The meltdown of credit markets has led to calls for increased regulation of the financial services sector including the insurance industry.  With estimates that losses will approach the $1 trillion mark, which some feel is still too conservative, it provides a powerful weapon for Congress to force change onto the system.

The battles lines are being drawn as states fight the attempt to impose federal oversight of what has been their regulatory domain for over a century.

“The state-based regulatory regime has been very effective for more than 150 years,” Dinallo said. “Insurance oversight has been rigorous, resulting in high regulatory compliance and avoiding the level of insolvencies and market meltdowns we have seen in other sectors of the U.S. financial community. Indeed, our national solvency system has ensured that companies have the wherewithal to pay claims while remaining competitive and profitable.”

While the insurance industry has had some setbacks during this financial crisis, it is faring much better than commercial banks and securities firms, both of which are currently regulated at the federal level.

Much of the blame for the current credit crisis can be laid at the feet of the federal government, which has been deregulating the financial services sector for years.  It was under their watch that the current financial troubles came about.  In fact, the largely unregulated $500 trillion derivatives market still remains a “Sword of Damocles” hanging over the entire financial sector. 

Would the federal government do a better job this time with insurance?  I’m not so sure that shifting regulatory control out state’s hands would be in the best interest to consumers.  While the current system of state regulation may be highly inefficient, I would not call it under regulated by any means. 

The trouble with the bond insurance industry has raised the cost for issuing debt for many local and state governments.  Municipal bond yields have been climbing recently as bonds backed by troubled insurers face the lingering threat of a ratings downgrade.

What was once a stable and profitable niche in the financial sector, the bond insurance industry has been hit hard by the sub prime collapse.  With defaults expected to continue in the foreseeable future, the decision to insure mortgage backed debt has left them exposed to losses many analysts fear they will be unable to meet. 

Many states are now railing against the double standards for credit ratings between corporate and municipal debt that force them to purchase bond insurance or pay higher interest rates even though historically they have a much lower default rate.  The nation’s largest issuer of municipal debt, California, has decided to stop purchasing bond insurance all together and is considering forming their own bond insurer backed by the state’s pension fund.

A coalition of state treasurers have started putting pressure on ratings agencies to use a single scale system.  If that were to happen, every state except for Louisiana whose economy was devastated by Hurricane Katrina would most likely receive a “AAA” rating and obviate the need for bond insurance.

Many Americans are overpaying for home and car insurance and don’t even know it.  It is important to review your policies at least once a year.  Here are a few things that anyone can do to help save money on their insurance.

Compare prices

Property and auto insurance rates have been on the decline recently, so it might be good time to shop around and see if you can’t get a better deal somewhere else.

Purchase the proper amount of coverage

For homeowner’s insurance especially it is important to get an accurate value to what you are insuring and the amount of coverage you actually need.  Instead of using property value as the basis for coverage amounts you should use the estimated replacement or reconstruction costs.  With housing prices in a sharp decline, some people may actually be under insured.

Increase your deductible

It can increase what you pay for an incident but it can significantly lower the cost of your premiums.

Use a single insurer

In some cases it may be cheaper to get both types of coverage from a single insurer.  Check to see which companies offer package deals.

Look for discounts

Many companies offer discounts for a variety of different reasons.  For instance, a company may offer government employees a special discount. Make sure you receive any that you might be entitled to.