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 Senate Insurance, Commerce & Labor Committee
Tuesday, September 18, 2001

 

Mr. Chairman and members of the committee:

On behalf of the Ohio Department of Insurance, thank you for the opportunity to testify before you today regarding Senate Bill 138, the Information Sharing Act.

Senate Bill 138 is necessary to implement the provisions of the federal financial services modernization act, also known as the Gramm-Leach-Bliley Act (GLBA). Specifically, section 307 authorizes the federal banking agencies and state insurance departments to share confidential information that pertains to examinations and investigations of insurance companies and depository institutions.

The Ohio Department of Insurance has partnered with the Ohio Department of Commerce to support legislation that will give agencies 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.

Highlighting the need for regulators and law enforcement to share information with other agencies is a case which was recently featured in the national press, the case of financier Martin Frankel. Frankel is accused of embezzling over $215 million dollars from seven insurance companies and then fleeing to Europe when prosecution was imminent. 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. So far, various states' insurance departments have only been able to recover a fraction of the missing funds. The inability to share confidential information with other state, federal and international regulators and law enforcement agencies could have minimized or possibly avoided Mr. Frankel's embezzlement.

SB 138 allows the Superintendent of the Department of Insurance to share information on a confidential basis with other state, federal and international agencies (such as The Ohio Attorney general, Ohio Department of Commerce, the FBI, the United States Marshall, and foreign police departments and Interpol) so that there may be a coordination of efforts to regulate insurance companies and affiliated depository institutions. This information may be shared provided that the recipients agree to keep the information confidential.

SB 138 also allows the Department of Insurance to receive confidential information from other state, federal and international regulators and law enforcement agencies. To do so, the Department must also agree to keep the information confidential.

SB 138 facilitates the signing of information sharing agreements between key agencies. These written agreements are better able to keep sensitive information confidential when it is shared among agencies and regulators. The types of information to be shared 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, court records, etc (these records will be maintained as privileged and confidential unless the court of common pleas determines otherwise).

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 better and more effectively amongst themselves, thereby creating a more efficient system for the regulation and enforcement of insurance and banking laws.

Mr. Chairman and members of the committee, thank you again for the opportunity to appear here today. That concludes my testimony and I would be happy to answer any questions.