NAIC Submits Legislative Proposal to Combat Insurance Fraud

September 27, 2000

The National Association of Insurance Commissioners has submitted proposed legislation to grant state insurance regulators access to the FBI’s National Crime Information Center database. The NAIC made the request in response to discussions held last week during a hearing before the Congressional Subcommittee on Finance and Hazardous Materials on the status of nationwide insurance regulatory reforms.

“At present, state insurance departments are the only government regulators not having clear federal authority to obtain criminal background histories from the FBI regarding persons who seek or hold positions of trust in companies providing financial services to the public,” said George Nichols III, Kentucky Insurance Commissioner and NAIC president.

The NAIC has made this request before, most recently in testimony delivered in April before the Senate Securities Subcommittee regarding state implementation of the National Association of Registered Agents and Brokers provisions of the Gramm-Leach-Bliley Act. The General Accounting Office specifically recommended granting state regulatory access to FBI criminal data in its report on the Martin Frankel matter released last week.

“Banking and securities regulators have long had this necessary tool to help them meet their official responsibilities,” Nichols said. “More recently, nursing home operators and other groups have been granted statutory authority to check personal background information of service providers against the national data maintained by the FBI. We believe Congress should enact legislation immediately to help protect insurance consumers and industry participants from fraud, mismanagement and wrongdoing.”

The NAIC’s suggested bill language is patterned after Federal statutes granting FBI database access to existing organizations. This language would accomplish the following essential objectives:

· Access gives State insurance regulators the ability to enforce the provisions of the 1994 Crime bill’s Insurance Fraud Prevention Act. Specifically, it gives regulators the ability to identify and remove from the industry those individuals convicted of felonies involving dishonesty or breach of trust.
· Access gives regulators the ability to thoroughly research the backgrounds of insurance company officers, directors, employees and agents, as well as persons proposing to purchase insurance companies or handle their assets, thus giving regulators a tool they need to make sound decisions. Access also gives State fraud bureaus a valuable tool to identify, prevent, and assist in the prosecution of insurance fraud of all types.
· Access by the NAIC on behalf of State insurance regulators allows for tremendous efficiency in the administration of such access. The NAIC already runs several databases on behalf of the Nation’s insurance commissioners, including a National Insurance Producer Registry with licensing information on 2.6 million of the Nation’s 3 million agents and producers. It also maintains a sophisticated computer network that connects all insurance departments.

Nichols continued by saying that while state regulator access to FBI criminal data is the first priority, NAIC language permits the sharing of this information with companies and producers under limited circumstances and only when given prior permission by the agent, employee, or prospective agent, employee or applicant, is given. “We feel this provision offers greater assurances that the intent and spirit of the Violent Crime and Law Enforcement Act of 1994 (USC 1033 and 1034) is implemented and enforced as Congress intended,” Nichols said.

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