Insurers Support NAIC’s Draft on Self-Audit Privilege

February 20, 2002

National Association of Insurance Commissioners’ (NAIC) draft language on self-audit legislation will help insurers comply with state laws and regulations without opening their doors to frivolous lawsuits or burdensome sanctions, according to the National Association of Independent Insurers (NAII).

NAII supported the principles of the draft in comments sent to the NAIC’s Self-Critical Analysis Working Group.

“Enactment of this legislation is important to both insurers and insurance regulators,” Don Cleasby, NAII assistant vice president and assistant general counsel, said. “This proposed self-critical analysis privilege allows the insurer to avoid or minimize both administrative sanctions and private litigation. For the regulators, self-critical analysis provides further assurance that in addition to the regulators usual market conduct surveillance function, insurers are also conducting complete, frank and honest reviews of their compliance programs. In order to accomplish these goals fully, states need to adopt statutes codifying a self-critical analysis privilege.”

The NAII’s letter to the NAIC’s Working Group offered some simple suggestions, including:

Principle 1-The Legislation should not create new substantive or procedural restrictions on the regulator’s ability to access any information that is available to regulator in the absence of the Legislation.
NAII acknowledges that summary reviews of company data are not necessarily information that a company should be obligated to provide. There is a distinction between underlying data and information and any subsequent documents that provide a review or analysis for that underlying data and information. The NAII believes the latter should be privileged information.

Principle 2-The self-critical analysis privilege should be narrow in scope, with the purpose of ensuring that internal evaluative information not otherwise available to the pubic or third parties does not become publicly accessible solely because it is in the possession of a state regulator.
NAII supports the Illinois Department’s suggestion to not retain a copy of the analysis information to avoid any type of inadvertent disclosure and hopes to that this suggestion can be folded into the NAIC’s draft principles.

Principle 3-In conjunction with Principle 1, the Legislation should narrowly define self-evaluative documents to be only those documents or portions of those documents that evaluate, analyze objective data, or involve mental impressions or opinions regarding compliance with applicable laws and regulations. Objective data should not be subject to the privilege even if compiled for the purposes of the self-evaluation.
The NAII reiterates the concern mentioned in Principle 1.

Principle 4 – The Legislation should specify that privileged information should be shared with other regulators to the extent the privilege can be maintained under a confidentiality agreement or state law governing the conduct of the regulator receiving the information.
This principle confuses two concepts, information that is privileged and information that is confidential. Absent a statutory privilege in a state to which information may be disclosed to the regulator, the laws in that particular state may not recognize the ability of the regulator to agree to keep the information confidential. Absent a statutory self-critical analysis privilege, therefore, disclosure of otherwise confidential information from a regulator in a state with the statutory privilege to a regulator in a state without the statutory privilege may waive any confidentiality granted the information-even if a confidentiality agreement exists. NAII would like this issue discussed further.

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