Legislature(2001 - 2002)

04/04/2001 03:20 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 184-INSURANCE CODE AMENDMENTS                                                                                              
[Contains discussion of HB 106 and SB 138, the companion bill.]                                                                 
Number 0056                                                                                                                     
CHAIR MURKOWSKI announced that the  committee would take up 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."                                                                                               
Number 0129                                                                                                                     
BOB  LOHR,   Director,  Division  of  Insurance,   Department  of                                                               
Community  and Economic  Development (DCED),  stated that  HB 184                                                               
would  implement the  conforming provisions  for the  Division of                                                               
Insurance  to the  federal  Gramm-Leach-Bliley  Act (GLBA),  also                                                               
known as the Financial Services Modernization Act of 1999.                                                                      
MR.  LOHR, referring  to  a handout  from  the division  entitled                                                               
"Department  of   Community  and  Economic   Development,  Alaska                                                               
Division of  Insurance, HB  184," explained  that the  mission of                                                               
the division is to protect and  serve the state by regulating all                                                               
aspects  of  insurance  in  Alaska to  protect  and  educate  the                                                               
consumer,  and to  enhance  the  insurance business  environment.                                                               
Both  of   those  goals  would  be   substantially  enhanced,  he                                                               
remarked, by HB 184.                                                                                                            
MR. LOHR offered  some history.   Just  following the depression,                                                               
as  an attempt  to recover  in 1933,  the Glass-Steagall  Act was                                                               
adopted  and erected  barriers  among the  major  sectors of  the                                                               
American economy; it was in effect  from 1933 to 1999.  The GLBA,                                                               
Financial Services  Modernization Act removed the  barriers among                                                               
banking,  insurance,  and  the securities  industries.    It  was                                                               
predicted  that there  would be  a "flurry"  of acquisitions  and                                                               
mergers by insurance companies, banks, and securities firms.                                                                    
MR. LOHR  expressed that it  hasn't happened quite as  quickly as                                                               
it was  predicted to happen,  he said,  but just within  the last                                                               
week Alliance Insurance in Germany  merged with Riesner Bank (ph)                                                               
to  become  the  fourth-largest  financial  conglomerate  in  the                                                               
world.    This morning's  news  was  that American  International                                                               
Group, Inc. (AIG)  made a bid to beat out  a British company that                                                               
was  also  bidding  on  American  General,  a  $23  billion  bid.                                                               
Clearly,   those  are   indicators  of   the  kinds   of  mergers                                                               
contemplated  by GLBA  that  are now  occurring.   These  changes                                                               
necessitate adaptation by  the regulators in all  three fields to                                                               
the new  reality.  This  bill essentially conforms  the insurance                                                               
regulatory system  at the state  level to changes in  the federal                                                               
MR. LOHR  said insurance  is unique, because  it is  regulated by                                                               
states, and there is no  federal counterpart to insurance, unlike                                                               
banking where there  is federal regulation of  national banks and                                                               
state regulation of state-chartered  banks.  In securities, there                                                               
is both a  federal Securities Exchange Commission  (SEC) role and                                                               
a National Association of Securities  Dealers (NASD) role.  There                                                               
is  nothing analogous  to state  regulation of  insurance at  the                                                               
federal level.   And frankly,  [the division] likes it  that way,                                                               
he   emphasized,  because   [the   division]   thinks  that   the                                                               
appropriate  place to  do insurance  regulation is  at the  state                                                               
level, and it is more effectively done there.                                                                                   
Number 0420                                                                                                                     
MR. LOHR expressed that if  [Alaska] doesn't adapt and conform to                                                               
the approach  contemplated in GLBA,  there is a  substantial risk                                                               
of preemption  by the federal  government and establishment  of a                                                               
federal insurance  regulator.  Many  of the measures in  the bill                                                               
are  designed to  enhance consumer  protection, making  it easier                                                               
for  insurance to  operate in  this  new competitive  environment                                                               
where  banks   and  securities  firms  are   competitors  selling                                                               
MR. LOHR said if "they" have  to deal with the regulatory systems                                                               
in 51  different jurisdictions  before responding  to competitive                                                               
pressures from  banks and securities  firms, that won't  work and                                                               
won't be  acceptable as  a business  model, and  state regulation                                                               
will become obsolete and be preempted.                                                                                          
MR. LOHR  explained that [the  division] is trying  to streamline                                                               
the   processes  to   become  more   efficient  in   this  highly                                                               
competitive  world  economic  environment.    [The  division]  is                                                               
working  cooperatively   with  other  state   officials,  federal                                                               
officials,  banking  officials,   interested  parties,  insurance                                                               
companies, trade associations, and consumer groups.                                                                             
Number 0530                                                                                                                     
MR.  LOHR said  GLBA  would  do three  basic  things:   establish                                                               
producer-licensing   or   agent-licensing   provisions;   address                                                               
privacy;  and protect  consumers who  purchase insurance  through                                                               
banks, expanding  coverage of  the consumer  protection provision                                                               
to banks selling insurance.                                                                                                     
MR. LOHR  went on to  further explain  producer licensing.   If a                                                               
minimum of 29 state jurisdictions,  states, or territories do not                                                               
adopt  either  "uniformity"  or "reciprocity"  in  licensing  for                                                               
nonresident agents and brokers,  then Congress has commanded that                                                               
the  National  Association  of   Registered  Agents  and  Brokers                                                               
(NARAB) be formed.                                                                                                              
Number 0612                                                                                                                     
CHAIR  MURKOWSKI  asked how  that  would  work.   She  asked  for                                                               
verification of her  understanding that if by  November 2002 only                                                               
25 states have  signed on, then it will be  under the auspices of                                                               
what is  set out  in GLBA.   What happens to  the 25  states that                                                               
signed on?  And is what those states enacted preempted by GLBA?                                                                 
MR. LOHR  responded that  he believed  that to  be correct.   The                                                               
national model  would preempt  it; however,  the reality  is that                                                               
"they" would  be largely  conforming to  what the  national model                                                               
had become at  that point.  The NARAB group  would establish many                                                               
of the  same consistency  provisions that  those 25  states would                                                               
have adopted in their conforming amendments.                                                                                    
Number 0729                                                                                                                     
MR. LOHR verified that it  wouldn't affect the jurisdictions that                                                               
had  acted as  much  as those  that hadn't.    There is  concern,                                                               
however, that  if it goes  national, it could affect  revenues to                                                               
the states  because currently insurance-producer  licensing taxes                                                               
produce far more  revenue, which goes to the  state general fund,                                                               
than  the  cost  of  the  division  as  a  whole  for  regulation                                                               
insurance;  [the division]  [contributes]  $23 to  $25 million  a                                                               
year to the  general fund, and the total budget  for the division                                                               
is  less than  $5 million.    There has  been talk  of trying  to                                                               
preserve  state  revenue  if the  national  system  of  licensing                                                               
[prevails]; however, how long the  preservation of revenue can be                                                               
maintained without a commensurate requirement  is hard to say, he                                                               
