Insurance Groups Generally Satisfied With Progress Of State Privacy Initiatives

Despite the occasional disagreement with a particular state law or regulation, the major insurance industry groups are pleased with the progress of privacy laws and regulations in the United States.

According to Kathleen N. Jensen, insurance services counsel for the National Association of Independent Insurers in Des Plaines, Ill., “all 50 states have some sort of privacy legislation or regulation on the books, or will have soon.”

More specifically, the Alliance of American Insurers in Downers Grove, Ill., has reported that there are 43 state insurance departments and legislatures that “have taken steps” to implement Title V of the federal Gramm-Leach-Bliley Financial Services Modernization Act.

Most of these efforts involve adopting some or all of the 2000 National Association of Insurance Commissioners Model Privacy Regulation, the Alliance said.

The NAII has indicated that in New Jersey and Rhode Island, bills based on a model law from the National Council of Insurance Legislators are pending. However, the group does not expect the measures to pass.

As explained by J. Stephen Zielezienski, assistant general counsel for the Washington-based American Insurance Association, both the NCOIL and NAIC models include health information in the protection from indiscriminate disclosure.

However, unlike the NAIC model, which lists business exceptions to the general rule regarding health information, the NCOIL model “makes it crystal clear” that authorization from the consumer is required before a financial services company can share health information for marketing purposes, Mr. Zielezienski stated.

Another major difference is that the NCOIL model clearly states that the regulation does not apply to information gathered in connection with commercial lines of insurance, he added.

The Alliance also said that a few states are seeking to conform to measures based on a 1982 NAIC model law with GLB. The 1982 model law applies only to personal lines insurance transactions and excludes commercial lines transactions, Mr. Zielezienski noted. He revealed that 16 states have versions of the 1982 model law on their books.

While the AIA is not insisting that those states modify their laws, Mr. Zielezienski suggested that, to the extent that laws passed 20 years ago are “outdated in purpose and scope,” they could be updated to promote GLB’s goal of a more uniform and consistent standard for all jurisdictions.

The Alliance also has indicated that eight states–California, Georgia, Maine, Maryland, Massachusetts, Minnesota, New Jersey and Ohio–have failed to “directly and completely” address the issue. Of those, the group has identified California, Ohio, Maryland and Massachusetts as important “large market states.”

The Alliance also reported that regulations proposed in Alaska and Vermont seek to impose an “opt-in” system for disclosures to non-affiliates, and that Alaska’s version contains an “opt-out” for joint marketing disclosures.

In contrast, Title V of GLB and the 2000 NAIC model regulation generally require insurers to give consumers the opportunity to “opt-out” of disclosures that fall outside listed business exceptions, the AIA explained.

A representative for the Alliance indicated that the group “is very encouraged” by the number of state insurance departments and legislatures that “stuck to the basics and resisted the urge to go overboard in implementing GLB.”

According to the Alliance, 21 states and the District of Columbia “have declined to meddle in their workers’ compensation systems.”

In the NAII’s view, GLB “was intended to provide controls with regard to non-public personal financial information.” Therefore, by including workers’ comp and health, “insurance regulators are extending beyond the requirements” of the statute and are “forcing insurers into an unequal playing field with other financial service providers,” Ms. Jensen declared.

The NAII in the past has expressed concerns about potential dual-compliance problems arising in the context of health information privacy rules promulgated by the U.S. Department of Health and Human Services. According to the NAII, before doing business with p-c insurers, non-insurer entities directly subject to the HHS rules would have to insist that p-c insurers comply with the federal health information standards.

NAII is concerned that this will lead to increased costs for insurers, with the costs eventually passed on to consumers.

Nevertheless, Ms. Jensen indicated that the NAII is “very optimistic” that states contemplating opt-in provisions “will realize the burden this will place on insurers doing business in their states.”

The AIA also is “generally optimistic” about the progress of privacy measures around the country, said Mr. Zielezienski. However, he indicated that “interpretation issues” are arising in some states.

One such issue is whether independent agents can disclose information they gather from applicants and policyholders when shopping for the best coverage “without having to do anything extra,” he said. He indicated that the AIA and agent groups have maintained that this type of disclosure is excepted from the opt-out rule under GLB and the 1982 and 2000 versions of the NAIC model regulation.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 22, 2001. Copyright 2001 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.

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