving door conflict of interest policy, he said.

Mr. Birnbaum cited Swiss Re's hiring of Walter Bell, former Alabama commissioner and NAIC president. He said that a legally binding conflict of interest policy should be signed by commissioners. And, he said, the NAIC has too many closed meeting sessions such as those dealing with a market conduct analysis project.

Keeping information about decision-making closed is a policy "inconsistent with a quasi-public" institution, he said.

Brendan Bridgeland, another NAIC-funded consumer representative, said that "it is deeply disappointing" that consumer reps have to repeatedly discuss the merit of transparency and public records with insurance commissioners.

Jane Cline, West Virginia insurance commissioner and NAIC vice president, said that commissioners have already worked hard on and addressed a conflict of interest policy which was adopted by the NAIC. She said that she is responsible to her governor and the stricter conflict of interest policies of her state. Although she said that she has no plans to leave office, if she needed to, "I will need to seek employment."

Ms. Cline added that there are a number of commissioners who have small children and are single parents and need to be able to seek viable employment.

Kevin McCarty, Florida insurance commissioner, said that "people's circumstances in life can change. This is a relatively small community in terms of looking for employment after leaving office." Individual state law should govern behavior, he said, noting that in Florida, he would be prohibited from lobbying the state legislature or department should he leave office.

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Consumer Rep. Slams Paulson Slant On Insurance

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