MR.  LOHR commented  that the  National Association  of Insurance                                                               
Commissioners  (NAIC)  adopted  the Producer  License  Model  Act                                                               
(PLMA)  in October  2000 for  states to  use as  a guideline  for                                                               
developing legislation to meet the  reciprocity elements of GLBA,                                                               
and to move  toward uniformity.  The GLBA sets  out a standard of                                                               
either 29  jurisdictions meeting reciprocity or  29 jurisdictions                                                               
meeting  uniformity; it  doesn't  work  to have  15  of each,  he                                                               
explained.   Reciprocity  was selected  as a  preferable approach                                                               
because  it   is  more  manageable   to  implement   in  multiple                                                               
jurisdictions than it  would be to get  truly uniform legislation                                                               
in 29-plus jurisdictions.   And it is a tough thing  to do in one                                                               
year, he added.  In Alaska  there are more than 10,700 licensees,                                                               
including 2,900  residents and 7,800 nonresidents.   The dramatic                                                               
growth has  been due to  a 38 percent  increase in the  number of                                                               
nonresident  licensees, while  the trend  for resident  licensees                                                               
has remained steady.                                                                                                            
Number 0867                                                                                                                     
LINDA  BRUNETTE,  Licensing  Supervisor, Division  of  Insurance,                                                               
Department  of Community  and Economic  Development (DCED),  when                                                               
asked if  there was a  difference in the fee  licensing structure                                                               
for   residents  versus   nonresidents,  replied   affirmatively.                                                               
Nonresident fees are almost double resident fees, she remarked.                                                                 
MR. LOHR reiterated  that total for fees from all  sources to the                                                               
division from  the producer-licensing premium tax  and from other                                                               
sources  is approximately  $27 million.   The  producer-licensing                                                               
provisions  are  based  on  the  NAIC model,  with  the  goal  of                                                               
achieving  reciprocity,  and  [the   division]  would  then  give                                                               
licenses  on  a  reciprocal  basis, moving  toward  more  uniform                                                               
elements in  the law.   If  a person is  qualified for  a license                                                               
within his or  her home jurisdiction, then it is  good enough for                                                               
Alaska, he said, and vice versa.                                                                                                
Number 0974                                                                                                                     
MR. LOHR said [the division]  issues a nonresident license, which                                                               
gives a person the same authority that  he or she has in the home                                                               
state,  and   [the  division]  would  accept   the  home  state's                                                               
continuing  education   requirements.    [Alaska]  has   its  own                                                               
continuing  education  requirements  for  maintaining  a  license                                                               
here,  he said.    [The division]  would  remove any  retaliatory                                                               
provisions and all discriminatory  requirements based on place of                                                               
residency  or  operations.     Nondiscrimination  is  a  required                                                               
element of the federal law for reciprocity.                                                                                     
CHAIR  MURKOWSKI asked  if the  difference in  the licensing  fee                                                               
between  a  resident  and  a   nonresident  would  be  viewed  as                                                               
MS.  BRUNETTE said  there  has been  discussion  on the  national                                                               
level; the  NAIC legal  staff identified that  this should  be an                                                               
issue whereby states can retain  revenue currently generated, and                                                               
the division is currently looking  at the fee issues to determine                                                               
which changes, if any, need to be made.                                                                                         
MR. LOHR said he believes the  answer is not clear at this point.                                                               
There  has   been  talk  that   if  states  implement   GLBA  and                                                               
reciprocity, then  there will be no  harm to state revenues.   He                                                               
said, however, that  he didn't believe it was  "black letter" law                                                               
in federal legislation;  it is more of an  interpretation of what                                                               
nondiscrimination  means,   whether  or   not  with   respect  to                                                               
licensing provisions.  Having a standard  that kicks in only if a                                                               
person is  a nonresident  clearly is  prohibited, but  he pointed                                                               
out that there hasn't been any case law on differential fees.                                                                   
MR. LOHR, upon being asked  how other states handle it, responded                                                               
that he believed that many  states do [have differential fees for                                                               
residents and nonresidents] and treat  them as Alaska does.  This                                                               
bill doesn't propose changing the  fee structure for licensing at                                                               
this point.                                                                                                                     
Number 1101                                                                                                                     
REPRESENTATIVE HAYES asked:  If  [Alaska] joins on with the other                                                               
29  states [in  reciprocity], how  is the  same level  of funding                                                               
MR. LOHR responded  that a person would have to  buy the license,                                                               
because in  exchange for the ease  of getting the license  in all                                                               
jurisdictions, what is  contemplated is that a  person would have                                                               
a  single point  of application  for licensing.   A  person would                                                               
send  the  fees and  a  single  application confirming  that  the                                                               
person  is  in good  standing  in  the  home  state, and  upon  a                                                               
criminal background check  and so forth, [the  state] would issue                                                               
the license.   From the point of view of  a national company that                                                               
wants   to   get   agents  or   broker   licenses   in   multiple                                                               
jurisdictions, it  is worth  the price of  continuing to  pay the                                                               
fee to  each state as well  as paying the processing  fee for the                                                               
computerized  treatment.   It is  contemplated that  this can  be                                                               
turned  around in  a  24-hour  period, he  emphasized,  and is  a                                                               
dramatic change  in the way  licensing works.  [The  division] is                                                               
excited about the potential for this system, he added.                                                                          
Number 1283                                                                                                                     
MR.  LOHR  explained that  the  licensing  provisions would  also                                                               
provide  that  [Alaska]  accepts  the  national  uniform  license                                                               
application.    The  benefits   of  enacting  producer  licensing                                                               
include:  streamlining the licensing  process and eliminating the                                                               
duplicative requirements for licensure;  being more efficient and                                                               
cheaper;  having no  retaliatory fee  requirements; leveling  the                                                               
playing field;  and engaging [Alaska]  in a  collaborative effort                                                               
to identify "rogue" agents.                                                                                                     
MR.  LOHR said  the  Federal Bureau  of  Investigation (FBI)  has                                                               
excellent   information   on   the   criminal   background,   and                                                               
administrative  and  regulatory  records of  agents  and  brokers                                                               
nationwide.  Right now some  conforming provisions are needed, he                                                               
expressed, in order for the  FBI and the United States Department                                                               
of Justice to  recognize Alaska as a participant  in that system.                                                               
[Alaska] currently gets  fingerprints, but it may  take six weeks                                                               
or more, because  of having to submit fingerprint  cards, and not                                                               
having  our system  standard  with that  of the  FBI.   There  is                                                               
language  further on  in the  bill that  would allow  [Alaska] to                                                               
easily participate  within the  national criminal  justice system                                                               
to  identify people  that [the  division] doesn't  want to  issue                                                               
licenses to.                                                                                                                    
Number 1316                                                                                                                     
REPRESENTATIVE ROKEBERG  mentioned HB  132 that came  through the                                                               
committee  regarding  Alcoholic   Beverage  Control  Board  (ABC)                                                               
fingerprinting,  which  allowed  the  department  access  to  the                                                               
national  standards  for  fingerprinting  background  checks  for                                                               
