Legislature(2001 - 2002)
04/25/2001 03:30 PM House L&C
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* first hearing in first committee of referral
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+ teleconferenced
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HB 184-INSURANCE CODE AMENDMENTS [Contains discussion of HB 211, HB 106, and SB 138] CHAIR MURKOWSKI announced that the next order of business would be HOUSE BILL NO. 184, "An Act relating to the business of insurance, including changes to the insurance code to implement federal financial services reforms for the business of insurance and to authorize the director of insurance to review criminal backgrounds for individuals applying to engage in the business of insurance; amending Rule 402, Alaska Rules of Evidence; and providing for an effective date." [Before the committee was a proposed committee (CS), version 22-GH1025\f, Ford, 4/19/01, adopted as a work draft on 4/20/01] CHAIR MURKOWSKI addressed Bob Lohr, the Director of the Division of Insurance, and stated that during the last hearing on the bill, [the committee] wanted to make sure that privacy provisions with regard to financial institutions and what was going on with the insurance were somewhat similar. She said she assumed that the proposed F.2 amendment is the product of those concerns. Amendment F.2 [22-GH1025\F.2, Ford, 4/25/01], which was later adopted as Amendment 1, read: Page 25, line 30, through page 26, line 9: Delete all material and insert: "Sec. 21.36.162. Nondisclosure of an individual's personal financial and personal health information. (a) A person may not disclose personal financial or personal health information regarding an individual who seeks to obtain, obtains, or has obtained an insurance product or service, except when and only to the extent that the disclosure is (1) authorized by the individual whose personal financial or personal health information is sought to be disclosed; (2) required by federal or state law or federal or state regulation; (3) compelled by a subpoena, search warrant, or other order issued by a court or administrative agency of competent jurisdiction; (4) for the performance of any of the following insurance functions: claims administration; claims adjustment and management; detection, investigation, or reporting of actual or potential fraud, misrepresentation, or criminal activity; underwriting; policy placement or issuance; loss control; rate making and guaranty fund functions; reinsurance and excess loss insurance; risk management; case management; disease management; quality assurance; quality improvement; performance evaluation; provider credentialing verification; utilization review; peer review activities; actuarial, scientific, medical, or public policy research; grievance procedures; internal administration of compliance, managerial, and information systems; policyholder service functions; auditing; reporting; database security; administration of disputes and inquiries; external accreditation standards; the replacement of a group benefit plan or workers' compensation policy or program; activities in connection with a sale, merger, transfer, or exchange of all or part of a business or operating unit; or other functions that the director may approve as necessary for the performance of the above functions and that are fair and reasonable to the interest of the insurance consumer; (5) permitted without requiring authorization under federal privacy rules adopted under 42 U.S.C. 300gg - 92 (Health Insurance Portability and Accountability Act of 1996) by the United States Department of Health and Human Services; or (6) required to enforce the person's rights or the rights of other persons engaged in carrying out an insurance transaction or providing an insurance product or service that an individual requests or authorizes. (b) The director may adopt regulations to implement this section that provide not less than the protection of an individual's personal financial and personal health information provided under (a) of this section. (c) This section does not restrict disclosure of publicly available information. (d) This section does not prohibit a person from disclosing personal financial information if (1) the disclosure is necessary to market a financial product or service of the person, including a financial product or service that is jointly offered, endorsed, or sponsored by another person under a written contract; (2) the person receiving the information agrees in writing not to disclose or use the information other than to carry out the purposes for which the person disclosed the information; and (3) the person disclosing the information provides written notice to the individual