P-C Exempt From Patriot Act Rules

The rule does not apply to any type of insurance agency or brokerage. However, the Treasury Department is seeking input on whether it should apply to such entities. Treasury is also seeking input on whether its definition of an "insurance company," limiting application to life insurers, is appropriate.

The proposed rule relates to the USA Patriot Act, which was passed by Congress in the aftermath of the Sept. 11, 2001 terrorist attack as a means to better track funds of terrorist organizations.

Phil Schwartz, vice president of financial reporting with the Washington-based American Insurance Association, praised the Treasury Department's decision. He noted that AIA had urged Treasury to exclude p-c companies from the proposed rule because p-c products do not lend themselves to money laundering.

To make a payment back to a p-c policyholder, Mr. Schwartz noted, there generally must be a loss. Because of this, there is really no benefit to using p-c insurance to launder money, he said. For example, he said, it is easier for someone interested in money laundering to sell a building than to burn it down.

While fraud is always a possibility, Mr. Schwartz added, p-c insurers are already subject to state anti-fraud regulations, and have extensive experience in-house in combating insurance fraud.

Now that Treasury has proposed its rule, comments have to filed within 60 days after the date of publication in the Federal Register. Treasury will then issue a final rule once is considers all the comments.