NAII Worries Over New Privacy Regs

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NU Online News Service, July 18, 1:10 p.m.EST?An insurers' trade group said it is concerned aboutthe expanded scope of new regulations in Arkansas and West Virginiadesigned to protect the privacy of individuals dealing withinsurance companies.

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Kathleen Jensen, National Association of Independent Insurers'insurance services counsel, expressed the misgivings of the DesPlaines, Ill.-based organization in an announcement yesterday.

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Those two states, she said, have extended their proposedregulation beyond the National Association of InsuranceCommissioners' model and the provisions called for in theGramm-Leach-Bliley financial reform act.

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In particular, she complained that the Arkansas and WestVirginia regulations replace the word "customer" with"consumer."

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"By changing the regulation to include consumers, an undueburden is placed on the insurance industry by requiring a higherstandard than other financial institutions conducting businesswithin that state," Ms. Jensen said.

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In the NAII's view, "The scope of the word consumer is so muchbroader that a regulation with that language would mean thatindividuals just filling out applications or asking about insuranceproducts would need to be covered in a company's written program,rather than just a customer with whom the company has a definitebusiness relationship," she said.

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According to Ms. Jensen, "If insurers are required to safeguard?consumer' information, rather than just ?customer' information,insurance companies would have the additional burden of creatingcostly procedures in their written program.

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She said the NAII will be working with insurance departments andlegislators in the states to encourage proposals that follow theNAIC model and include customer rather than consumer.

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The NAII noted that state regulators are preparing for the nextround of privacy proposals that will require a company to create awritten information security program for the protection of theircustomers' personal information.

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Such programs, NAII said, must include administrative, technicaland physical safeguards, and the scope of the programs will bedependent on the size and complexity of the individual company.

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By NAII's count, eight states have consumer privacy proposals:Arkansas, California, Iowa, Nebraska, New York, Oregon, Utah andWest Virginia

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"Although a handful of states are just now proposing specificcustomer protection measures, NAII expects to see a flurry ofactivity in states that need to quickly put these safeguards inplace," said Ms. Jensen.

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"The General Accounting Office's recent report reminded statesthat in addition to adopting privacy standards dealing with opt-outprivacy notifications, the Gramm-Leach-Bliley Act also required aspecific, written program for safeguarding the personal informationof a company's customers. We expect that states will play catch-upon complying with this mandate over the next few months, " shenoted.

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Under GLB, companies must protect a customer's nonpublicpersonal information, including nonpublic personal financialinformation and nonpublic personal health information.

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The NAIC has adopted a model regulation regarding the standardsfor safeguarding customer information for states to use as aguide.

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In addition to Arkansas and West Virginia, NAII gave a rundownon the proposed and adopted information privacy standards for sixother states.

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It said California has included the NAIC model in its proposedprivacy regulation and Iowa, Nebraska and Utah proposals are allconsistent with the NAIC model.

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New York's adopted privacy regulation was the basis for the NAICmodel, while Oregon's adopted rule requires the licensee todetermine if standards should also apply to commercial informationderived from noncustomer sources.

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The NAII trade association said its 700 members write 34 percentof the property-casualty insurance nationwide.

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