(Corrects final paragraph to show FSB, not IAIS, to name risky insurers)
LONDON, Dec 17 (Reuters) - Proposed curbs on insurers aimed at preventing a repeat of AIG's 2008 taxpayer bailout could raise the cost of insurance, making more people dependent on the state, a finance sector lobby group said.
"As currently designed, there is a high risk of detrimental unintended consequences," the Institute of International Finance (IIF) said on Monday.
Under draft proposals published in October, big insurers involved in risky activities beyond their core business, such as derivatives investment, would have to hold extra capital.
They would also be subject to closer regulatory scrutiny and would have to draw up detailed plans for winding themselves down in the event they fail.
The IIF said a capital surcharge, if applied across all big insurers, would make it harder for them to pool risk, pushing up the cost of cover and forcing more households and businesses to rely on the state for protection.
"A blanket capital surcharge may raise the cost of offering traditional insurance products and result in reduced availability of products currently meeting social needs," said Steven Kandarian, chief executive of U.S. insurer MetLife and vice chair of the IIF's insurance regulatory committee.
The proposals, drawn up by the International Association of Insurance Supervisors (IAIS), also "borrow excessively" from parallel regulations designed for the banking sector, and do not take key differences between the two industries into account, the IIF said.
Insurers argue they are fundamentally less risky than banks because they do not lend and their customers cannot withdraw cash overnight.
Although insurers emerged from the 2008 crisis in better shape than banks, AIG and Swiss Re both required emergency funding after absorbing big losses on credit default swaps they wrote. Some smaller insurers in the United States and the Netherlands also received emergency capital injections.
The IAIS proposals form part of an effort by the G20 group of countries to do away with the need to bail out failing banks and insurers because their collapse might destabilise the financial system.
The Geneva Association, an insurer-funded think tank, said on Monday any additional curbs on insurers needed to reflect the fact they are on average smaller and less intertwined with the global economy than banks.
The Financial Stability Board, a regulatory taskforce for the G20 nations, is due next year to publish a list of insurers that it considers big enough to pose a threat to the financial system if they were to collapse. (Reporting by Myles Neligan; Editing by Mark Potter)