DEPARTMENT OF BANKING AND INSURANCE
DIVISION OF INSURANCE
Examination of Insurers
Adopted Amendments: N.J.A.C. 11:1-36.1, 36.2, 36.3 and 36.5
Adopted New Rule: N.J.A.C. 11:1-36.6
Proposed: December 18, 2000 at 32 N.J.R. 4328(a)
Adopted: April 12, 2001 by Karen L. Suter, Commissioner, Department of Banking and Insurance
Filed: April 12, 2001 as R. 2001 d. 135, with technical changes not requiring additional public notice or comment (see N.J.A.C. 1:30-4.3).
Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:23-20 et seq.
Effective Date: May 7, 2001
Expiration Date: January 31, 2006
Summary of Public Comments and Agency Responses:
The Department of Banking and Insurance ("Department") timely received written comments from insurer trade organizations and insurers as follows:
1. The Insurance Council of New Jersey;
2. The American International Group, Inc.;
3. Allstate New Jersey Insurance Company; and
4. The American Insurance Association.
COMMENT: Several commenters, while generally supporting the intent of the proposed rules, expressed concern that the information cited in the proposed rule may not ultimately be held confidential under applicable law.
One commenter stated that it is concerned about the lack of confidential treatment of documents requested outside the "examination timeframe." The commenter noted that N.J.A.C. 11:1-36.6(b) is intended to provide confidential protection of documents obtained by the Department in exercising "the examination power," whether or not within the examination period. The commenter requested clarification of the Departmentís authority to request documents outside the examination timeframe in order to provide confidential treatment of documents.
Another commenter similarly believed that the confidentiality provisions in N.J.S.A. 17:23-24f are confined to "examinations," and thus would not apply to documents obtained during financial analysis. The commenter stated that N.J.S.A. 17:23-22a provides in part: "In scheduling and determining the nature, scope and frequency of the examinations, the commissioner shall consider such matters as the results of financial statement analysesÖ ." The commenter accordingly believed that a financial analysis cannot be both a tool for determining the scheduling and nature of an examination, and also part of the examination being contemplated.
In addition, the commenter stated that N.J.S.A. 17:23-23 requires the Commissioner to issue a "warrant" appointing one or more examiners upon determining that an examination should be conducted. The commenter stated that unless the Department contemplates issuing a warrant each time an actuarial report is requested, it will be in violation of the statute if it later claims that the actuarial report was requested as part of an examination.
Another commenter also stated that the Department should take steps regarding the physical protection of documents to prevent them from accidentally being released. The commenter believed that it is important that the Department ensure companies of its ability to maintain proper physical control of documents in order to avert any release of such valuable information.
Similarly, another commenter stated that, unlike N.J.A.C. 11:1-36.6(a), which specifically provides that working papers and documents obtained in the course of an examination shall be kept as confidential, N.J.A.C. 11:1-36.6(b), which relates to the maintaining of actuarial reports as confidential, does not include "workpapers."
Several commenters also questioned whether courts would sustain confidentiality protection of the information. One commenter specifically stated that given the broad interpretation of the "Right to Know" law, N.J.S.A. 47:1A-1 et seq., and the New Jersey Supreme Courtís endorsement of the publicís access to information held by State agencies, it is concerned that even with the adoption of the rule, the Commissioner of Banking and Insurance ("Commissioner"), as the custodian of the material, may be compelled to release the documents to the public. The commenter believed that this would be "utterly untenable" because of the sensitive nature of the information being requested. One commenter expressly stated that it would oppose any attempt by the Department to "take possession of insurer actuarial reports and related working papers."
These commenters believed that in lieu of requesting the information sought, access could be given by the insurer to the Department by allowing Department examiners to visit the office of the insurer or having the material in a secure location in closer physical proximity to the Departmentís offices. This would alleviate any concerns on the insurerís part that the Commissioner could be forced to surrender proprietary information while providing the Department access to this information.
One commenter further noted that there is pending legislation that would amend the "Right to Know" law to preclude the disclosure of privileged and confidential material, including "trade secrets and proprietary commercial or financial information obtained from any source" and "information, which if disclosed, would give an advantage to competitors or bidders." See Senate Bill Number 2003. This commenter nevertheless stated the Department should go forward with the adoption of the rules and commended the Department for taking this initiative.
RESPONSE: The Department initially notes that these proposed amendments and new rule do not require the submission of information, including actuarial reports. The Departmentís statutory authority to request information from insurers is not affected by these amendments and new rule. Accordingly, the suggestions that, as an alternative to filing actuarial reports, the Department be permitted to inspect such documents, is outside the scope of the proposal. The Departmentís determination whether a particular document must be filed with the Department to facilitate its review or analysis of an insurerís condition, and the Departmentís authority to require that such information be filed, are independent of these amendments and new rule, which merely identify the types of documents that are and have been considered confidential pursuant to N.J.S.A. 17:23-24f.
