by: Bob Skow

Any rational citizen is scratching their head and saying, ''What?'' Are we to believe a company such as American International Group being able to choose how it is regulated through an ''optional'' regulatory system would have prevented this financial situation? Are we to believe that, despite experts across the country calling for more vigorous market supervision, a deregulatory proposal such as OFC is the answer? Are we to believe that pitting one regulator against another in a contest to be chosen by the regulated company would do anything but lead to a race to the bottom and lessen consumer protections?

While the problems with AIG are indeed a huge shock, even a cursory analysis of the practices that led to its dire situation shows that state insurance regulation and AIG's insurance subsidiaries bear no responsibility for its problems. Instead, AIG's problems are related to its pervasive use of credit default swaps. AIG's core insurance business isn't to blame for its problems, and this situation shouldn't be used as an excuse for wholesale deregulation of big insurance companies.

In fact, AIG's state-regulated insurance entities are stable, profitable and paying all claims. State insurance regulators actively monitor insurance entities for potential financial trouble and have many different tools to help insurers navigate adverse market developments. In addition, the state system utilizes a very effective safety net, the state guaranty fund mechanism, to protect consumers in the rare case of insurer insolvency. The health of AIG's state-regulated insurance businesses proves how effective state commissioners are in regulating the insurance market.

While state regulation isn't without its problems, and it does need targeted reform, these problems do not include the areas of financial oversight, solvency or consumer protection. If anything, the failure of AIG highlights the strengths of state insurance regulation and should mute, not amplify, the call for optional deregulation of big companies.

It would be a monumental mistake to transfer regulatory authority of the insurance business to the federal government. For one thing, look at the track record of federal agencies when it comes to oversight of financial services. The commercial banks, investment firms and international holding companies (like AIG) that are at the center of the nation's financial crisis are all regulated by the federal government. The savings-and-loan mess of the 1980s, which cost billions to clean up, also occurred on the watch of a similar federal bureaucracy.

In contrast, most elements of the insurance industry are regulated today at the local level by state officials, and those leaders and policymakers do an excellent job. All the states, including Iowa, have done a great job of regulating the insurance industry. At a time when crisis and turmoil are the norm in the banking and securities sectors, state regulators continue to quietly ensure that insurance companies are solvent, that claims are paid and that consumers are protected. State officials have experience, outnumber their banking and securities counterparts and handle countless inquiries and questions from consumers.

State oversight of insurance may not be perfect, but its record is far superior to that of the financial regulators at the federal level. Today, because of a great regulatory climate, Iowans enjoy some of the lowest and most competitive stable insurance markets found anywhere in the country.

The only people calling for federal oversight of the insurance industry are the big insurance players who desire the same level of weak oversight, accountability and consumer protection that has produced this current crisis. To them, I say, ''Thanks, but no thanks.''

Bob Skow is chief executive officer of the Independent Insurance Agents of Iowa.