The US Treasury has called for federal regulation of the insurance industry, to overhaul the present cumbersome system where more than 50 state regulators – some of them elected – control the industry.

Treasury Secretary Henry Paulson released a blueprint for financial regulation aiming to improve consumer protection, market stability and financial innovation.

It includes a recommendation that the US adopt a federal system of regulating the insurance industry. States have been the primary regulators of US insurance for more than 135 years.

The major insurance lobby groups – the American Insurance Association, the Council of Insurance Agents & Brokers and the Risk and Insurance Management Society – are enthusiastic, but the National Association of Mutual Insurance Companies says it opposes the plan.

Mr Paulson says the state system is inefficient and harmful to international competition. The Treasury is pushing a plan for an optional “federal insurance charter”, under which insurers could choose to be regulated by the US Government.

Included in the recommendation – which has a proposed timeframe of two to eight years – is the establishment of an Office of National Insurance within the Treasury Department.

In an address last week, Mr Paulson said insurance “presents a clear need for regulatory modernisation. Insurance market changes have put increasing strains on the system. At this time, it seems clear that the way forward is to give insurers the ability to elect for federal regulation.”