The Department reiterates, as it stated in the proposal Summary, that it has construed N.J.S.A. 17:23-24f as providing for the confidentiality of other documents obtained, not only as part of a specific periodic examination of an insurer in accordance with N.J.S.A. 17:23-20 et seq., but in connection with the Department's exercise of its examination power pursuant to that statute, including the ongoing financial analysis of insurers. This is the manner by which the Department has construed existing law, and has and will hold such documents confidential. The rule codifies the Department's existing position. The Department has never construed the statute as providing confidentiality for documents solely obtained upon the issuance of an "examination warrant."
Moreover, the commentersí concerns that documents in the Departmentís possession may be ultimately required to be made public or released exist with respect to any document filed that is expressly held confidential under any statute or rule. Any document on file with a governmental agency may be subject to a public records request. With respect to requests for information held as confidential, including the documents cited in the rule, the Department would deny such a request on the grounds that the record is not public by law. If this determination is challenged, the Department has and will continue to notify a filer of any such challenge for appropriate action on its part. This is consistent with the procedures utilized for the myriad of documents held as confidential by the Department pursuant to law. However, the Department does not believe that a potential judicial determination negates the need for these new rules. Rather, it supports the need for their adoption to clarify those documents considered to be confidential pursuant to N.J.S.A. 17:23-24f.
With respect to the concern that working papers are not expressly included in the rules, the Department notes, as set forth in a response to a subsequent comment, that the list of documents in N.J.A.C. 11:1-36.6(b) is not intended to be exhaustive. Accordingly, related documents, such as actuarial workpapers, are not excluded, and, in fact, would be included.
COMMENT: One commenter suggested that the Department add the word "also" after the word "shall" in N.J.A.C. 11:1-36.6(b), as a matter of form, and to clarify its intent, so it would read as follows: "The confidentiality provision in N.J.S.A. 17:23-24f shall also apply to any other documents..." (language underlined is to be added).
RESPONSE: The Department agrees, for the reasons expressed by the commenter, to change N.J.A.C. 11:1-36.6(b) upon adoption to add the word "also" as a matter of form.
COMMENT: One commenter stated that N.J.A.C. 11:1-36.5(b) should be amended to allow insurers input over the use, selection and type of independent contractors in examinations. This commenter further stated that it "makes sense" that insurers submit payments to vendors within 30 days of receipt of approval by the Department, rather than "upon approval by the Commissioner."
RESPONSE: The Department initially notes that these comments are outside the scope of the proposal. The only changes made to N.J.A.C. 11:1-36.5 are technical changes to add the appropriate statutory citations as a matter of form. Further, the Department does not believe that it would be appropriate to permit an insurerís input regarding the use, selection and type of independent contractors in examinations. These entities are being utilized and appointed to act on behalf of the Department in conducting the examination. Accordingly, under the statute, the Department has the sole authority and discretion in selecting consultants for examinations. Adoption of the commenterís suggestion would potentially give an insurer veto power over the consultant utilized, which is not recognized or authorized by the statute.
Similarly, the comment regarding the timing of payments to vendors is outside the scope of the proposal. In any event, it is unclear from the comment what problems, if any, have occurred under the existing rule. The Department sends the notice to insurers advising them to pay the applicable charge on the same day the charge(s) are approved. Insurers thus receive timely notice of approval of such charges. The Department is not aware that that this has posed any problems for insurers to pay applicable charges in a timely manner.
COMMENT: One commenter suggested that additional items be added in N.J.A.C. 11:1-36.6(b), such as data calls, commission schedules, and reserving analyses.
RESPONSE: Upon review of the commenterís suggestion, the Department has determined that no change is required. While the Department recognizes that there are numerous documents that may be requested and fall into the provisions in the rule, the Department notes that the rule is not intended to be an exhaustive listing of all documents, but rather an example of the types of documents that have and will be kept confidential pursuant to N.J.S.A. 17:23-24f, as it applies to "any other documents obtained by the Department in exercising the examination power under N.J.S.A. 17:23-20 et seq....", including, but not limited to, those documents expressly set forth in the rule.
A Federal standard analysis is not required because the adopted new rule and amendments are not subject to any Federal requirements or standards.
Full text of the adoption follows (addition to proposal indicated in boldface with asterisks
(b) The confidentiality provision in N.J.S.A. 17:23-24f shall *also* apply to any other documents obtained by the Department in exercising the examination power pursuant to N.J.S.A. 17:23-20 et seq., including the Departmentís ongoing financial analysis of insurers, and including, but not limited to, the following:
1. Ė 6. (No change from proposal.)