National Association of Professional Insurance Agents
400 North Washington Street, Alexandria, Virginia 22314
Sender's Phone: 1-703-836-9340 and FAX: 1-703-836-1279
Sender's E-mail: & website:
To:Co-Chairs and Members
C/o Tim Mullen at
NAIC Producer Licensing Working Group
From:Ellen Sanders
AVP Regulatory Affairs, PIA
Copy:Chair and Members
C/o Alan Haskins at
NAIC Anti-Fraud Working Group
Date:April 11, 2003
Re:PIA Comments on Draft Authorization for Criminal History Record Check Model Act
The National Association of Professional Insurance Agents (PIA) appreciates the opportunity to submit comments on the draft Authorization for Criminal History Record Check Model Act to NAIC's Producer Licensing Working Group. A copy of these comments is being submitted also to the Anti-Fraud Working Group as it, too, is interested in this draft model act.
PIA has a long history of supporting passage of a federal law pertaining to criminal background checks of insurance producers using electronic format fingerprints. Indeed, our Board of Directors adopted the enclosed policy in September 2001 and actively advocated for passage of HR 1408 in the last session of Congress. As you are well aware, while that bill passed the House of Representatives, it was not taken up by the Senate despite best efforts of NAIC and industry. Likelihood of passage of a similar bill, by both the House and Senate in the near future, is remote, at best.
PIA continues to believe that HR 1408, as passed by the House of Representatives, is the best approach as it provided uniformity across all the states in terms of the type of information collected and who has access to the information, while allowing coordination and control at the state level for clearly defined purposes.
- 2 -
PIA is concerned that the draft model presently under consideration lacks many of the strengths of the federal bill. These concerns are highlighted below.
GLBA Considerations
Precisely because the present model is for a state bill, and not a federal law, it may be impermissible under the Gramm-Leach-Bliley Act (GLBA), regardless of whether such fingerprints are sought only from applicants for resident licenses, or from both resident and non-resident applicants.
Scope of Information
The draft model does not define the scope of the information that could be provided to the insurance commissioner. As you know, the scope of information that may be considered for determining whether to grant a license is much narrower than the scope of information that may be considered as part of an investigation. The distinctions were discussed at length during consideration of HR 1408. Therefore, any model fingerprint bill should include a definition of "relevant information" similar to that in HR 1408 which defined such records as:
All felony convictions; and
Misdemeanor convictions involving –
oViolation of a law involving financial activities;
oDishonesty or breach of trust;
oFailure to comply with child support obligations;
oFailure to pay taxes; and
oDomestic violence, child abuse or a crime of violence.
Juvenile records and arrests or indictments without convictions were specifically excluded from the definition of "relevant information," and should be omitted from any model NAIC adopts.
Information Use and Penalties for Misuse
Unlike HR 1408, the current draft neither explains how the information obtained from the FBI may be used, nor provides penalties for misuse of such information. The federal bill specified that the information could be used only for regulatory or law enforcement purposes and could be disclosed only to other financial regulators or law enforcement agencies that agreed to maintain the same level of confidentiality and limit on its use.
An issue that arose during consideration of HR 1408 -- and is likely to arise again in this forum -- is whether carriers and agencies could have access to the database information in order to satisfy their obligations under 18 USC 1033. The final bill did not grant such access. It did, however, include safe harbor provisions that employers (carriers or agencies) of insurance agents could rely on the state insurance regulator's approval of a license to an insurance agent pursuant to the fingerprint based background investigation and such employers would not be subject to liability resulting from 18 USC 1033 unless
- 3 -
the employer knew that the person hired was in violation of that provision. We urge this working group to include similar provisions.
Efficiency and Effectiveness
The majority of the members of our association are licensed to sell insurance in more than one state. The draft model does not specify whether insurance regulators will request fingerprints from resident applicants or from both resident and non-resident applicants. Any law that would require fingerprints from both, without regard to whether the non-resident has had a comparable background check in its resident state, would be tremendously burdensome and costly for producers as well as regulators. A method for sharing such information or granting of deference to the background check conducted by the resident state should be included in the draft model.
The model does not define how often fingerprints must be submitted, but it does suggest that states resubmit the fingerprints at least once every five years. PIA recommends that the fingerprints be collected in an electronic format so that license applicants need only submit them once. As to how often they should be resubmitted to the FBI, such requirement should be comparable to what is required of others in similar careers. For example, fingerprints of equity brokers are collected and submitted to the FBI only once --when the broker applies for the initial license.
Conclusion
In drafting a model act to require fingerprint based background checks of license applicants, PIA urges this working group to ensure that it:
- Provides for uniformity across the country with implementation and coordination at the state level,
- Addresses potential conflicts with GLBA,
- Defines "scope of information,"
- Delineates how and by whom the information may be used as well as penalties for misuse of the information,
- Creates a system that is efficient, effective and fair, holding those in the insurance sector to the same standards and requirements as those in other sectors of the financial services industry.