applicants seeking liquor licenses.   Because of the abuse of the                                                               
Alaska Public  Safety Information  Network (APSIN)  system, there                                                               
was  significant  discussion  about  who was  authorized  in  the                                                               
department.   Is  there  a limit  to who  would  have access,  he                                                               
MR. LOHR said there is  a restriction regarding permissible uses;                                                               
the  reason for  making an  inquiry is  tightly limited.   As  to                                                               
whether  there is  a limit  on the  number of  people within  the                                                               
office that could have access to  it, he said he didn't know that                                                               
there  would be  a  specific  number, but  it  would include  the                                                               
investigative staff.                                                                                                            
MR. LOHR  mentioned that [the  division] currently has  access to                                                               
APSIN  and  has used  it  for  a number  of  years,  and, to  his                                                               
knowledge, there have been no  allegations or incidents of abuse.                                                               
It  has been  used routinely  to  ensure that  licenses are  only                                                               
issued  to those  who qualify,  and  within the  last six  months                                                               
there was  an applicant who  claimed no criminal  background, but                                                               
who  through  fingerprinting turned  out  to  have a  substantial                                                               
criminal background,  which made this person  inappropriate for a                                                               
license.   Unfortunately, he exclaimed,  because of  the mismatch                                                               
between [Alaska]  and the delay in  processing fingerprints, [the                                                               
division] had already issued the  license and had to persuade the                                                               
person to  surrender it immediately.   Had it needed to  be done,                                                               
papers would have  been served at that point  indicating a formal                                                               
complaint by the division.                                                                                                      
Number 1445                                                                                                                     
MR.  LOHR  commented  that this  concluded  his  presentation  on                                                               
producer licensing;  he said  there are  two other  portions that                                                               
deal with privacy  and consumer protection that  he would address                                                               
REPRESENTATIVE  ROKEBERG  asked Mr.  Lohr  if  feedback had  been                                                               
received  from the  industry  about this  section,  and asked  if                                                               
there had been any problems.                                                                                                    
MR.  LOHR said  the feedback  from the  American Council  of Life                                                               
Insurers (ACLI) and from the  National Association of Independent                                                               
Insurers (NAII) has  been largely supportive.   Both the property                                                               
casualty and  the life [insurance]  side are in support  of these                                                               
changes;  in addition,  he said,  the Association  of Agents  and                                                               
Brokers  is  also supportive  of  the  language.   Several  trade                                                               
groups have  suggested specific changes,  and [the  division] has                                                               
developed  possible amendments  for  the  committee to  consider,                                                               
largely addressing  the specific concerns that  have been brought                                                               
to  [the division].   [The  division] has  near-universal support                                                               
for the producer-licensing provisions  of the bill, he exclaimed.                                                               
He  recognized both  Linda  Brunette,  Licensing Supervisor,  and                                                               
Katie  Campbell, Life  and Health  Actuary,  for their  excellent                                                               
work in addressing concerns with proposed language.                                                                             
REPRESENTATIVE  ROKEBERG   recognized  that   this  has   been  a                                                               
difficult bill to draft and he  commended the division.  How long                                                               
has the  bill been in  circulation with the industry  for review,                                                               
he asked.                                                                                                                       
Number 1587                                                                                                                     
MR. LOHR said it was made  available in February and the bill was                                                               
introduced  on March  14 [2001],  so it  was about  one month  in                                                               
advance of the bill's introduction.   [The division] has tried to                                                               
work  with all  interest groups,  and they  have taken  this work                                                               
draft and sent it to  their national associations for comment and                                                               
feedback; [the division]  has received feedback from  a number of                                                               
those  national  groups.   He  mentioned  that the  division  was                                                               
requested by the Senate Labor  and Commerce Standing Committee to                                                               
give  a  copy  to  the  Alaska  Public  Interest  Research  Group                                                               
REPRESENTATIVE  ROKEBERG said  he  is concerned  about people  in                                                               
industry having a chance to review it and provide feedback.                                                                     
MR.  LOHR went  on  to  talk about  the  privacy  section.   [The                                                               
division],   he  said,   couldn't   resist   quoting  the   state                                                               
constitutional provision on privacy,  Article 1, Section 22, "The                                                               
right of  the people to  privacy is  recognized and shall  not be                                                               
infringed.  The  legislature shall implement this  section."  The                                                               
consumer  privacy provisions  of  HB 184  confirm the  director's                                                               
authority to  adopt privacy standards  that are  consistent with,                                                               
but no  less restrictive  than, the NAIC  model regulation.   The                                                               
information  protected with  the NAIC  model includes  personally                                                               
identifiable financial  or health  information.   In the  case of                                                               
financial  information, this  is  information  that an  insurance                                                               
company obtains  from an applicant in  getting insurance coverage                                                               
and  is typically  a narrower  range of  information on  finances                                                               
than  a  bank  would  already  have  about  a  person.    Banking                                                               
information would  be far  more extensive, he  said, such  as the                                                               
profile that  might be available  through credit  card purchases,                                                               
which  is  a  far  more   detailed  profile  on  an  individual's                                                               
preferences than  would be obtainable  from an  insurance company                                                               
dealing  with financial  information obtained  in the  process of                                                               
dealing with an application for insurance.                                                                                      
Number 1716                                                                                                                     
MR. LOHR  explained that  there are  two standards  for financial                                                               
information consistent  with the GLBA:   one is "opt  out," which                                                               
means that  the insurance  company must notify  a person  that it                                                               
has financial information about him or  her.  If a person doesn't                                                               
object to [the company's] releasing  that information, then it is                                                               
authorized  to do  so.   "Opt  in," he  explained,  is a  tougher                                                               
standard that  means that  unless a  person actively  consents to                                                               
sharing  financial or  health information  with other  companies,                                                               
then the insurance company would be prohibited from doing so.                                                                   
MR. LOHR explained that "opt in"  takes the active consent of the                                                               
individual, while "opt  out" would include all those  that do not                                                               
respond  to a  notice and  opportunity to  make a  decision about                                                               
sharing information,  and both are  permissible under GLBA.   The                                                               
division  views  health  information  obtained  by  an  insurance                                                               
[company]   as   being   far  more   sensitive   than   financial                                                               
information, because if  an insurance company were  able to share                                                               
information  on  health status  needed  to  process an  insurance                                                               
application with  a bank  that is considering  whether to  make a                                                               
loan  to  that  person,  that  information could  be  used  to  a                                                               
person's  detriment; therefore,  it warrants  a higher  degree of                                                               
privacy protection  than financial  information obtained  from an                                                               
insurance company.                                                                                                              
Number 1802                                                                                                                     
REPRESENTATIVE HALCRO referred to  where it states that protected                                                               
financial  information may  be  shared  among affiliates  without                                                               
