* Michael McRaith seen as front-runner for U.S. post
* New insurance office will monitor, not regulate
* House insurance panel chair Biggert urges action (Adds Treasury, Biggert comments)
WASHINGTON, March 3 (Reuters) - The Obama administration was expected soon to name an Illinois state insurance regulator to head the new Federal Insurance Office, sources familiar with the matter said on Thursday.
Michael McRaith, seen as the front-runner for the job, is now head of the Illinois Department of Insurance.
The Federal Insurance Office is being set up to monitor insurers, such as Allstate (ALL.N) and Travelers (TRV.N), but not regulate them, under 2010's Dodd-Frank regulation reforms.
The industry is now overseen only by state governments.
The FIO was put into Dodd-Frank to appease opponents of central regulation by keeping real power out of Washington's hands. But it also gave some hope to big insurers who want a single regulator by giving them a foothold they may be able to expand later.
McRaith could not immediately be reached for comment.
"We don't have any announcements to make at this time," said Colleen Murray, spokeswoman for the U.S. Treasury Department, which must name the FIO director under Dodd-Frank.
McRaith worked for 15 years in private practice as an attorney in Chicago, representing financial institutions, including insurers, before being named to his present post, according to the Illinois insurance department's website.
Besides McRaith, two others are rumored to be contenders for either the FIO job or a spot for an insurance expert on the new inter-agency Financial Stability Oversight Council (FSOC). They are former Treasury official Roy Woodall and current Treasury staffer Chris Ledoux, industry officials have said.
The naming of the FIO chief will occur as large insurers try to protect themselves from another Dodd-Frank rule.
It orders regulators to consider whether some large insurers should be labeled as systemically significant financial institutions and subjected to tighter government oversight.
The FSOC will be handling this part of the reforms and getting adequate insurance representation on the council is "very, very important," said Republican Representative Judy Biggert, who chairs the House insurance subcommittee.
"We really need to have the appointments to the council, which addresses systemic risk," she said in an interview.
"It's important that the state insurance people be represented because we don't want the Federal Insurance Office to take over and make this national insurance" regulation.
Biggert and three other House lawmakers, both Republicans and Democrats, wrote to Treasury Secretary Timothy Geithner on Feb. 10 urging him to make the insurance appointments to the council. Biggert said she has received no reply. (Additional reporting by Dave Clarke and David Lawder; Editing by Gary Hill)