TDI Issues Emergency Privacy Rules

Texas Department of Insurance (TDI) Commissioner Jose Montemayor has issued emergency rules implementing the Gramm-Leach-Bliley Act privacy requirements along with proposed insurance consumer financial information privacy rules.

The rules became effective July 12 and are posted on the agency’s website at
http://www.tdi.state.tx.uscommish/privacy2.html. In addition to the rules, the website offers guidance for interpreting those rules through a question and answer format, a commissioner’s bulletin on the rules, and a link to a National Association of Insurance Commissioners NAIC) survey that seeks information regarding companies’ compliance with the state’s privacy regulations.

Among other things, the commissioner’s privacy rules minimize the obligations of independent agents with respect to privacy notice requirements. In the interpretation of the Independent Insurance Agents of Texas (IIAT), the rules “allow agents to ‘shop’ applications to various companies without triggering the need to duplicate those companies’ privacy notices.” The IIAT commended Commission Montemayor for “implementing the new privacy laws in a way that assures consumers adequate notice of privacy policies by insurers” and free of duplicative privacy notice obligation for independent agents. The IIAT website, http://www.iiat.org/issues/ra_priv_imp.htm, also contains guidance for interpreting and responding to the new privacy rules.

Following are some of the questions and answers contained on the TDI website concerning aspects of the privacy rules that apply to agents and adjusters:

Q. Do the privacy rules apply to agents and adjusters?

A. Yes, the rules apply to any person or entity that is licensed or otherwise authorized to conduct business by the Department under the Texas Insurance Code. However, an agent or adjuster that discloses protected financial information only to the insurance company on whose behalf the information was collected does not have to comply with the notice and opt out requirements so long as the company itself complies with the notice requirements.

However, if the agent or adjuster shares the information with anyone other than an insurance company, the agent or adjuster must provide separate notices and opt out opportunities as required by the rules.

In addition, if an agent, for a fee, provides any other services to an individual such as financial, investment or economic advisory services relating to an insurance product, that individual becomes the agent’s customer and must be provided with all required notices about the agent’s privacy policy and, if the agent plans to share information with any third party, the opportunity to opt out.

Q. How will an agent know which companies have complied with the notice requirements so the agent doesn’t have to?

A. It will be up to the company and the agent to determine who will provide the notice on behalf of the company. The initial notice required by the rules must be given as soon as a person becomes a customer. Some companies may require the agent to provide the initial notice. In that case, it will be the company’s responsibility to provide the agent with the notice form to be used. However, after that, it is expected that most company will probably maintain responsibility to provide follow up and annual notices required by the rule.

Q. What about independent agents that share information with several insurers in order to get an offer for a client?

A. As stated previously, the privacy rules apply to agents. However, the rule provides that an independent agent sharing information with multiple insurance companies in order to obtain the best price quote for a client does not need to provide notices to the client. It is the responsibility of each insurance company to comply with the notice requirements as to that client. Note that under the rules, the client will be considered a consumer of each company to whom the client´s information is provided, and if the client purchases coverage from one of the companies, the client becomes the customer of that company.

However, if the agent discloses or plans to disclose that information to anyone other than the companies, the agent must send that client all required notices and provide the client with the opportunity to opt out.

Other insurance industry associations active in assisting insurers with the intricacies of the new laws include the National Association of Independent Insurers (http://www.naii.org), the American Insurance Association (http://www.aiadc.org), and Texas Surplus Lines Association Inc. (http://www.tsla.org).