restrictions.   He asked:   If he  buys insurance from  a company                                                               
that owns another company that  sells financial services, can the                                                               
two  companies share  information  between themselves?   Is  that                                                               
what [the division] would consider affiliates?                                                                                  
MR. LOHR  responded affirmatively, but  said it is  for financial                                                               
information  only.   He said  he wasn't  sure that  regulation or                                                               
statute   could  prohibited   [companies]   from  sharing   among                                                               
affiliates; under  federal regulation [companies] can  already do                                                               
it, and they don't need permission; this is provided under GLBA.                                                                
REPRESENTATIVE HALCRO  asked if [the legislature]  could restrict                                                               
the sharing of information.                                                                                                     
MR. LOHR explained that GLBA  clearly provides states the ability                                                               
to go beyond the protections  provided by federal regulators.  If                                                               
there were a dispute as to  whether a state or federal regulation                                                               
is  stronger  with  respect  to  protecting  privacy,  the  state                                                               
regulation would be  upheld.  The Federal  Trade Commission (FTC)                                                               
is the judge in any  dispute, he explained, and the congressional                                                               
provisions on privacy in GLBA  clearly provide state authority to                                                               
go beyond  what the  federal government  has already  adopted for                                                               
privacy regulations.   There was widespread  recognition that the                                                               
privacy  regulations in  effect at  that time  were probably  not                                                               
adequate, and there  was a question about  whether GLBA's privacy                                                               
provisions  went far  enough  - hence  the  discussions of  other                                                               
privacy regulations out there.                                                                                                  
Number 1944                                                                                                                     
KATIE CAMPBELL,  Life and Health Actuary,  Division of Insurance,                                                               
Department   of  Community   and  Economic   Development  (DCED),                                                               
explained that  [a state] could  go beyond [GLBA], so  being more                                                               
restrictive with consumer information  wouldn't be preempted.  It                                                               
could  be said  that a  company couldn't  share information  with                                                               
affiliates without  a notice and  without giving the  consumer an                                                               
opportunity to make a choice, she explained.                                                                                    
Number 2460                                                                                                                     
REPRESENTATIVE HALCRO  said he agreed that  health information is                                                               
of a higher privacy [level]  than financial information; however,                                                               
they  are  fairly similar.    For  example,  if  he buys  a  life                                                               
insurance product, it  doesn't necessarily mean that  he wants to                                                               
receive  solicitations from  other  sources.   If  he wants  that                                                               
information, he  would contact  them.  There  ought to  be opt-in                                                               
for both financial  and health information, he  remarked, and the                                                               
consumer shall be allowed to make the choice.                                                                                   
MR.  LOHR  explained  that opt-out  is  probably  an  appropriate                                                               
standard for  financial insurance  information.  He  said whether                                                               
junk mail an  invasion of privacy is in the  eye of the beholder.                                                               
Alaska's insurance market  is such, he explained,  that if Alaska                                                               
becomes  too  nonstandard  compared to  the  prevailing  national                                                               
approach  for sharing  information, given  the fragility  of some                                                               
elements of  the market,  Alaska could end  up with  products not                                                               
being  offered  that  people  want and  need.    Companies  could                                                               
decide, given  the limited  size of  our market,  that it  is too                                                               
much hassle  having a separate  privacy rule  to enforce it  in a                                                               
state as small [in population] as  Alaska.  On the national level                                                               
what is desired,  he explained, is to train all  the staff in the                                                               
calling  center to  a standard  of what  privacy responsibilities                                                               
are; if  there are  different standards  for states  according to                                                               
the level of privacy, then compliance is a problem.                                                                             
MR. LOHR  pointed out that there  is a strong mutual  interest in                                                               
trying to have a consistent,  uniform approach towards standards,                                                               
and  Alaska  has participated  in  the  effort to  develop  those                                                               
REPRESENTATIVE   HALCRO    asked   for   verification    of   his                                                               
understanding that, for example,  some companies enter the market                                                               
to  sell a  product,  but the  company is  hoping  to sell  other                                                               
products as well from the company or through affiliates.                                                                        
Number 2123                                                                                                                     
MR. LOHR  said he  believed that  to be  correct.   Companies now                                                               
regard the  ability to market  information to Outside firms  as a                                                               
valuable  business asset.    It  may also  be  beneficial to  the                                                               
customer,  he pointed  out, to  the extent  that the  company can                                                               
target  marketing toward  the  customers'  interests.   Customers                                                               
ultimately make the decision under  either model; it simply takes                                                               
a more active affirmative response [to  opt out].  He agreed that                                                               
it takes more attention on  the customer's part under the opt-out                                                               
system; however,  he said there  are good reasons  for supporting                                                               
an  opt-out approach  for  financial  information with  insurance                                                               
[companies].  He added that he  couldn't say the same for banking                                                               
because of a lack of knowledge on the subject.                                                                                  
CHAIR MURKOWSKI  asked how  privacy is  handled in  the insurance                                                               
MR. LOHR  said [the  division] hasn't regulated  it in  the past;                                                               
this would be new authority for the state.                                                                                      
CHAIR  MURKOWSKI  asked for  verification  that  the model  being                                                               
discussed  is the  opt-out  standard  for financial  information,                                                               
with an  opt-in standard for  health information.   She mentioned                                                               
that  the other  bill before  the committee  [HB 106]  deals with                                                               
financial institutions and has an  opt-in provision as it relates                                                               
to GLBA.   She asked  why financial information is  being treated                                                               
differently regarding  GLBA depending  on whether it's  under the                                                               
auspices  of  the  Division  of  Insurance  or  the  Division  of                                                               
Banking, Securities and Corporations.                                                                                           
Number 2284                                                                                                                     
MR. LOHR  explained that he  and Mr. Elder, Division  of Banking,                                                               
Securities and  Corporations, have discussed the  provisions, and                                                               
both  agree   that  consistency  among  banking,   regulation  of                                                               
privacy, and  insurance regulation  of privacy is  not essential.                                                               
It  may  be   appropriate  to  have  a   standard  for  insurance                                                               
regulation  of financial  information  different from  that of  a                                                               
bank.   It ties  primarily to  the difference  in the  nature and                                                               
volume  of information  that [the  division]  receives, he  said;                                                               
insurance application  information is typically  limited, whereas                                                               
the banking relationship involves more detail.                                                                                  
CHAIR  MURKOWSKI  asked for  an  example  of what  is  considered                                                               
financial information from insurance standards.                                                                                 
MS. CAMPBELL explained that a  homeowner's policy, where a person                                                               
may  put down  the  value  of the  home  on  the application,  is                                                               
considered  financial information.   Anything  that isn't  health                                                               
information   would  fall   within   the  financial   information                                                               
definition, which includes things  like a person's address, name,                                                               
and so  forth.  She  said the amount  of life insurance  a person                                                               
