SENATE BILL REPORT

                   HB 3052

              As Reported By Senate Committee On:

Financial Institutions, Insurance & Housing February 26, 1998

Title:  An act relating to self‑audits by insurers.

Brief Description:  Authorizing self‑audits by insurers.

Sponsors:  Representatives L. Thomas, Smith, Mielke, Grant, DeBolt, Dyer, Hickel, Sullivan and Robertson.

Brief History:

Committee Activity:  Financial Institutions, Insurance & Housing:  2/24/98, 2/26/98 [DPA].

SENATE COMMITTEE ON FINANCIAL INSTITUTIONS, INSURANCE & HOUSING

Majority Report:  Do pass as amended.

  Signed by Senators Winsley, Chair; Benton, Vice Chair; Finkbeiner, Hale, Heavey and Prentice.

Staff:  David Cheal (786-7576)

Background:  An insurer must file an antifraud plan with the Insurance Commissioner.  The plan, which must be approved by the commissioner, must establish specific procedures to prevent insurance fraud, including internal fraud involving employees or company representatives.  Each year, an insurer must file a summary of the actions it took under its antifraud plan.  Both the plan and the annual reports are not public records, are proprietary, are not subject to public examination, and are not discoverable or admissible in civil litigation.

Currently, however, an insurer's internal audits, designed to improve compliance with state and federal law, are not privileged from discovery or admissibility in court. 

Summary of Amended Bill:  The House and Senate financial institutions committees are directed to conduct a study on insurance compliance self-audits, and make recommendations on whether a limited privilege should be enacted to encourage such audits.

The study is to involve the insurance industry, the office of the Insurance Commissioner and other interested parties.

If the study produces a recommendation that a limited privilege should be created, a bill is to be prepared for introduction during the 1999 legislative session.

Amended Bill Compared to Original Bill:  The committee amendment directs an interim study while the original bill establishes a limited privilege for documents related to insurance compliance self-audits.

Appropriation:  None.

Fiscal Note:  Requested on February 5, 1998.

Effective Date:  Ninety days after adjournment of session in which bill is passed.

Testimony For:  The bill will encourage compliance self-audits and corrective action, if needed, will be reduced.  The bill has protections against abuse, in that in order to obtain the privilege, timely corrective action must occur.

Testimony Against:  Regulation of the industry will be more difficult because the privilege will give insurers a device to hide evidence of wrongdoing.  New privileges that shield otherwise relevant evidence should only be established based on a clearly compelling need, which has not been shown.  No abuse on the part of regulators has been shown.  This is an anti-consumer bill.

Testified:  Mike Kapphahn, Farmers Insurance (pro); Mel Sorensen, NAII/Washington Physicians Service (pro); Sherry Appleton, Washington Citizen Action (con); Jim Odiorne, Insurance Commissioner=s office (con); John Budlong, WSTLA (con).