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Life Health > Life Insurance

Agencies Post Privacy Form Model

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Federal banking and securities regulators have worked with the National Association of Insurance Commissioners to adjust a new privacy form to fit the needs of insurers.

The regulators developed the “Final Model Privacy Form” to implement provisions of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999.

The list of agencies that worked on the model includes the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the National Credit Union Administration, the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Federal Trade Commission.

The agencies developed the model form to implement Section 728 of the Financial Services Regulatory Relief Act of 2006, which calls for the federal government to create a model privacy form that financial institutions can use as a safe harbor.

Participating agencies other than the SEC are eliminating safe harbor relief that they were providing through the “Sample Clauses” now contained in the privacy rules. The Sample Clause safe harbors will stop protecting notices that sail out after Dec. 31, 2010, officials warn in a discussion of the form, which appears on the SEC website.

Similarly, the SEC will be eliminating the guidance associated with the use of notices based on the Sample Clauses in its privacy rule for notices provided after Dec. 31, 2010.

Even after Dec. 31, 2010, financial institutions “may continue to use other types of notices that vary from the model form so long as these notices comply with the privacy rule,” officials write.

Several agencies began working on a privacy notice program in 2004, and the published a draft form in March 2007.

As part of the process, the agencies hired a research firm to survey 1,000 consumers by stopping them at shopping malls in Baltimore, Dallas, Detroit, Los Angeles and Springfield, Mass., in March and April 2008, and getting their reactions to 4 different types of privacy forms.

One of the versions was a form developed by Kleimann Communication Group Inc., x, for the agencies, and another was a form commonly used by financial institutions, officials write.

A consulting firm looked at how well survey participants could provide logical reasons for choosing one bank over another based solely on privacy notices, and the firm also analyzed the participants’ ability to understand differences between banks, such as differences in information collection and sharing practices, using the notices.

The current notice performed poorly on all measures, and the form developed by Kleimann did well, officials at the agencies that developed the model form report.

The Kleimann version presented information using a table, and the consulting firm “concluded that the table format is likely a key explanation for the improvement in comprehension demonstrated by the study participants who saw the table notice as compared to those who saw the other notice styles – especially for difficult perceptual accuracy tasks,” officials write.

The federal agencies received 110 unique comments on the proposed model form effort, and one of the comments came from the National Association of Insurance Commissioners, Kansas City.

“There was general support by many commenters for additional consumer research and testing,” officials at the agencies write. “While some industry commenters provided substitute language or submitted alternate forms of the notice, none submitted other research findings. However, the NAIC submitted a consumer study on notices with research findings that the agencies did consider.”

The NAIC found, for example, that consumers dislike seeing the phrase “as permitted by law” in a privacy form, because they are not sure what it means and how “what is permitted by law” might change, officials report.

Insurance companies, which may sell products such as annuities that are regulated both by federal agencies and state insurance departments, pointed out that the model form originally proposed did not allow for insurance-specific terminology.

“The agencies fully intend that differently-regulated entities can provide a single joint notice to consumers by using the final model form,” officials write. “The agencies have consulted with the NAIC, which submitted a letter with proposed modifications to certain sections of the form. The agencies have incorporated into the final model form two menus of terms adaptable to the wide range of financial institutions. The menus include both the SEC’s and the NAIC’s proposals, and enable a variety of institutions, including securities firms and insurance companies, to use the model form, either individually or jointly with other types of financial institutions.”

The federal agencies refer to the American Council of Life Insurers, Washington, and other financial services trade groups mainly in footnotes.

The agencies report that, in response to industry group comments, the Fed board and the FTC will work together to develop a Web version of model privacy form.


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