who is the subject of the information and the notice includes (A) the information that the person collects; (B) the information that will be disclosed; and (C) to whom the information will be disclosed. (e) For purposes of this section, (1) "personal financial information" means any information or data about a person that is not personal health information; (2) "personal health information" means any information or data except age or gender, whether oral or recorded in any form or medium, created by or derived from a health care provider or other person that relates to (A) the past, present, or future physical, mental, or behavioral health or condition of an individual; (B) the provision of health care to an individual; or (C) payment for the provision of health care to an individual; (3) "publicly available information" means any information that a person has reasonable basis to believe is lawfully made available to the general public from (A) federal, state, or local government records; (B) widely distributed media; or (C) disclosures to the general public that are required to be made by federal, state, or municipal law." Number 0330 BOB LOHR, Director, Division of Insurance, Department of Community and Economic Development, came forth and stated that Chair Murkowski was correct. He stated that the Senate has been considering a companion bill [SB 138] to this one, which is now in the form of a Senate Labor and Commerce Standing Committee CS in front of the Senate Judiciary Standing Committee. Both committees have taken the approach of mandating that the Division of Insurance come up with regulations that are consistent with, but no less restrictive of, privacy in the Gramm-Leach-Bliley Title Five. He stated that the division would prefer the duty of adopting regulations to make all of this consistent. He emphasized that [the division] still feels that is the best approach to getting a good privacy standard for Alaskans with respect to insurance financial information and insurance health information. This is what the amendment would do. MR. LOHR explained that subsection (d)(3) of the amendment is the one difference between the banking marketing exemption and the insurance approach. It would require notification to the individual that joint marketing arrangements might occur. Under this approach, in the bill, it would provide an opt-out or opt- in. The individuals are simply qualifying for an exemption; however, they would at least receive notification that this type of joint marketing could occur. He noted that some reviewers of the amendment have asked why that wouldn't give them opt-in or opt-out, and why a customer couldn't be allowed to say, "You tell me you want to do joint marketing; I don't think you should with my data." He explained that that would be a kind of opt- out approach imbedded in paragraph (d)(3). He emphasized that that is not the way it is currently drafted, but is an approach the committee may wish to consider. REPRESENTATIVE ROKEBERG stated that he is uncomfortable with joining the health insurance information with other financial information. He said he thought [the committee] had talked about having very stringent confidential and/or opt-in health insurance, without exceptions. Number 0159 CHAIR MURKOWSKI stated that she understands that with this amendment, personal information is opt-in, and the only exception is to financial information. The exceptions that are in paragraph (4) [on page 1 of the amendment] are part of the NAIC (National Association of Insurance Commissioners) model; therefore, they are not new. MR. LOHR stated that Chair Murkowski was correct. He said he doesn't believe that this marketing exemption would be available for health information; as a result, the stricter standard is maintained. CHAIR MURKOWSKI referred to page 2, line 16 [subsection (d) of the amendment], and said she read that as being an exception for the financial information, and that it does not apply for personal health information. MR. LOHR responded that Chair Murkowsky was correct. REPRESENTATIVE ROKEBERG remarked that the format of commingling both the health and the financial information leaves it open for interpretation. He stated that he is not comfortable with the drafting language, because it is not clear. MR. LOHR agreed with Representative Rokeberg. He stated that the division had prepared redundant language for both the health and financial information to separate the notion of health from privacy. He said he was advised by staff and by the office of the Attorney General that that was unnecessary; therefore, they were combined. However, he said the division has prepared a version that will allow completely separate sections for the health