California Modifies Privacy Regulations, Makes Insurance Shopping Easier

September 27, 2010

In what’s being called “a major victory for insurance agents and brokers,” the California Department of Insurance has notified the California Office of Administrative Law of its intention to repeal certain portions of its privacy regulations.

The CDI notified OAL of its decision to repeal California Code of Regulations Section 2689.8(c)(3). That provision requires agents and brokers to annually mail privacy policies to all customers, and to provide an “opt out” form that, if returned by the customer, prevents broker-agents from shopping on renewal to find better policies from other insurance companies, explained Insurance Brokers and Agents of the West, which requested the change.

California Financial Code Section 4056.5(b), which took effect July 1, 2004, expressly permits broker-agents to use nonpublic personal information without obtaining prior customer consent to shop on renewal, but CDI had previously taken no action to spare broker-agents the time, expense and effort to attempt to comply with the outdated CDI regulations, the association said.

IBA West submitted a letter to OAL endorsing CDI’s notification to the OAL. “We are tremendously grateful to Insurance Commissioner Steve Poizner and CDI lawyers for recognizing and solving this problem,” said IBA West General Counsel Steve Young. “The Department had no legal authority to enforce opt-out notification, but so long as the requirement was on the books, many broker-agents incurred very substantial expense attempting to meet those requirements.”

Customers come to independent agents and brokers to shop with multiple companies, Young explained, noting the changes will make it easier for customers to shop the market and prevent them from being bombarded with multiple, identical privacy policies on every insurance product they purchase.

CDI also notified OAL of its intention to clarify that a key exemption in its regulations applies to all brokers and agents.

California Code of Regulations Section 2689.8(c) was intended by CDI to exempt producers from sending out their own privacy policies, provided that the insurance company issuing the policy has complied with the notification requirements, IBA West said. Those regulations were based on the Insurance Information and Privacy Protection Act, Sections 791, et seq. The statute defined “licensee” to mean all brokers and agents, but the regulations promulgated thereunder used slightly different semantics. The definitional modification noticed by CDI now matches conforms the regulation to the statute, Young said.

Because the changes to the regulations are the verbatim result of changes to previously enacted statutory law, the Department of Insurance is not required by the California Administrative Procedures Act to hold public hearings or otherwise initiate a new rulemaking hearing, although OAL must approve the CDI action before it will take effect.

The CDI File Number is REG-2010-00015.

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