I spent the morning watching a House Financial Services subcommittee hearing into what a ‘systemic risk regulator’ of the financial markets might be and what that has to do with the insurance industry.

Now, if you’ve ever been to consumerwatchdog.org, you know that insurance is regulated by the states, and that here in California voters enacted some of the strongest regulatory oversight in the country. (For more on Prop 103, click here.) We’ve spent the last 20 years defending those protections against attack by the insurance industry both on the state level and in Congress. That oversight has meant an insurance industry that has remained solvent, and generally healthy, while the rest of the financial industry spirals out of control. As the president of the National Association of Insurance Commissioners testified, not a single policyholder has lost a dollar in the crisis.

But insurers and their allies are trying to piggyback their decades-long effort to deregulate insurance, by creating an alternate federal regulator or preempting state insurance oversight, onto the push for financial regulatory reform. It’s a fascinating attempt at political jujitsu when members of Congress couch their old deregulation argument as new regulation.

In arguing for this fantasy, Representatives Royce and Bean cited the failure of AIG as proof of the need for federal insurance oversight. This mischaracterization suggests that insurance regulators failed, when, as more than one member and witness noted, it was AIG’s unregulated financial subsidiary that brought the holding company crashing down.

Even the ranking Republican member of the committee, Representative Bachus, knows better. He reminded his colleagues and the panel that insurance regulation hasn’t failed and that state insurance regulators have done a “better job than most everybody else.”

The regulatory problems in the financial industry are not with insurance oversight and to try and piggyback federal preemption of insurance on financial reform is ludicrous.

Nevertheless, the insurance industry and its allies who are wedded to deregulation aren’t backing down. Bean and Royce have vowed to introduce legislation that would create an optional federal insurance charter (read: deregulate – more in our letter to Treasury Secretary Geithner on this).

California Congressmember Jackie Speier brought that message to her colleagues along with Rep. Kucinich last year. It’s good to know they’ll have Rep. Bachus in their corner this time around.