has  is   another  piece  of  financial   information,  which  is                                                               
different  in nature  from what  a  bank would  obtain, with  the                                                               
exception of the credit report.                                                                                                 
Number 2460                                                                                                                     
REPRESENTATIVE  HALCRO asked  if [a  company] has  to send  out a                                                               
notification for the consumer to opt out.                                                                                       
MR.  LOHR  replied  that there  are  specific  notice  provisions                                                               
required; even  in the federal  approach, it  would be part  of a                                                               
regulation that  [Alaska] adopts  if this authority  is confirmed                                                               
to   [the  division].     [The   division]  would   require  that                                                               
notification and provide a ready  means by which the consumer can                                                               
[opt out].                                                                                                                      
MS.  CAMPBELL,  upon  being  asked how  that  is  handled  today,                                                               
replied that  [the division] doesn't  have anything  currently in                                                               
place,  but if  the regulation  is adopted,  there is  an initial                                                               
notice  that  the  consumers  would  receive  upon  applying  for                                                               
insurance.  She  said there would be an  explanation and separate                                                               
form  with the  option to  opt out  of sharing  that information;                                                               
then, on an  annual basis, [an institution] would  be required to                                                               
send those  notices out  stating what  a person's  privacy rights                                                               
Number 2505                                                                                                                     
REPRESENTATIVE  HALCRO   said  consumers  need  the   ability  to                                                               
interact [with the institution regarding opting out].                                                                           
MR.  LOHR said  there  are things  that a  company  would like  a                                                               
customer to know, and then there  are those that a company has to                                                               
tell a person.  The  already-in-place federal regulation and [the                                                               
division's] proposed regulations would  address the type size and                                                               
would  [emphasize]   making  the  notice  meaningful   to  obtain                                                               
informed consent.   Otherwise,  he remarked,  there is  risk that                                                               
someone might  not fully notify  the customer of what  the option                                                               
is.    For  opt-out  to  work,  there  has  to  be  a  meaningful                                                               
opportunity to make that choice.                                                                                                
MR.  LOHR,   referring  to  the  handout   regarding  the  health                                                               
information  standards,  said  the  opt-in  standard  means  that                                                               
insurance companies  may not  share protected  health information                                                               
without explicit [permission from the consumer].                                                                                
TAPE 01-47, SIDE B                                                                                                              
Number 2489                                                                                                                     
MR. LOHR commented that unlike  for financial standards, insurers                                                               
are  not required  to provide  notices  describing their  privacy                                                               
policies,  because the  incentive is  for the  company to  obtain                                                               
consent from the  customer if he or she wishes  to share it, thus                                                               
taking care of that problem.                                                                                                    
MR. LOHR  explained that standards  do not apply to  insurers who                                                               
are in  compliance with  the United  States Department  of Health                                                               
and  Human Services  (DHHS) regulations  implementing the  Health                                                               
Insurance  Portability   and  Accountability  Act   (HIPAA),  the                                                               
federal  health legislation  scheduled  to take  effect in  2002.                                                               
The effort  here, he emphasized,  is not to create  a duplicative                                                               
set of health  privacy regulations, but rather to  tide over from                                                               
current [regulation]  until these regulations take  effect at the                                                               
federal level.  Sharing health  information among both affiliates                                                               
and nonaffiliates is restricted.                                                                                                
REPRESENTATIVE  ROKEBERG asked  Mr.  Lohr if  these  are the  600                                                               
pages of regulations being developed under [HIPAA] for privacy.                                                                 
MR. LOHR  replied that  that is how  they are  regarded, although                                                               
the  bulk of  it  is  actually the  preamble,  an explanation  in                                                               
response  to the  50,000-some comments  received on  the proposed                                                               
regulations, regarding  how the choices  were being made  to deal                                                               
with  this  or  that.     There  is  more  preamble  than  actual                                                               
regulations;  nevertheless, there  are plenty  of regulations  to                                                               
raise concerns  about whether  people can  do business  under the                                                               
proposed privacy regulations.                                                                                                   
REPRESENTATIVE  ROKEBERG, referring  to Section  44 of  the bill,                                                               
said  it allows  one  to adopt  standards  already published  and                                                               
adopted by  the NAIC;  he asked  how extensive  those regulations                                                               
Number 2327                                                                                                                     
MR. LOHR responded that [the  committee] could be provided with a                                                               
copy of that  model regulation.  Basically, he said,  that is the                                                               
regulation adopted through a nine-month  process last year, which                                                               
involved testimony  from virtually every trade  association, from                                                               
large  insurance companies,  and from  interest groups  including                                                               
"funded consumers"  concerning the  contents of  that regulation.                                                               
It represents  a consensus view of  what is needed, he  said, and                                                               
it  was unanimously  adopted by  the NAIC  in October  2000 as  a                                                               
model.  If  authorized to do so, [the division]  would propose to                                                               
start  a regulatory  process  by promulgating  that  rule as  the                                                               
starting  point.   With  that language  of  "no less  restrictive                                                               
than" [the division] would be  looking at public comment and gaps                                                               
in  privacy that  Alaskans expect  and deserve.   [The  division]                                                               
expects considerable testimony on  that question.  [The division]                                                               
would then have the NAIC model  regulation as a floor below which                                                               
it could not go, but it  would not restrict it from going further                                                               
if the  public testimony indicated  that there  was a need  to do                                                               
REPRESENTATIVE  ROKEBERG said  his  greatest  concern is  whether                                                               
those  regulations  are at  odds  with  statutes and  regulations                                                               
adopted  in  Alaska,  and  particularly  the  privacy  provisions                                                               
encompassed  in  Alaska's  so-called  patients'  bill  of  rights                                                               
enacted last year, which is going into effect now.                                                                              
Number 2327                                                                                                                     
MR. LOHR  explained that  the privacy provisions  in HB  211, the                                                               
patients' bill of rights, represented,  in his view, a high water                                                               
mark  for  privacy  protection.     They  are  strict  and  don't                                                               
contemplate opt-out  or opt-in, and  they don't allow  sharing of                                                               
financial  information; that  is an  extremely high  standard, he                                                               
said,  and  is one  that  arguably  could  make it  difficult  to                                                               
attract  or retain  insurance companies  under those  provisions.                                                               
Currently,  that provision  applies  only  to health  maintenance                                                               
organizations (HMOs)  and some health  care insurers.  It  is the                                                               
most restrictive form of privacy  protection out there, and there                                                               
is a question  as to whether it is the  appropriate standard.  If                                                               
that is  the policy decision  of this committee, then  opt-in for                                                               
health would not be nearly strong  enough; there would need to be                                                               
a prohibition on  sharing, and he pointed out that  it could have                                                               
serious consequences for the marketplace.                                                                                       
REPRESENTATIVE ROKEBERG said it was  his intention to have a very                                                               
