by: Frank Ahrens

Life insurers are currently regulated at the state level, making it hard for the federal government to monitor their financial health and any risk they might pose to the broader economy. The American Council of Life Insurers, an industry lobby, says that a federal overseer is needed, but it wants insurers to be able to choose whether to submit to its oversight.

Consumer advocates, state regulators and some members of Congress have argued that making federal regulation optional would allow insurers to play one regulator off another and shop for the most accommodating overseer in a race to the bottom, much as occurred in the banking world.

In a letter Tuesday to Treasury Secretary Tim Geithner, ACLI president Frank Keating underscored the importance the industry attaches to an ''optional federal charter,'' and he dismissed concerns about the phenomenon known as ''regulatory arbitrage.''

''The life insurance business is not seeking, nor would this Congress ever consider enacting, a federal insurance regulatory system that is weak in terms of consumer protections and solvency oversight,'' he said.

Allowing insurers to chose their regulator ''would be a disaster for consumers,'' said J. Robert Hunter, director of insurance for the Consumer Federation of America.

For insurers that operate across state lines, answering to one regulator in Washington could make life simpler.

The Treasury has tentatively approved bailout funds for some big insurers, but to make sure the federal government had a window into their finances, it limited the aid to companies that owned banks and therefore fell under the jurisdiction of federal bank regulators.