States have effectively regulated the insurance industry for decades; it’s best to keep it that way.

Maine residents should be concerned about a little-known effort underway in Washington to shift responsibility for oversight of the insurance industry from states to the federal government.

Earlier this year, the U.S. Treasury Secretary proposed a far-reaching plan, “Blueprint for a Modernized Financial Regulatory Structure,” to overhaul our nation’s regulation of the financial services sector, including the insurance industry. In doing so, the secretary called for extensive federal involvement in areas that have historically been effectively regulated by the states.

With regard to insurance oversight, a state responsibility for more than 150 years, the plan proposes an elective system of federal chartering, licensing and supervision. Insurance companies could choose regulation by the federal government and would then be exempt from state oversight. Despite their claims, some of the special interest groups pushing for federal regulation seek to circumvent the current system of strong state-based consumer protections.

The first phase of this federal takeover of insurance would be implemented through a bill now before Congress, H.R. 5840, “The Insurance Information Act of 2008.” The claim of proponents – that the legislation would simply educate the federal government about how insurance markets work – is not the full story.

H.R. 5840 would create a new federal bureaucracy, the “Office of Insurance Information,” from the Office of Insurance Oversight in Treasury’s blueprint to ease fears of a federal takeover of insurance regulation. Nevertheless, that is precisely the intent, and the bill’s supporters in Congress, within the administration, and among special interest groups have all praised it as an intermediate step toward an optional federal charter.

This is all bad news for Maine consumers. H.R. 5840’s real impact is the inevitable loss of consumer protections, with the magnitude of that loss to be determined by federal bureaucrats. H.R. 5840 would authorize the feds to override state insurance laws, which are standards and protections enacted by state policymakers and enforced by state regulators. Maine’s consumers and businesses need and deserve a place to go for help – whether a Mainer wants information or needs help getting an insurance claim paid.

As a former federal regulator at the U.S. Department of Labor, I can tell you that even when there were clear violations of federal law, we did not have the resources (or in some cases the authority) to help every person. A new bureaucracy in Washington at the Treasury Department is simply not the answer.

Last year, Maine’s Bureau of Insurance handled 11,079 consumer calls and was able to obtain more than $1.5 million in restitution for consumers. I don’t see this happening if the federal government is in control, especially given its track record.

To be frank, an optional federal charter would give companies an opportunity to follow the path of least regulation. State regulators would not be able to assist consumers who have coverage from a federally-licensed insurer. The optional charter also has a downside for industry, especially smaller Maine insurance companies which may lack the resources to choose and change their regulatory control and thereby find themselves at a competitive disadvantage.

Fortunately, Maine’s entire Congressional delegation has expressed opposition to expanded federal regulation in this area. All four members have spoken out about the need to maintain historically effective state oversight of the insurance industry, because they recognize both consumers and insurance companies have been well-served by the current system. They understand giving consumers and company representatives easy access to state regulators is incredibly important, especially when speed in reaching decisions or investigating complaints is paramount.

Unfortunately, backers of H.R. 5840 have vowed to renew their efforts when Congress reconvenes. Establishing a federal bureaucracy with the purpose of overriding state laws is a dangerous new concept. Attorney General Steve Rowe and I have written Congress to express our opposition to the Insurance Information Act as long as its provisions lead us in that direction.

As a state regulator, I’ll continue to watch and work with Congress, sharing my views with leaders on Capitol Hill.

I would encourage all Mainers to do the same.

Mila Kofman is superintendent of Maine’s Bureau of Insurance.