high  standard  when [this  legislation]  was  drafted, but  he's                                                               
always  tried  to  not  dissuade   entry  into  the  marketplace,                                                               
especially  relating to  health care  insurance.   He said  he is                                                               
concerned  about  the  provisions  that did;  the  intention  was                                                               
related particularly to some of  the pharmaceutical companies and                                                               
others  who   had  an   interest  in   that  clause,   which  the                                                               
[legislature] made  relatively small.  It  allowed [guidance] for                                                               
the general day-to-day  operations of all people  that share that                                                               
information.   He said he  has been  working on an  issue dealing                                                               
with treatment of people who  have substance abuse problems; [the                                                               
court] needs to know if a  person has a prior conviction or prior                                                               
treatment relating  to substance abuse  to be able  to administer                                                               
the proper treatment.                                                                                                           
Number 2157                                                                                                                     
MR. LOHR  surmised that provisions dealing  with criminal justice                                                               
access  would  be  different  from  those  involving  sharing  of                                                               
information with  other companies,  and would  be covered  with a                                                               
subpoena  and other  provisions.   [The  division]  hasn't had  a                                                               
problem  getting  necessary   information  for  criminal  justice                                                               
purposes  or  for  investigating  insurance  fraud  in  terms  of                                                               
running  into  a  privacy  provision   that  could  withstand  an                                                               
administrative subpoena from the  division; however, he said that                                                               
question would be looked at.                                                                                                    
REPRESENTATIVE  ROKEBERG  said  if  the  court  doesn't  have  to                                                               
subpoena  the information,  then he  suspects that  the defendant                                                               
would be  required to  supply it,  so it  would be  consensual at                                                               
that point.                                                                                                                     
MR. LOHR said a subpoena  is needed if someone isn't cooperating,                                                               
but  privacy  provisions  wouldn't withstand  efforts  to  obtain                                                               
information.   He  said  he  could share  with  the committee  an                                                               
analysis  done  for  the  HB  211  privacy  provisions,  and  the                                                               
proposed standard  for GLBA state  (indisc.) legislation  to show                                                               
how [the division] has compared the two.                                                                                        
CHAIR MURKOWSKI indicated she is in favor of the suggestion.                                                                    
Number 2157                                                                                                                     
MR.  LOHR said  the  privacy standards  are  stronger for  health                                                               
information because the GLBA standard  is geared toward banks and                                                               
securities firms and not toward  the insurance industry; there is                                                               
a much  larger volume of  health information, and  typically this                                                               
information  is   more  sensitive  when  compared   to  financial                                                               
information.    There is  greater  sharing  of information  among                                                               
banks,  securities firms,  and insurers  who are  now allowed  to                                                               
affiliate.    The privacy  model,  he  exclaimed, is  appropriate                                                               
because  it   preserves  the  insurance  industry's   ability  to                                                               
transact  insurance  while   also  protecting  consumer  privacy.                                                               
There is broad support out  there from industry, consumer groups,                                                               
and others,  he explained,  and there is  a strong  [belief] that                                                               
state  regulation of  insurance can  work effectively  to protect                                                               
consumers,   while  also   allowing  competition   in  this   new                                                               
environment.   Those  need  to be  balanced in  order  to have  a                                                               
successful approach.                                                                                                            
CHAIR MURKOWSKI,  going back to  the financial  information, said                                                               
[the  division] outlined  that the  financial information  can be                                                               
shared  among  affiliates without  restrictions.    She asked  if                                                               
sharing can  be done among  nonaffiliates, and whether  there are                                                               
MR. LOHR replied affirmatively.                                                                                                 
Number 2085                                                                                                                     
REPRESENTATIVE HAYES  asked how "affiliate"  is defined.   And he                                                               
asked:   If [the legislature]  tries to tighten this,  would this                                                               
restrict the [exchange] of information within the company?                                                                      
MR.  LOHR  responded that  sharing  of  health information  among                                                               
affiliates  is  prohibited  in regulation;  however,  sharing  of                                                               
health information  for purposes of meeting  the customers' needs                                                               
is not  restricted.  There  are still some  gaps that need  to be                                                               
addressed, he said;  for example, HIPAA, the  DHHS regulations on                                                               
health, does  not prohibit using  that information  for marketing                                                               
purposes.    It  needs  to  be addressed,  because  there  is  no                                                               
restriction.   Some states have  experimented with going  too far                                                               
in restricting  access; for  example, in  Hawaii last  year there                                                               
was a major crisis when  workers' compensation information wasn't                                                               
available to  those that needed  access, and there  were criminal                                                               
penalties  in  effect  for  using   the  information  for  proper                                                               
business purposes, mainly for processing  claims.  This shut down                                                               
the workers' compensation  market until a special  session of the                                                               
legislature convened to  address it and come up  with a realistic                                                               
interim  standard; it  is possible  to go  overboard, he  pointed                                                               
out.   It  has  to be  a  workable system  where  the reason  the                                                               
customer provides the  information in the first place  is able to                                                               
be satisfied.                                                                                                                   
CHAIR MURKOWSKI  said a definition of  "financial information" is                                                               
not included  in the text of  the bill.  She  reiterated that Ms.                                                               
Campbell had  said earlier that  anything on an  application that                                                               
is   not    health-related   would   be    considered   financial                                                               
[information].    She said  the  information  besides the  health                                                               
information  could  be  shared without  affirmative  consent  for                                                               
those  things  strictly related  to  the  health [aspect].    For                                                               
instance, just  because it is  related to  medical [information],                                                               
there  are parts  of that  that could  be shared  and parts  that                                                               
Number 1999                                                                                                                     
MR. LOHR responded  affirmatively.  Upon being  asked who decides                                                               
whether or  not a person's  gender is classified as  financial or                                                               
health information, he deferred the question to Katie Campbell.                                                                 
MS.   CAMPBELL  pointed   out  that   there  are   very  specific                                                               
definitions  in  the  regulations   on  what  constitutes  health                                                               
information  in  the  NAIC  model   regulation.    She  said  the                                                               
definition of health information says:                                                                                          
     ...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  the                                                                    
     consumer that  relates to ... past  or future physical,                                                                    
     mental,  [behavioral]  health,   or  condition  of  the                                                                    
     individual, provision  of health  care, or  payment for                                                                    
     the provision of health care.                                                                                              
CHAIR MURKOWSKI  asked:   And since  that is  in the  NAIC model,                                                               
[the legislature]  doesn't have  to incorporate it  here?   Is it                                                               
incorporated somehow by reference?                                                                                              
MR.  LOHR  replied  that  the   proposed  statutory  standard  is                                                               
consistent   with,   but   no  less   restrictive   than,   these                                                               
regulations;   the   health   information   definition   couldn't                                                               