information and the financial information. REPRESENTATIVE ROKEBERG stated that he is also uncomfortable with the "laundry list" of activities in paragraph (4) [subsection (a), page 1 of the amendment]. TAPE 01-68, SIDE A Number 0076 MR. LOHR clarified that the language [in paragraph (4)] is analogous to a bill title. It is lengthy and involved because it is designed to delimit what an insurance company may do with that exemption. By being so precise in each individual element, it covers regulations on privacy from the NAIC that were determined to be appropriate to allow insurance companies to do. It does not have vague language, which could then be broadly interpreted in such a way as to fit in some type of exemption under the guise of administrative operations of the company. He stated that the elements of subsection (a)(4) are designed to allow an insurance company to do the business for which the financial or health information is gathered in the first place. REPRESENTATIVE ROKEBERG stated that he thinks paragraph (6) [subsection (a), page 2 of the amendment] is broad; yet it provides the protections without having to list every one. He asked whether the intention of paragraphs (4) and (6) is to allow the activities of health insurance to be conducted. MR. LOHR responded that paragraph (6) appears to be more of a general statement. CHAIR MURKOWSKI stated that language taken directly from the NAIC regulations has the whole "laundry list," as does paragraph (6). She asked where the list of regulations came from. MR. LOHR answered that the list came from the model regulations. He explained that once the Gramm-Leach-Bliley Act (GLBA) was adopted, the NAIC began a process of forming a working group of commissioners from various states and taking detailed testimony from insurance companies, interested parties, and consumer groups. The regulations are consistent with the GLBA, but in some respects they go beyond it. For example, with respect to health information, GLBA does not restrict uses of health information; however, the model regulations that NAIC developed address that. He added that [the list in paragraph (4)] is what is appropriate for a company to do, while not allowing a lot of "wiggle room" in terms of defining an individual element of administrative practice by that company. Number 0407 REPRESENTATIVE ROKEBERG stated that with HB 106 [the committee] was trying to look at the smaller financial institutions in Alaska and put them on equal footing with national insurance companies. He asked how many domestic insurers there are in Alaska. MR. LOHR answered that there are nine domestic insurance companies. REPRESENTATIVE ROKEBERG asked Mr. Lohr if it would be his opinion that those smaller, local companies could use some assistance, particularly given GLBA, to do the expanded marketing. MR. LOHR responded that there has not been substantial comment to the division about the provisions of this bill. REPRESENTATIVE ROKEBERG stated that this language is not the same language in [HB 106]. He said this is more of an opt-out situation, without much in the way of sideboards. MR. LOHR responded that it is neither opt-in nor opt-out in the sense that a company that wishes to engage in joint marketing is not required to notify customers of its plan to [disclose personal information]. He added that paragraph (d)(3) [in the amendment] is an exemption to the requirement for opt-in, as proposed in this amendment. CHAIR MURKOWSKI asked whether this is an expansion from when [the committee] first started. She said initially it was opt- out with regard to financial information and opt-in with regard to personal health information. Now, it is still opt-in for personal health information, but neither "here nor there" with financial information. MR. LOHR agreed, and stated that traditionally opt-in is a tighter form of privacy protection than opt-out. However, that is not the case when a sufficiently large exemption is created with opt-in that doesn't require opt-in or opt-out; opt-in then looks more permissive. Number 0726 CHAIR MURKOWSKI asked: In order to change this so it is opt-in for everything, with an exception to opt-in for financial information, would paragraph (d)(3) [of the amendment] also allow the consumer to say he or she does not want that information to be shared? MR. LOHR responded that [it could be fixed that way]. CHAIR MURKOWSKI stated that the opt-in provision in subsection (a)(1) [of the amendment] explains that it has to be authorized by the individual whose information is being sought, but it doesn't require that the authorization be in writing. She asked if written consent would be one of the overall requirements. MR. LOHR responded that it is hard for him to