U.S. lawmakers seek federal rules for insurance firms

WASHINGTON (Reuters) - U.S. lawmakers introduced legislation on Thursday favored by much of the industry that would set up a federal regulator for insurance companies, which are now largely policed by the states.

The bill, introduced by Rep. Melissa Bean, an Illinois Democrat, and Rep. Ed Royce, a California Republican, would create an option federal charter the industry says could smooth the choppy state-by-state regulation they are subject to now.

Similar attempts have failed to pass Congress in the past, in part due to opposition from states and consumer groups, who say such a move would lead to higher rates and weaken consumer protection.

Previously proposed legislation would have allowed insurance companies to set their own rates if they were federally chartered.

The lawmakers hope the spotlight put on American International Group Inc, recipient of up to $180 billion in bailout funds, may aid their effort.

The American Council of Life Insurers said it "looks forward to seeing a strong, streamlined insurance regulatory system emerge at the end."

The group represents companies, including Hartford Financial Services Group Inc, Assurant Inc and Lincoln National Corp.

Companies say having one regulator will help them better compete overseas and develop savvier products. Insurance companies are now regulated by states, most of which set insurance rates.

The American Insurance Association, a group of 350 property-casualty insurers, including Travelers Cos Inc and Chubb Corp and Ace Ltd, has also endorsed the creation of a federal regulator to oversee the industry.

(Editing by Andre Grenon)