encompass  less  than  the  NAIC model  regulation.    Given  the                                                               
confirmation  of [Alaska's]  authority to  do so,  [the division]                                                               
will issue  this set of regulations  as the starting point  for a                                                               
proposed regulation in Alaska, and  will then take public comment                                                               
on it.                                                                                                                          
Number 1843                                                                                                                     
REPRESENTATIVE HALCRO asked  what some of the  arguments are from                                                               
companies that  want to  protect the  ability to  share financial                                                               
MR.  LOHR  deferred the  question  to  the companies  themselves;                                                               
however, he  said the primary reason  is that if the  "other guy"                                                               
can  do  it and  they  can't,  then  they  are at  a  competitive                                                               
disadvantage.  It  is a little scary what is  on the Internet now                                                               
about any  one of us, if  someone is willing to  pay something to                                                               
obtain  it, and  it is  all done  with unregulated  sources.   In                                                               
addition,  if national  securities firms  and banks  are able  to                                                               
collect  information and  market it,  and if  insurance companies                                                               
can't by regulation,  then that is a  competitive disadvantage in                                                               
this  new  field  where  mergers,  acquisitions,  takeovers,  and                                                               
intense  competition   are  developing  at  a   tremendous  rate.                                                               
[Companies]  don't want  to be  on  an unlevel  playing field  in                                                               
terms of marketing information about a customer.                                                                                
Number 1757                                                                                                                     
MR. LOHR went on to the  third section, consumer protection.  The                                                               
consumer protection provisions, he  said, deal with the financial                                                               
institution's sales  of insurance.   This  talks about  banks and                                                               
related  entities  selling insurance  to  customers.   There  are                                                               
extensive consumer protection  provisions for insurance companies                                                               
already in place for processing claims and so forth.                                                                            
MR.  LOHR said  Sections 104  and 305  of GLBA  provide 13  safe-                                                               
harbor provisions  whereby, if states are  operating within these                                                               
safe-harbor provisions,  the consumer protection  provisions will                                                               
be  upheld and  federal law  will not  be used  to preempt  them.                                                               
Federal  banking regulators  cannot preempt  insurance regulators                                                               
at the  state level if they  are operating within one  or more of                                                               
the  13 safe  harbors.    If they  get  beyond those  safe-harbor                                                               
provisions, then federal bank regulators  can preempt the state's                                                               
authority.    He  said  he  understands  that  this  expands  the                                                               
applicability   of   consumer   protections   beyond   depository                                                               
institutions as  provided in GLBA  to all  financial institutions                                                               
that  may transact  business in  Alaska.   There  are four  major                                                               
areas   of  protection   related   to   licensing  that   include                                                               
misrepresentation, disclosure, "anti-tying," and the anti-                                                                      
coercion provision.                                                                                                             
Number 1688                                                                                                                     
MR. LOHR  asked:   Why should  these be  adopted for  a financial                                                               
institution's sales  of insurance?   He answered that it  is [the                                                               
provisions] would provide important  protections for Alaskans who                                                               
may  purchase  insurance through  a  financial  institution.   If                                                               
insurance companies are subject  to following consumer protection                                                               
rules, banks  should be subject  to them when  selling insurance;                                                               
it  is  a  "functional  regulation" within  the  GLBA  scheme  of                                                               
regulation.     It   avoids  possible   federal  preemption   and                                                               
enforcement of  these protections in  Alaska.  Again, it  makes a                                                               
strong symbolic statement that state  regulation can be effective                                                               
in  protecting  consumers,  while  also  allowing  the  insurance                                                               
industry to  remain competitive in a  changing financial services                                                               
Number 1631                                                                                                                     
MR. LOHR  said there are  two other GLBA-related  provisions that                                                               
are  extremely  important, so  he  went  over  them again.    One                                                               
requires  that  a  person  with  a  felony  conviction  involving                                                               
dishonesty or  breach of trust  obtain consent from  the director                                                               
before transacting  insurance, which  is required by  the federal                                                               
violent  crime control  and protection  Act,  Title 18,  Sections                                                               
10.33 and 10.44.   The federal government  basically said, "We're                                                               
not going  to let  anyone work  in the  business of  insurance if                                                               
they've had  a federal felony conviction  dealing with dishonesty                                                               
or breach of  trust."  If a  person wants to be  in the insurance                                                               
business  with one  of  those  felonies, he  or  she must  obtain                                                               
permission from the state director of insurance before doing so.                                                                
MR. LOHR  said as  he understands it,  federal law  cannot create                                                               
state authority  directly, and it  will take state  discussion as                                                               
to whether that provision should  be implemented.  [The division]                                                               
is   seeking  explicit   state  authority   to  carry   out  that                                                               
requirement of  federal law,  to be  able to  make a  decision on                                                               
convicted  felons on  a case-by-case  basis  after reviewing  the                                                               
person's record.   He  said [the  division] would  be considering                                                               
the  degree of  rehabilitation, the  sensitivity of  the position                                                               
that the person would be  occupying, and whether there are others                                                               
in that firm who are  willing to monitor the person's activities.                                                               
When asked  what [the division]  currently does, Mr.  Lohr stated                                                               
that  [the  division]  does   implement  the  federal  provision;                                                               
however, there  is some doubt that  if it were challenged  on it,                                                               
[the  division] would  have requisite  state  authority, so  [the                                                               
division] is trying to "backpedal" to cover that aspect.                                                                        
MR. LOHR  said it would remove  barriers in current law  to allow                                                               
for electronic  submission of  fingerprints since  the technology                                                               
exists and the hard copy approach creates substantial delays.                                                                   
Number 1550                                                                                                                     
CHAIR MURKOWSKI pointed  out that the bill carries  a zero fiscal                                                               
note.  She then asked if  the division is capable of dealing with                                                               
electronic [fingerprint] submissions.                                                                                           
MR. LOHR  expressed that [the  division] is  not set up  with the                                                               
software; however, it  is anticipated that because  of the strong                                                               
national interest,  "heavy lifting" of  that will be done  at the                                                               
national   level,   allowing   a  centralized   approach   toward                                                               
electronic processing.  At this time,  he said, there are only 14                                                               
states that use  fingerprints as a basis  for licensing insurance                                                               
applicants,  and [the  division]  isn't sure  how other  [states]                                                               
manage,  because [fingerprints]  have proven  to be  an important                                                               
element in  consumer protection  in Alaska.   [The  division] has                                                               
kept some crooks out of the  business of insurance by using them.                                                               
If there is  a fiscal impact, he explained, he  believed it would                                                               
be deserved,  because there needs  to be a  nationally consistent                                                               
technological  approach toward  fingerprinting in  order to  have                                                               
all of  the states submitting this  information electronically to                                                               
a central repository.                                                                                                           
CHAIR  MURKOWSKI surmised  that  the cost  of  going through  the                                                               