see how this would require written consent. He recalled a debate about switching from one long-distance telephone company to another, and the level of proof that is required from the person intending to switch. He stated that the regulatory commission does allow voice-mail messages, which is easier for the customer, but puts the customer at some risk. [With the referenced section], he said it is a policy call of whether it is worth the extra burden on the company in terms of gathering [the written consent]. He noted that the health information is more restrictive and does require a written consent. Number 0887 KATIE CAMPBELL, Life and Health Actuary, Division of Insurance, Department of Community & Economic Development, stated that this is an oversight; it should actually be authorized in writing or in electronic form, which is consistent with the NAIC model. CHAIR MURKOWSKI asked if "electronic form" would be an e-mail. MS. CAMPBELL answered yes. She added that it may be unnecessary to put "electronic form" [in the amendment], because there may be another provision that would allow electronic [communication] to count as written authorization. CHAIR MURKOWSKI stated that the model regulations provide for the administration of consumer disputes and inquiries; however, page 1, line 23, paragraph (a)(4) [of the amendment] reads "administration of disputes and inquiries". She asked whether there was a reason to delete "consumer". MR. LOHR answered that there was no intent to change what it said, and [the division] would support [the committee's] adding "consumer". Number 1026 REPRESENTATIVE ROKEBERG referred to paragraph (a)(5) [of the amendment], which states "permitted without requiring authorization" under the HIPA (Health Insurance Portability and Accountability Act) rules. He asked whether that is going to be a default whereby the HIPA federal privacy rules are the bottom line and can be tightened up. MR. LOHR responded that under the NAIC model regulations for health, the approach was to say that if an insurance company is complying with the HIPA regulations, then that is good enough. There is no attempt to go beyond those HIPA regulations or duplicate the health requirements in the NAIC model regulations. REPRESENTATIVE ROKEBERG asked whether they could be tightened up through subsection (b) [of the amendment], which reads "not less than the protection" provided under subsection (a). MR. LOHR answered that they could. REPRESENTATIVE ROKEBERG asked whether there is a provision for HB 211, in which statutory provisions are already tighter than the HIPA model. Number 1114 MR. LOHR responded that this authority would not extend to addressing the HB 211 provision. He said he would encourage [the committee] to consider the possibility of conforming the HB 211 provisions to be more like whatever the decided approach is for health privacy in this bill. REPRESENTATIVE ROKEBERG remarked that if Mr. Lohr is suggesting that he change his bill to meet whatever regulations the division writes, he does not agree with that. MR. LOHR responded that he thinks he was indicating that having substantive health provisions in this bill consistent with the HB 211 approach would make sense. REPRESENTATIVE ROKEBERG asked whether the Senate had left the NAIC language in [its version]. MR. LOHR answered that the Senate version said "consistent with but no less than GLBA". He said the Senate has adopted an amendment that would drop the NAIC model and put GLBA in its place. Number 1248 CHAIR MURKOWSKI made a motion to adopt Amendment 1 922- GH1025\F.2, Ford, 4/25/01, text provided previously]. REPRESENTATIVE ROKEBERG objected for purposes of discussion. Number 1274 CHAIR MURKOWSKI made a motion to adopt Amendment 1 to Amendment 1, on page 1, line 8, [subsection (a)(1)] of the amendment, after "authorized", to insert "in writing". There being no objection, Amendment 1 to Amendment 1 was adopted. CHAIR MURKOWSKI made a motion to adopt Amendment 2 to Amendment 1, on page 1, line 23, [subsection (1)(4)] of the amendment, after "administration of", to insert "consumer". There being no objection, Amendment 2 to Amendment 1 was adopted. CHAIR MURKOWSKI made a motion to adopt conceptual Amendment 3, to Amendment 1, on page 2, subsection (d)(3) of the amendment, to create a subparagraph (D) that would give the individual the opportunity to prohibit the sharing. REPRESENTATIVE ROKEBERG asked whether that would be prior to the company's disclosing the information. CHAIR MURKOWSKI explained that in HB 106 there were examples of how banks provided the opt-out information. She said she thinks if [the committee] does not allow for this, then it is neither opt-in nor opt-out when it comes to the financial