The issues and resolutions are complex. We look forward to further discussions to address these matter.
National Association of Professional Insurance Agents
400 North Washington Street, Alexandria, Virginia 22314
General Phone: 1-703-836-9340 and FAX: 1-703-836-1279
General E-mail: & website:
TO: PIA National Board of Directors
CC: PIA National & Affiliate Leadership
RE: Joint Committee Resolution as Amended & Adopted by PIA NBD – 09-09-01
Criminal Background Checks, Fingerprinting & Insurance Producers
Joint Committee Resolution
I. PIA National continues to work for the passage of federal law that:
- Corrects the largest problems for PIA members, both as producer and owner-employers, created by 18 U.S.C. In particular, PIA strives to ensure that individuals in the insurance sector are treated similarly to individuals in the securities and banking industries
- Creates a national standard that specifies which criminal background check details are made available to regulators for use in granting or denying insurance producer licenses and waivers
- Grants insurance regulators access to the FBI’s federal criminal database for use in decisions relating to new insurance producer licenses and waivers as well as criminal investigations of existing insurance professionals.
- Stipulates that the producer-employer that relies on a state insurance regulator’s background approval of an insurance agent pursuant to the federal law is not subject to liability under 18 USC 1033, unless the employer knowingly hires a person in violation of that section.
II. In an effort to balance the public policy of protecting consumers (underpinning the increase in individual states adopting mandatory fingerprinting of insurance producers), the conflict created by provisions within 18 U.S.C. and GLB/NARAB, and the fair and equitable treatment of insurance producers (individually and as agency owners):
- PIA National will work in collaboration with PIA affiliates and members to develop a state system for convenient and cost-effective access and processing of FBI-approved electronic fingerprinting of individuals seeking an insurance producer’s license (individual and business entity), coordinating this with theresident producer process.
- PIA National will continue its work with the NAIC, the NIPR and other insurance interests to create a centralized producer licensing regulatory process that capitalizes on, but does not replace, a modernized state resident system (with background check), and utilizes evolving technology to support easy, more cost-effective processing and quality services to access this new system.
Background
Timeline
In 1994 the U.S. Congress passed 18 U.S.C. with Sections 1033 & 1035 affecting the insurance sector. This calls for the criminal background check of individual’s engaged in insurance.
In 1996 the NAIC and the insurance industry (including PIA) began updating and modernizing the entire producer licensing and oversight system because the demands of the insurance markeplace required it. This included both statutes AND making NIPR (National Insurance Producer Registry) a real, valuable centralized insurance system for multi-state producer licensing.
In 1998 the U.S. Department of Justice and FBI Insurance Fraud Section began to work directly with the NAIC to move the insurance industry to these federal agencies’ definition of what active compliance with 18 U.S.C. meant – a process commensurate with those already established in the securities and banking industries.
In 1999 the U.S. Congress passed GLB with the NARAB section affecting the manner and nature of how non-resident insurance producers would enter non-resident states. Criminal background checks are not one of the four requirements that NARAB permits states to apply to non-resident producers for entry into non-resident states.
In 2000 a person named Frankel allegedly perpetrated a significant, large-scale insurance fruad which the GAO reported to Congress in 2001. If the DOIs, the NAIC and the NIPR had access to some alert system from the NASD (which processes the criminal background checks and licensing of securities dealers countrywide), insurance regulators would have been made aware of previous security disciplinary actions taken against Frankel, subsequent license revocation and the reasons for these actions.
In 2001 H.R. 1408 was created to give the DOIs and the NAIC the authority to access federal criminal databases for background checks of individual’s seeking licensing as insurance producers – creating oversight parity with security and banking federal and state regulators.
In 2001 state DOIs begin to inform the insurance community of their procedures for complying with 18 U.S.C. The number of states requiring fingerprinting for both resident and non-resident producers markedly increased with a commitment from the NAIC to expand this initiative countrywide.
Other Background Information
PIA National recognized that Congresional passage of GLBA into federal law formally and legally created the financial services industry of which insurance is now one of three sectors. (CPCU Monograph – 11/00 – PIA article)
PIA National further appreciates that state and federal legislative efforts have and will continue to interpret and implement the legal meanings and practices of both the three individual sectors AND their compatibility/complement to each other as a whole financial services industry. (National Underwriter article (XXX) – Eberhart)
PIA member agencies are expanding their products and services opportunities beyond purely P&C and into the emerging financial services industry. (PIA-CCEO Surveys - ’97, ’98, ’99).
PIA National evolved their definition of “state regulation” to one of functional insurance regulation with oversight implemented at the state level. This evolution recognizes that:
- Insurance regulation must be more uniform across states
- States must work in collaboration
- Centralized regulatory resources must be created and used
- State regulations must be coordinated with and complement federal requirements