Senate Privacy Bill Could Impede Progress in Calif. Business Climate

February 19, 2003

The Association of California Insurance Companies (ACIC) says a California consumer privacy bill that was set to be heard in the Senate Judiciary Committee Feb. 18 is unnecessary because current state law and department of insurance regulations give insurance policyholders adequate protection from any unauthorized use of personal financial information by insurance companies.

“The central feature of the current privacy issue before the legislature is identity theft,” Jeff Fuller, executive vice president and general counsel of the ACIC, advised the Senate Judiciary Committee in a Feb. 11 letter. “Any legislation enacted to combat identity theft should focus on strengthening law enforcement efforts to enforce current laws penalizing this type of abuse and to aid its victims. Regrettably, Senate Bill 1 strays from this policy agenda and instead attempts to place undue burdens on insurers. We stand opposed to SB 1.”

SB 1 would require financial institutions to offer an “opt-out” option prior to sharing personal information with affiliates and an “opt-in” option prior to sharing such information with nonaffiliated third parties, creating a privacy regulation in California that would differ from all other states.

“For insurers that operate nationally, uniformity of privacy regulation throughout the country is extremely important in order to both minimize costs of compliance and optimize benefit to consumers,” Fuller said in the letter. “Enactment of a ‘California-only’ privacy regulatory scheme will only further blemish the attractiveness of California’s business climate.”

ACIC believes that existing California law adequately protects consumers who provide private information to insurers operating in this state. The law recognizes that insurance companies must routinely gather and utilize private information about policyholders, claimants and others involved in the insurance system. In addition, the statute comprehensively regulates the collection, use and disclosure of private information by mandating that insurers: provide notices to applicants of the types of personal information that they will disclose; offer policyholders the opportunity to correct, amend or delete portions of an insurer’s recorded personal information; and abide by restrictions on the disclosure of personal information, such as allowing a policyholder the opportunity to prevent the disclosure of information for marketing purposes, or face fines for violations.

Insurance companies in California are also required to follow California’s Insurance Information and Privacy Protection Act adopted in 1980 and the privacy provisions in the federal Gramm-Leach-Bliley Act, both of which provide sufficient, strict privacy requirements, Fuller said. Fuller pointed out that the new, detailed privacy regulations adopted by the state department of insurance two months ago require insurance companies to protect private information and provide consumers with clear, understandable privacy notices.

“There has not been even a trickle of complaints-much less a deluge that would compel legislative action-that policyholders’ personal information is being mishandled by insurers,” Fuller said. “The California Department of Insurance itself stated that they have not received any consumer complaints on this issue in more than 20 years. The sharing among affiliate companies has produced no harm to consumers, and the information exchange is a benefit to policyholders.”

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