information. MR. LOHR remarked that [the division] would be happy to help with the conceptual amendment. CHAIR MURKOWSKI announced that there being no objection, conceptual Amendment 3 to Amendment 1 was adopted. Number 1501 MR. LOHR made a motion to adopt conceptual Amendment 4 to Amendment 1, on page 2, line 14, [subsection (b)] of the amendment, to delete "under (a) of" and insert "in". There being no objection, conceptual Amendment 4 to Amendment 1 was adopted. REPRESENTATIVE ROKEBERG stated that he is not sure what the chair would like to do in regard to the health insurance policy issue. CHAIR MURKOWSKI responded that Mr. Lohr had mentioned that he thought the financial and the health information needed to be separated or set out more clearly in the amendment. She said she thinks [the committee] has gotten to the point of knowing what the policy call is by opting in when it comes to privacy. REPRESENTATIVE ROKEBERG removed his objection to Amendment 1. CHAIR MURKOWSKI announced that there being no further objection, Amendment 1, as amended, was adopted. Number 1738 MR. LOHR explained his proposed amendment, later adopted as Amendment 2, which read [original punctuation and capitalization provided, except that one line of text had been crossed out by hand and is not included here]: Page 18, after line 4, add a new section as follows *Sec. 26, AS 21.27.360 is amended to read: Sec. 21.27.360. Reporting and accounting for premiums and premium taxes and fees. (a) A licensee involved in the procuring or issuance of an insurance contract shall report to the insurer the exact amount of consideration charged as a premium for the contract. The amount charged shall be shown in the contract and in the records of the licensee. (b) All money, except that made payable to the insurer, representing premium taxes and fees, premiums or return premiums received by the licensee, shall be received by the licensee as a [IN THE] fiduciary [ACCOUNT OF THE LICENSEE] and shall be promptly accounted for and paid to the person entitled to the money. [THE FIDUCIARY ACCOUNT SHALL BE LOCATED IN THIS STATE UNLESS THE LICENSEE IS LICENSED AS A NONRESIDENT UNDER AS 21.27.270. FOR PURPOSES OF THIS SECTION, THE FIDUCIARY ACCOUNT OF THE FIRM SHALL BE CONSIDERED THE FIDUCIARY ACCOUNT OF AN INDIVIDUAL LICENSEE ACTING ON BEHALF OF THE FIRM AND SHALL BE THE RESPONSIBILITY OF THE FIRM.] Money held by the licensee as a fiduciary [DEPOSITED INTO A FIDUCIARY ACCOUNT] may not be commingled or otherwise combined with other money not held by the licensee as a fiduciary[, EXCEPT AS ALLOWED UNDER (d) OF THIS SECTION AND AS 21.27.365]. (c) In addition to any other penalty provided by law, a person who the director has determined has acted to divert or appropriate money held as a fiduciary [ACCOUNT MONEY] for personal use shall be ordered to make restitution and shall be subject to suspension or revocation under AS 21.27.420 - 21.27.430 of all licenses and a civil penalty not to exceed $50,000 for each violation. (d) A licensee may only commingle premium taxes and fees, premiums, and return premiums with additional money for the purpose of advancing premiums, establishing reserves for the payment of return premiums, or reserves for receiving and transmitting premium or return premium money. [MONEY COLLECTED FOR THE PAYMENT OF PREMIUM TAXES, POLICY OR FILING FEES, LATE PAYMENT CHARGES, AND INTEREST FROM FIDUCIARY MONEY ON DEPOSIT, MAY BE COMMINGLED IN A FIDUCIARY ACCOUNT, BUT SHALL BE SEPARATELY ACCOUNTED FOR AND PERIODICALLY REMOVED FROM THE FIDUCIARY ACCOUNT]. (e) Money held by a licensee as a fiduciary may not be treated, [A LICENSEE MAY NOT TREAT MONEY REQUIRED TO BE IN A FIDUCIARY ACCOUNT] as a personal asset, as collateral for a personal or business loan, or as a personal asset or income on a financial statement, except that money held by the licensee as a [IN A] fiduciary [ACCOUNT] may be included in a financial statement of the licensee if clearly identified as assets held by the licensee as a fiduciary. [ACCOUNT ASSETS AND LIABILITIES]. (f) This section does not apply to an individual in the firm who acts solely on behalf of a firm that maintains compliance with this section [AND DEPOSITS ALL MONEY INTO THE FIRM'S FIDUCIARY ACCOUNT]. Page 30, after line 12, add a new section as follows: *Sec. 49. AS 21.36.350 is amended to read: Sec. 21.36.350. Regulations relating to claim settlement and premium accounting practices. (a) The director of insurance shall promulgate regulations to implement, define, and enforce AS 21.36.125. (B) The director of insurance may promulgate regulations to implement, define, and enforce AS 21.36.360(b) and AS 21.27.360. Page 31, after line 23, add a new section to read *Sec. 55. AS 