NAII Says Calif. Privacy Would Create Unnecessary, Costly, Overlapping Rules

Legislation addressing the privacy of consumer information would impose unjustified restrictions on a California insurer’s ability to share information with affiliated companies and would create confusing, unnecessary and expensive notice requirements, according to the National Association of Independent Insurers (NAII).

The first hearing on Assembly Bill 1775 was being held April 15 before the state Assembly Banking and Finance Committee.

“California has had a system in place for more than 20 years that already does a good job protecting consumers and regulating the disclosure and use of personal information by insurance companies,” Sam Sorich, senior vice president and general counsel for the NAII, testified before the state committee.

“AB 1775 would overlay new requirements on the existing, effective requirements and protections. The state’s existing insurance privacy system strikes a balance between insurers’ need for information and the public’s need for fairness.”

The California Insurance Department is developing regulations aimed at making sure California insurers have clear guidelines for complying with the state’s Insurance Information and Privacy Protection Act, established in 1981, and Title V of the federal Gramm-Leach-Bliley (GLB) Act.

However, AB 1775 would establish disclosure restrictions that go far beyond the requirements in either the California law or federal act. An insurer would have to obtain a consumer’s “opt-in” before disclosing “sensitive information” to affiliates or nonaffiliated companies and would have to give a consumer the right to “opt-out” before disclosing other information. In addition, an insurer that discloses information to a non-affiliated third party would have to audit and verify that the third party is maintaining the confidentiality of the information.

“Enacting these provisions would be a disservice as it would keep insurance companies from providing expeditious services to our customers,” Sorich remarked. “It would also be impossible for an insurer to execute because the insurer would have to enter into a contractual agreement with every third-party that receives information and would have to maintain an administrative system for verifying that every piece of information is being properly used and protected.”

AB 1775 would require insurance companies-even those companies that don’t share customer information with affiliates or non-affiliates- to provide a customer with a Consumer Choice Notice describing the opt-in and opt-out rules. California insurance consumers are already receiving the notices required by the GLB and state Privacy Protection Act. This new notice has the potential for confusing more consumers than it would help, in addition to adding to the cost of doing business in California, according to Sorich.

“Before imposing any new notices on insurers, the effectiveness of current notice requirements should be examined and established,” Sorich added.

Topics California Carriers