With the economy in disarray due to slowing US consumer demand and consumer confidence in the financial industry at an all time low, it is inevitable that insurance industry will have to take a hard hit for many months to come.
A few months ago, the federal government has committed $150 billion in assistance to a bailout of American International Group Inc, once the world’s largest insurer. AIG nearly collapsed last year after becoming overexposed in the largely unregulated market for credit default swaps, which was undermined by the sharp U.S. housing downturn.

Currently, there are over 6,000 insurers in the United States, but no central federal regulator for them. These companies answer to more than 50 state and territorial authorities with different practices and regulations.
Several U.S. lawmakers strongly support federal oversight of insurance companies and suggested the creation of an entity within the Treasury Department dedicated to oversee the insurance industry.

With the new White House administration, there will be major regulatory reforms to ease the crisis in the financial services sector. There are powerful factions within the industry that wants regulation centered in Washington, D.C. Several insurance companies are more welcoming to the prospect of federal regulation like big insurers such as Allstate Corp.

Democrat and Republican lawmakers share the belief that steps must be taken to ensure that a similar situation does not occur in the future citing the Federal government’s bailout of distressed insurer AIG. They also cited last year’s problems in the bond insurance industry as further evidence of the need for Washington to play a greater role in supervising insurers.

The American Insurance Association, a lobbying group for large property-casualty insurers, issued a statement of support for the lawmakers’ letter.
The new Treasury Secretary Timothy Geithner pledged to strengthen regulation of over-the-counter derivatives, such as credit default swaps, which have largely contributed to the industry’s losses and to pursue registration of hedge funds.
In a written letter to senior House Democrats, Geithner indicated that there will be sweeping changes in regulatory policy, the oversight structure and creation of better tools for crisis management.

The American public may have to wait a while until this manifests into a workable scenario. This presents a great challenge to the Obama administration especially with its policy of better government transparency. The average Joe is simply too tired of bailouts of the wealthiest companies using taxpayer money.