21.27.360(c), AS 21.27.365, AS 21.27.900(7) are repealed. Page 32, after line 12, add a new section to read *Sec 58. Sections 26, 39, 49 and 55 of this Act take effect July 1, 2002. [Note: The line of the amendment that had been crossed out by hand read: "Page 30, line 29, after 'refusal" add "limitation'"] MR. LOHR stated that all of page one through subsection (b) on page 2 of his proposed amendment deals with trust accounts. He stated that at this time the Division of Insurance does require agents and brokers to have a trust account for premium that is received but not yet paid to an insurance company. He said this is a good consumer-protection measure. Unfortunately, under the Gramm-Leach-Bliley licensing provisions, if the trust account requirement is maintained as an additional licensing requirement on nonresident applicants, the state will be nonreciprocal for purposes of helping to avoid a national takeover of licensing. As a result, [the division] has proposed to delete the references to "trust account" in Chapter 27 and to substitute fiduciary capacity. He stated that as a legal matter [the division] has been told that this makes no difference in terms of what the responsibilities of the agent or broker would be. MR. LOHR further explained his proposed amendment. Under subsection (b) of Section 49 [of the amendment], this would specifically grant the director authority to adopt regulations that would require a trust account. This would solve the problem of being nonreciprocal. This would also have a delayed effective date, under Section 58, the last line of the amendment, of July 1, 2002. CHAIR MURKOWSKI asked whether it legally does not make any difference using the term "fiduciary", but that for purposes of complying with Gramm-Leach-Bliley, it makes a difference. MR. LOHR stated that she was correct. He stated that if this were featured permanently as a part of the licensing chapter, then calling it a trust account looks to the national arbiter of who is a "reciprocal" and who isn't, as if it were an additional requirement on licensing. At that point, there is a savings provision in the federal legislation that states that this would not qualify for the savings clause. Therefore, this would cause the state to become nonreciprocal for purposes of what's required under the licensing provisions of Gramm-Leach-Bliley. CHAIR MURKOWSKI asked why this was not included as part of the original bill. MR. LOHR responded that [the division] has been watching the evolution of what's reciprocal and what's not at the national level with the NAIC. At a meeting in Nashville last month, it was determined that trust accounts, surplus lines bonds, and fingerprinting were areas that could cause the state to be nonreciprocal. Number 1955 REPRESENTATIVE ROKEBERG made a motion to adopt Amendment 2 [text provided previously]. There being no objection, Amendment 2 was adopted. REPRESENTATIVE ROKEBERG asked if Mr. Elder, Director of the Division of Banking, Securities & Corporations, had a chance to look at the bill. Number 2013 FRANKLIN TERRY ELDER, Director, Division of Banking, Securities and Corporations, Department of Community and Economic Development, came forth and responded that he has had discussions with Mr. Lohr about the sections [referred to in Amendment 2], but he has not reviewed the entire bill. REPRESENTATIVE ROKEBERG stated that he asked because the trend in the entire country is the consolidation of financial services and primarily including insurance companies and banking institutions with other financial services. He said it seems to him that there needs to be some commonality between the regulatory and the statutory schemes that regulate these institutions in [Alaska]. MR. ELDER remarked that that is a valid point. He said [he and Mr. Lohr] have also had discussions about increasing cooperation between "two pavilions" on examining more complex institutions. Certainly Gramm-Leach-Bliley also emphasized the continuation of functional regulations; in other words, security regulators would look at the securities aspect, insurance regulators would look at the insurance aspect, and banking regulators would look at the banking aspect. However, in addition to that, "we" have to cooperate more and share more. Number 2057 REPRESENTATIVE MEYER moved to report CSHB 184, version 22- GH1025\F, Ford, 4/19/01, as amended, out of committee with individual recommendations and the accompanying zero fiscal note. REPRESENTATIVE HAYES declared a conflict because HB 184 concerns an area he works in. CHAIR MURKOWSKI announced that there being no objection, CSHB 184(L&C) was moved from the House Labor and Commerce Standing Committee.
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