State Of Ohio DEPARTMENT OF INSURANCE 2100 Stella Court, Columbus, Ohio 43215 (614) 644-2658        www.ohioinsurance.gov	Bob Taft, Governor J. Lee Covington II, Director

Testimony of Rich Frederick, Legislative Liaison
Ohio Department of Insurance
Before
The House Insurance Committee
Tuesday, January 8, 2002

 

Mr. Chairman and members of the committee:

On behalf of the Ohio Department of Insurance, thank you for the opportunity to testify as a proponent on Senate Bill 138, the Information Sharing Act.

Senate Bill 138, sponsored by Senator Scott Nein, is legislation that is necessary to implement the intent of the Gramm-Leach-Bliley Act (GLBA), the federal financial services modernization act. Senate Bill 138 reflects the provisions of Section 307 of GLBA which authorizes the federal banking agencies and state insurance departments to exchange confidential information that pertains to examinations and investigations of insurance companies and depository institutions. The purpose of this section is to encourage the coordination and confidential sharing of information with the result being an improved efficiency and quality regarding supervision of financial holding companies engaged in insurance activities.

Upon passage of GLBA in November 1999, the National Association of Insurance Commissioners, of which Ohio is a member, adopted the Statement of Intent: The Future of Insurance Regulation (attached). This resolution expressed the members' intention to review state laws to determine regulatory or statutory changes necessary to achieve functional regulation of insurance as contemplated by GLBA. One of the items identified was the need to encourage the execution of information sharing agreements between the individual states and each of the key federal functional regulators. Establishing sound working relationships with Federal regulators is absolutely essential for state insurance departments under the new regulatory world envisioned by GLBA. Good financial regulation starts with having good information. Therefore, SB 138 as introduced will allow Ohio to enter into these agreements and provide assurances to our partners in regulating insurance companies and financial institutions that information shared with us will remain confidential and that the information that we share with them will also receive similar treatment.

The Ohio Department of Insurance has joined with the Ohio Department of Commerce to propose legislation that will give our department the ability to share confidential information with other state, federal and international regulatory and law enforcement agencies. This enables insurance and banking regulators to better protect policyholders and depositors from situations of fraud and abuse. A prime example that received significant media attention was that of Toledo, OH native, Martin Frankel, who embezzled approximately $215 million from various insurance companies before fleeing to Europe. Frankel had been banned from the business of securities, but state insurance commissioners were unaware of the ban, thus allowing him to enter the business of insurance.

SB 138 allows the Superintendent of the Department of Insurance to share information on a confidential basis with other state, federal and international regulatory agencies (such as The Ohio Attorney General, Ohio Department of Commerce, the FDIC, Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve Board.) to coordinate efforts to regulate insurance companies and affiliated depository institutions. This information may be exchanged provided that the recipients agree to keep the information confidential.

As a result of SB 138, ODI intends to enter into information sharing agreements between key agencies. These written agreements define for the parties how confidential information will be shared that is relevant to each other's supervisory or examination responsibilities and how the information will be used by each entity. The types of information that is currently confidential that could be shared with other regulators include: information obtained during the course of an examination or investigation that relates to an insurer's financial condition, audit records and work papers that are filed with the Superintendent by a Certified Public Accountant that relates to an audit of an insurer's financial records, information regarding rehabilitation and liquidation judicial reviews and proceedings.

SB 138 will offer more protections to policyholders and depositors from cases of fraud and abuse, such as in the Martin Frankel case. Regulators and law enforcement agencies will be able to communicate more effectively amongst themselves, thereby creating a more efficient system for the regulation and enforcement of insurance and banking laws.

I would like to thank Senator Nein for sponsoring this bill, and Chairman Stapleton who has agreed to be the House sponsor of this very important piece of legislation that will not only meet the requirements of GLBA but will provide Ohio consumers with additional protection from possible criminal activity.

That concludes my testimony and I would be happy to answer any questions.