NAMIC Raises Concerns Over Proposed NAIC Broker Activities Questionnaire

December 2, 2004

The National Association of Mutual Insurance Companies (NAMIC) voiced its concerns about an NAIC-developed template suggested to states to query their domestic carriers about possible relationships with large brokerage firms and their use of contingent commissions.

“After reviewing the template developed by the National Association of Insurance Commissioners (NAIC) Executive Task Force on Broker Activities, three broad areas of concern became apparent: 1) the questions themselves; 2) the degree of confidentiality attached to information obtained by regulators in response; and 3) whether these questions are specifically related to any criminal investigations,” wrote Peter A. Bisbecos director, legal and regulatory affairs, in a Nov. 23 letter to regulators.

Excerpts from the letter are below.

Concerns about the questions

“Overall, the questions are extremely broad and will require extensive effort to provide accurate answers,” Bisbecos wrote. “Even for a company with significant resources and no objection to answering all of the questions, the 30-day deadline is not realistic.”

Two questions request information, including whether the insurer has hired counsel, and the scope of that assignment. “We are particularly concerned that specifying the scope of an attorney assignment might in some instances violate the attorney-client privilege,” wrote Bisbecos.

According to NAMIC, answering many of these questions might improperly require a company to incriminate itself in violation of the 5th amendment to the federal constitution. “We are particularly concerned about this in light of the current atmosphere in which the line between legal and criminal conduct has been significantly blurred,” wrote Bisbecos.

The degree of confidentiality attached to these answers

“NAMIC believes any information derived from answers to these questions should remain confidential,” wrote Bisbecos. “However, there is no reference in the template as to the nature of the questions and the resulting confidentiality attached to the answers.”

Allowing answers to become public could have many negative consequences, NAMIC says, including:

· Serving as free discovery for attorneys looking for a cause of action.
· Unintended anti-competitive consequences as they could reveal confidential company information that could not otherwise be made public.

Are questions related to any criminal investigations?

A number of public officials have made statements referring to unspecified extensive corruption within the insurance industry. These statements are frequently accompanied by comments about unspecified criminal activity, or suspicion of such activity, and the promise of further investigation. As clearly legal practices are woven into these comments, the uncertainty they create makes the legal and regulatory environment increasingly treacherous. In this light, it is important to note that it would be improper for a regulator cooperating with law enforcement to use its investigatory authority to obtain potentially incriminating information from a company, see: Garrity v. New Jersey, (1967) 385 U.S. 493, 87 S.Ct. 616.

Finally, NAMIC asked regulators that had not yet sent the template to its domestic carriers to consider amending the document to address NAMIC’s concerns. If the template had been sent, NAMIC asked regulators to consider sending the carriers a memorandum clarifying the questions raised.

The full text of NAMIC’s letter can be read on the NAMIC website, NAMIC Online at:

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