Over the past several years, states throughout the country have enacted legislation and regulations intended to strengthen the ongoing fight against insurance fraud. Accompanying that is an oft-criticized but growing call for a federal insurance regulatory system. At the center of the battle over federal oversight of insurance is the National Insurance Consumer Protection Act (NICPA), which at the time of this writing is being considered by Congress.

NICPA provides insurers with the option to be licensed under a federal charter, and it creates an Office of National Insurance (ONI) intended to regulate insurance entities. ONI would include a Division of Insurance Fraud, established for the purpose of investigating and prosecuting insurance fraud committed by or against insurers, agents and producers. Its jurisdiction would extend to all cases or suspected cases of insurance fraud.

NICPA imposes potential penalties of up to $500,000 and/or imprisonment for up to five years for anyone committing a fraudulent insurance act or knowingly and intentionally interfering with the investigation of a suspected fraudulent act. An entity licensed under the federal charter (or a party affiliated with such an entity) may be subject to a fine of up to $1 million and/or imprisonment for up to 10 years for violating the proposed law’s anti-fraud provisions. For fraudulent acts involving amounts less than $5,000 that are committed by an entity not licensed under the federal charter, the maximum fine is reduced to $100,000, with the maximum prison time decreased to one year. In addition, NICPA requires parties convicted of violating the anti-fraud provisions to make financial restitution to parties injured as a result of the illegal action; such restitution is “the exclusive monetary remedy available to the victim at law or at equity after entry of judgment.”

Similar to most state insurance fraud statutes, the anti-fraud provisions of NICPA prohibit parties from presenting or preparing to present “false information as part of, in support of, or concerning a fact material to” a claim for policy benefits to an insurer, agent or producer. However, unlike some state insurance fraud statutes, the anti-fraud provisions also extend to a wide variety of other insurance transactions, including insurance policy applications, the issuance of evidence of insurance, and the reinstatement of insurance policies.

Interestingly, NICPA also addresses several types of potential misrepresentations that could be made by insurers. These include misrepresentations material to the rating of insurers, their financial condition and the “formation, acquisition, merger, consolidation, or dissolution of a national insurer or national insurance agency.” Also covered are misrepresentations made in documents filed with the Commissioner of the Office of National Insurance. The anti-fraud provisions of NICPA also preclude a person “who knows or should know that the national insurer or state insurer is insolvent at the time of the transaction” from soliciting or accepting new policies or renewals. These provisions also proscribe the “[r]emoval, concealment, alteration or destruction of the records” of a state or national insurer, as well as the “[t]ransaction of the business of insurance in violation of laws requiring a charter or license” under NICPA.