Insurance Privacy Protection Issues Continue To Percolate

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Privacy protection for insurance consumers remains a highly visible public policy issue as recent discussions among regulators and insurers and a new bill introduced in California illustrate.

The need for agents to provide privacy notices if they shop policies on renewal was affirmed by regulators who voted to maintain that point in a Q&A developed during the recent spring meeting of the National Association of Insurance Commissioners here.

The Q&A is being developed to clarify points that have arisen following adoption of the NAIC’s Privacy of Consumer Financial and Health Information model in 1999.

Regulators have said the clarification is needed to fully protect consumers.

Producer groups object to limiting an exemption for agents in the model act, because they say it would impede business. Groups including the Independent Insurance Agents of America, Alexandria, Va.; the National Association of Professional Insurance Agents, Alexandria, Va., and the National Association of Health Underwriters, Arlington, Va., expressed their concern over regulators’ desire to limit the exemption.

Among the concerns raised, were producers’ legal liability if they could not act promptly and had to wait for permission from an insured to use private nonpublic information who either could not be reached or did not respond to an opt-out notice. The issues of timeliness and responsibility were raised with regard to making decisions when an existing carrier is being downgraded and the agent wants to shop the policy because of that.

There is one producer group that disagrees with the others. The Council of Insurance Agents and Brokers, Washington, maintains that if a producer wants to share an individual’s information with a third party, then the producer must give that individual notice and an opportunity to opt-out.

The CIAB says a solution to the issue of shopping at renewal would be to include a clause in the privacy notice stating that the producer intends to share the individual’s information at renewal.

For the most part, the issue of shopping at renewal does not affect life insurance producers who are members of the National Association of Insurance and Financial Advisors in Falls Church, Va., says Bill Anderson, a NAIFA vice president and associate general counsel.

Sharing of privacy is also addressed in a newly amended bill introduced by California Assemblyman Joe Nation, D-San Rafael.

The bill, AB 1775, was amended on March 21 and addresses privacy of nonpublic personal financial information.

Among other things, it would require that before “sensitive” financial information could be used, there would have to be an opt-in from consumers. Fines for violations could amount to $2,500 per customer with a cap of $250,000 for negligent acts and $500,000 for willful violations.

Sensitive information, as defined by the bill, includes medical health information, security codes, Social Security numbers, and bank account information.

The bill seeks to establish greater protections than under the federal Gramm-Leach-Bliley Act.

Insurance trade groups including the American Council of Life Insurers and the American Insurance Association, both in Washington, and the National Association of Independent Insurers, Des Plaines, Ill., are evaluating the new bill.

“In general, it is a better starting point than SB 773,” says John Mangan, a California representative with the ACLI, referring to another privacy bill introduced in the California legislature.

Potential concerns with AB 1775 include the definition of sensitive information and the possibility of bringing publicly available information under its auspices, he adds.

The ACLI’s position on a notice for residents of California will depend on what the notice ultimately looks like and whether it affects the uniformity of notices, Mangan says.

Kathleen Jensen, a representative with the NAII, says an initial review suggests that the Nation bill is better than a bill introduced by state Senator Jackie Speier, D-San Mateo. But although it is better, she adds, there is still language that needs to be clarified.

The Speier bill, SB 773, is still up for consideration in the legislature and is currently pending on the Assembly floor.

The California insurance department is also expected to release its own privacy regulations shortly.

California is one of several states that still needs to implement privacy standards to conform with GLB provisions.

In Vermont, a lawsuit filed by the ACLI, AIA, NAII, and the Alliance of American Insurers, Downers Grove, Ill., and the National Association of Mutual Insurance Companies, Indianapolis, is currently pending.


Reproduced from National Underwriter Life & Health/Financial Services Edition, April 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.