GAO Supports Insurance Regulator Access To FBI Criminal Database

A General Accounting Office study is providing support for a provision in the so-called “roadmap” legislation that will allow state insurance regulators access to the FBIs nationwide criminal history data.

And, a staff official at a key constituency, the Independent Insurance Agents and Brokers of America, said that group is also supportive of the provision as a means of weeding out the bad eggs that lose their license to sell insurance in one state, then move on to another state where they gain another license because there is no known clearinghouse that would provide notice of prior problems.

Among its conclusions, the GAO report says that, among other findings, “…we found that many state regulators, unlike their counterparts in the banking, securities and futures industries, continue to lack the legal authority to access the FBIs nationwide criminal history data. According to information obtained from state regulators and the FBI, fewer than one-third of the states have taken actions that current federal law requires for them to have such authority.

“Consequently, regulators in other states cannot be sure that they are protecting insurance consumers from fraud by keeping individuals previously convicted of serious criminal behavior out of the business of insurance,” the report says. The report also found that financial regulators generally did not have ready access to all relevant data related to regulatory enforcement actions taken against individuals or firms.

The results of the study are a victory for Reps. Michael Oxley, R-Ohio, chairman of the House Financial Services Committee, and Richard Baker, R-La., chairman of a key subcommittee. The pair shepherded legislation that passed the House in November 2001 that would have allowed state regulators across the board to access the FBI files as part of their application for state insurance licenses. The bill had another provision that would have allowed over 250 different regulators access to each others files in order to ensure that “bad actors,” those who have committed fraud and other misdeeds, cannot pull up stakes and move to another area or industry after being caught.”

Wes Bissett, senior vice president for government affairs and state relations at the IIABA, said, “We supported that bill then, especially the provision allowing state regulators access to the FBI criminal files for licensing applications processing, and we continue to support the Oxley-Baker federal standards approach, and its inclusion of that provision.”

The original legislation was drafted in the wake of the Martin Frankel scandal. Frankel, since convicted, allegedly was able to swindle millions of dollars from consumers in the insurance industry despite having already been banned from the securities industry by the SEC.

Oxley and Baker have copies of a staff draft of the bill in their possession but have not indicated when they will release it.

The current plan is to expose the draft for public comment by early September, hold a hearing soon after Congress reconvenes Sept. 7, and markup the bill by end of the month preparatory for floor action.

While final action this year is unlikely, strong support in the committee and on the House floor could set the stage for final action early in the new Congress.

A key provision of the “roadmap” or standards legislation they have drafted would require the Treasury Department and other agencies to provide state insurance regulators access to the FBIs criminal data. The National Association of Insurance Commissioners also has been seeking such authority for several years.

The bill passed the House floor overwhelmingly in November 2001 as H.R. 1408. But then the Treasury voiced some objections, and the bill died. The original bill called for a panel of federal regulators to formulate a plan creating an information sharing network within 6 months, and gave them an additional 18 months, 2 years from the enactment date, to establish the network.

Under that bill, a special subcommittee of the Presidents Working Group on Financial Markets would be given oversight of the network if the federal agencies couldnt set it up within the 2-year time frame. It would have been headed by the Secretary of the Treasury.

But, in talks after the bill passed the House, Treasury officials raised numerous objections, including concerns about its top official being forced to coordinate its implementation if federal regulators were unable to agree on a common approach. Issues of privacy, who would be given access and who would pay for it were also raised.

It is believed that the roadmap will try to eliminate some of the issues by simplifying the requirement to allow state regulators access to the FBI crime files, perhaps through a secure system.


Reproduced from National Underwriter Edition, August 5, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.