Mr. Hernandez, who specializes in insurance regulatory and reinsurance matters, also previously served as deputy commissioner and chief of enforcement at the California Department of Insurance.

He offered his comments yesterday at a conference titled "Strategies for Responding to Insurance Industry Investigations," organized by the American Conference Institute in New York.

Mr. Hernandez said there are several good reasons why a company should conduct an internal investigation into its insurance sales practices and brokerage relationships even when the company feels it hasn't done anything wrong.

One reason, he said, is that for many large insurers and other companies, there is always a possibility that there will be a knock at the door by various regulators seeking information.

The company, Mr. Hernandez said, should do whatever it can to minimize future risks by taking a proactive approach. He said one way to assess and minimize a company's own risk from regulators' scrutiny is to undertake a thorough internal investigation.

Starting an internal investigation on its own initiative is also a good public-relations move because perception matters and it will demonstrate to not only government authorities but also to the company's employees, shareholders and customers that the company is taking the ongoing industry-wide scandal seriously, he recommended.

Mr. Hernandez also discussed the nuts and bolts of the actual process of conducting an investigation.

There are several stages involved in conducting a successful internal probe, he explained. First, there is an initial investigation to determine the scope of the overall probe. This plan for scope then needs to be approved by the corporate board.

The next stage involves on-site visits for document review and in-person interviews with relevant personnel. That is followed by drilling down on specific issues that the company expects would potentially attract regulators' attention. The final stage is the assessment and conclusion of the findings.

On the topic of who should oversee the internal investigation, Mr. Hernandez said different models fit different situations.

The are many corporate personnel--such as in-house legal counsel, internal auditors, human resources and internal security--who can oversee the process, he said.

Mr. Hernandez said the internal investigation would also be well-served by inviting outside counsel, whether in conjunction with oversight from internal resources or as a fully independent investigator.