Chicago

Industry trade groups complained about control of databases they say is being exerted by the National Association of Insurance Commissioners, Kansas City, Mo.

During an industry liaison meeting with regulators, Michael Lovendusky, a representative with the American Council of Life Insurers, Washington, questioned the handling of a fingerprint database that is being developed by the National Insurance Producer Registry and the NAIC. Lovendusky told commissioners and regulators at the session that what was supposed to be a joint effort to facilitate collection of producer fingerprints in conjunction with a fingerprint model act is now an effort “to reduce NIPR to an operating subsidiary of the NAIC.”

Lovendusky said that the intent to assume control of the fingerprint repository is “a breach of understanding by which we have faithfully operated all these years.”

The lack of transparency of databases as well as the “arbitrary assertion” of ownership of data provided by the industry concerns insurers, said Diana Marchese, an industry liaison representative with the ACLI. In addition, she said NAIC is creating databases that are in competition with the private sector. And she noted that the NAIC’s tax status was that of a not-for-profit. In addition, she said, there was the expectation that the industry would pay for construction of databases.

In a recent interview with National Underwriter, Andrew Beal, NAIC general counsel, said NAIC is not trying to absorb the NIPR. He said that the two bodies are separate entities: the NAIC is a 501c(3) incorporated in Delaware and NIPR is a 501c(6) incorporated in Missouri. A decision was made to bring the database under NAIC auspices, he continued, because NAIC wants to ensure that the confidentiality of data is ensured.

Dave Snyder, a representative with the American Insurance Association, Washington, raised the issue of the anti-fraud database, telling regulators at the liaison meeting that while the concept is a good one, making the NAIC a collector of data that then passes through to the states is not a good idea. In trying to characterize the NAIC, he asked, “Is it a state? A nonprofit? What is its status?”

Speaking of an auto database, Snyder said AIA supports the NAIC’s involvement as a liaison between the industry and the motor vehicle bureau but has concerns about confidentiality of data shared if the industry starts collecting such information.

“These two databases are different from the data the NAIC normally collects because they contain information on millions of people that are usually not regulated by the NAIC,” he says. “It is good that the NAIC is concerned about these issues, but the NAIC should not be the database.”

The market conduct annual statement project was raised by Dave Reddick, a representative of the National Association of Mutual Insurance Companies, Indianapolis. Twenty-three states will be collecting data from insurers next year, he said. This will add another layer of regulation, he said.

Linda Lanam, a representative with the American Council of Life Insurers, Washington, said that currently, market conduct analysis conducted in conjunction with the market conduct annual statement is not a national database. But if it ultimately does become a national database, then the ACLI would have the same concerns as it would have with any of the other databases: the confidentiality of documents. While the NAIC’s financial statement databases were conceived as public databases, the market conduct database was not conceived in the same way, she explained. So, Lanam continued, there is concern that if there were a legal challenge, the NAIC could assert the same confidentiality that states assert when they conduct market conduct examinations.

Confidentiality was a concern raised by Julie Glackenbach, a representative with the Property Casualty Insurers Association of America, Des Plaines, Ill. For instance, she cited concerns over a data call made after Hurricanes Rita and Katrina. “We understand that states entered into a confidential sharing agreement. But the industry does have lingering concerns.”

With greater coordination among states, there is also greater sharing of information, she explained. So, insurers need to make sure that information is confidential, she added. It would be helpful to see the confidentiality agreements that have been made, said Glackenbach. Some of the data is not only company data but also the personal data of individuals, she said, and this raises a concern over “trickle back liability” to insurers.

On the issue of confidentiality, newly elected NAIC President Alessandro Iuppa said that not one instance of an inappropriate release of information was named by industry participants. He said the information collected as part of a regulatory effort by the NAIC is the most efficient way to aggregate data.

Joel Ario, Oregon insurance commissioner, said he disagreed with ACLI’s assessment of NIPR. The fingerprint database will be a regulator database in which regulators own the data, he said, and NIPR will be given exclusive use of that data. Market conduct data needs to be kept confidential, he said, because if information on troubled companies gets out, it could cause a run on those companies.

The NAIC’s control of data also was raised in the consumer liaison group when funded consumer representatives questioned a plan to charge those downloading company financial data from the consumer information services link on the NAIC’s website. The plan to charge for information is scheduled to take effect at the end of February 2006, according to Sandy Praeger, Kansas insurance commissioner. The first five downloads would be free and then there will be a $10 charge thereafter, she added. Academics would receive a 50% discount. Praeger explained that the charge would help the NAIC pay for the system it had developed. She said that five downloads may be too low a number and could be reconsidered.

But Mila Kaufman, an NAIC funded consumer representative, said that charging for information currently available for free would hurt consumers by creating a “significant barrier” to access.

Praeger responded that of 68,000 downloads, 80% were from industry consultants and 20% claimed to be consumers. However, she continued, further investigation found that the 20% number was actually lower because many were not consumers.

Iuppa affirmed these findings, noting that it is “wholly appropriate” to require a registration and payment for a certain level of information.

ACLI says that what was supposed to be a joint effort to facilitate collection of producer fingerprints is now an effort ‘to reduce NIPR to an operating subsidiary of the NAIC’