WASHINGTON - State insurance departments are not adequately funded to regulate the industry, let alone carry out changes required by the financial reform law, a study released Thursday said.

The Consumer Federation of America, which did the study, urged state governments to make more resources available for state regulators.

The group's 57-page study said that in 1998 the percentage of premium tax revenue spent on state insurance regulation was 7.7%.

The group noted that this was an improvement from 5.4% in 1988 but still below the 10% level recommended by consumer activists.

The study singled out seven states - Arizona, Georgia, Indiana, Nevada, South Dakota, Tennessee, and Utah - that spent less than 4% of premium taxes in 1998. It praised seven states, including Florida and New York, and the District of Columbia, for allocating at least 12%.

Regulators sought to rebut any suggestion that they are unprepared to enforce the privacy or other provisions of the Gramm-Leach-Bliley Act of 1999 or to supervise the insurance activities of the diversified financial conglomerates established under that law.

"The coordinated effort of states to quickly respond to the passage of the Gramm-Leach-Bliley Act should also be acknowledged," George Nichols 3d, president of the National Association of Insurance Commissioners and Kentucky's insurance commissioner, wrote in response to the study.

The "overall goal of funding insurance departments at 10% of premium was simply a benchmark," he said in a separate statement. "Each state must take into account specific differences in the cost of regulation, directly related to the size of their insurance market, population, and number of domiciled carriers."

The study underscored the inefficiencies of the state regulatory system and the financial services industry's need for an optional federal charter, said Beth Climo, head of the ABA Insurance Association.

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