PCI Supports NAIC Drafting Note Change; Criminal Background Check Model Should Be Delayed

August 12, 2004

A news release from the Property Casualty Insurers Association of America notes that insurers continue to recommend putting the brakes on the National Association of Insurance Commissioners’ proposed criminal background checks model act. It also indicates that the NAIC did approve one suggested change in its draft during a recent conference call meeting.

The PCI recommended that the NAIC draft be changed so that the requirements for checks and fingerprints be limited to “the officers and directors of company directly involved in a transaction and not include subsidiaries, affiliates or parent companies not involved in the transaction.” The NAIC added the change as a drafting note. The PCI said that “although the wording was correct,” it would “prefer that its recommended change be made in the model act itself, not as a drafting note.”

The PCI called the change a small but “positive step, while it continues to believe that “the NAIC continues to put the ‘cart before the horse’ in pushing adoption of a model at this time.”

“Although we primarily believe the focus of NAIC should be to obtain the federal legislation that all states need to access the FBI database to conduct criminal background checks, regulators continue to create new drafts of their proposed Authorization for Criminal History Records Model Act,” stated Lenore Marema, PCI vice president, regulatory and industry affairs. “The reality is that we need model authorization legislation that would be limited to the statutory provisions needed in a state law for this background check process to exist. Right now only a few states currently require fingerprinting and background checks for agents, company officers or directors and most don’t have authorization to access the FBI database. We caution the NAIC that moving ahead with this model, without a central depository in place or access to the FBI database, could result in a costly and duplicative effort.”

In a letter to the NAIC, PCI said it had outlined “additional problems with the model including questions about whether background checks should be repeated upon license renewal, license expansion into new lines or license expansion into new states.”

Other recommendations by PCI suggest that since most companies do background checks with an outside vendor that often has a database equal to or better than the FBI criminal history database, an insurance commissioner should have the discretion to accept the company’s background check in lieu of its own. “Why duplicate the cost and the effort?” Marema observed.

“In addition, since companies are now required to have a biography affidavit of its directors and officers from a third party vendor for a licensing application, is it necessary to also require fingerprints and background checks as well? PCI recommends that either the bio is mandated or the fingerprints and background checks are required—not both,” she continued.

“The bottom line is that the NAIC’s vision of a centralized electronic database which would include fingerprint and background check requirements is not viable at this time and until it is and key questions are all answered, the proposed model law is merely a document built on a very shaky foundation,” Marema concluded.

The NAIC is expected to produce another draft of the model and possibly take action on it at the Fall national meeting in Anchorage, Sept. 11 – 14, 2004.

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