fingerprinting process is included in the [applicant's] fees.                                                                   
MR. LOHR concurred.                                                                                                             
Number 1478                                                                                                                     
MR. LOHR  referred to a handout  entitled "Recommended Amendments                                                               
to HB 184," which includes  amendments stemming from the feedback                                                               
received  [from  various groups].    The  first amendment  [under                                                               
"Producer Licensing  consistent with NAIC Model"  in the handout]                                                               
addresses changes  in producer licensing by  adding an additional                                                               
exemption from licensure for employees  of an insurer who perform                                                               
administrative, managerial, or clerical  functions, that are only                                                               
indirectly  related  to  the  transaction  of  insurance.    [The                                                               
division]  is essentially  not trying  to  require that  customer                                                               
service  representatives be  licensed  as agents  when helping  a                                                               
customer by  updating information to  the customer's file  and so                                                               
Number 1387                                                                                                                     
MR.  LOHR turned  his  attention to  the  second amendment  under                                                               
"Producer Licensing," which read:                                                                                               
       Allow payment of compensation without a license as                                                                       
     long as no transaction of insurance takes place.                                                                           
MR. LOHR  said it would  allow payment of compensation  without a                                                               
license as long  as no transaction of insurance takes  place.  It                                                               
would help ensure that Alaska  meets the reciprocity requirements                                                               
by  giving  the  director  the  option  to  require  surplus-line                                                               
brokers to maintain a bond.   Currently the surplus-lines bond is                                                               
required of  any licensee, and  is a provision that  would likely                                                               
be   considered  discriminatory   against   nonresidents  as   an                                                               
additional  licensing  requirement.    If the  division  had  the                                                               
authority to make a decision about  requiring the bond or not, it                                                               
would enable  [the division]  to be  truly reciprocal  with other                                                               
CHAIR MURKOWSKI asked for an example.                                                                                           
MS. BRUNETTE explained that for people  who may be licensed on an                                                               
individual   basis  to   represent  an   agency,  there   is  the                                                               
opportunity to  share a  commission with  the agency  even though                                                               
the agency is not directly  transacting business.  When asked why                                                               
a  person would  want  to share  the  compensation, Ms.  Brunette                                                               
replied  that  it  is  typically [laid  out]  in  the  employment                                                               
arrangement.  For example, as  part of an employment arrangement,                                                               
the employer  might say that  the employee could  share insurance                                                               
under the employer's  name, but the employee would  have to share                                                               
a commission with the employer for each piece of business sold.                                                                 
REPRESENTATIVE   ROKEBERG  asked   for  verification   that  [the                                                               
division] only licenses people, not agencies.                                                                                   
Number 1285                                                                                                                     
MS. BRUNETTE said  [the division] currently license  both, but if                                                               
the agency has multiple people  employed, it would need to obtain                                                               
the agency license.  If it  is a one-employee situation, it is an                                                               
optional   provision  allowing   people  to   share  commissions.                                                               
Another example, she said, would  be a referral business where an                                                               
agent is put into a situation in  which he or she can't place the                                                               
business  directly,  but  may  know  someone  who  can,  and  the                                                               
business  is referred  on.   The  person  receiving the  business                                                               
could share the commission for the referral.                                                                                    
REPRESENTATIVE HAYES asked how this differs from a broker.                                                                      
MS. BRUNETTE  said [Alaska] calls  people "producers,"  but there                                                               
is  a distinction  as  to whether  a  person is  an  agent [or  a                                                               
broker].   An  agent  is  a person  who  actually represents  the                                                               
insurance  company and  its products;  a broker  is a  person who                                                               
represents a particular client for his or her needs.                                                                            
Number 1196                                                                                                                     
REPRESENTATIVE HALCRO asked if  the first [recommended amendment]                                                               
relates to  an employee who answers  the phone and is  giving out                                                               
information about different product lines.                                                                                      
MR. BRUNETTE  said that  section specifically  addresses salaried                                                               
MR. LOHR said  he doesn't believe a receptionist could  be in the                                                               
business of assisting an insurance  transaction without a license                                                               
under  law, so  that  person  wouldn't be  a  candidate for  this                                                               
shared arrangement.  Typically, he  said, it is people "higher on                                                               
the food chain"  who want a "piece of the  action" for what their                                                               
folks are  doing.  It is  contemplated to do this  kind of thing,                                                               
but  wouldn't  involve  an  unlicensed  person  involved  in  the                                                               
Number 1085                                                                                                                     
MR.  LOHR  said he  envisioned  that  the receptionist  would  be                                                               
updating existing customer information and  so forth.  The minute                                                               
he or she  tries to match insurance needs  with company products,                                                               
however,  the  person  is  going  to  be  in  trouble  with  [the                                                               
division] if the person doesn't possess a license.                                                                              
MR.  LOHR   said  under  the   consumer  protections   [from  the                                                               
recommended    amendments],   the    definition   of    financial                                                               
institutions is  being clarified to exclude  insurers and include                                                               
credit unions,  which he said  are two technical changes.   There                                                               
is  one redundant  privacy provision  in the  consumer protection                                                               
section,  which   would  already   be  covered  by   the  privacy                                                               
provisions  elsewhere  in  the  bill,  so  [the  division]  would                                                               
purpose to  eliminate it.   It would make a  technical correction                                                               
to   the  amendments   made  to   the  domestic   violence  anti-                                                               
discrimination  provision   to  make   it  consistent   with  the                                                               
legislative intent  at the time  that the provision  was adopted.                                                               
If [the  division] didn't make  this change, he thought  it would                                                               
be  a  substantive change  in  the  law;  [the division]  is  not                                                               
intending a substantive  change there, he said,  but would rather                                                               
keep the  intent of  an agreement to  obtain passage  of domestic                                                               
violence provisions  in insurance.   He  said it  has to  do with                                                               
where the word "only" appears in the sentence.                                                                                  
CHAIR  MURKOWSKI   referred  to   the  definition   of  financial                                                               
institution.    She  asked  if   it  mirrors  the  definition  of                                                               
financial institution  in HB 106  by adding in the  credit unions                                                               
and excluding insurers.                                                                                                         
MR. LOHR  replied that [the division]  would have to look  at the                                                               
provision to be certain.                                                                                                        
Number 0906                                                                                                                     
REPRESENTATIVE  ROKEBERG asked  what  portions of  the bill  [the                                                               
legislature] needs to pass this year.                                                                                           
MR. LOHR  responded that the  privacy provision would be  high on                                                               
the list,  because July 1 is  the deadline to have  provisions in                                                               
effect.   If it  is not  in effect by  then, there  is a  risk of                                                               
federal  preemption  of  some state  authority  with  respect  to                                                               
insurance.   The second deadline,  he said, is November  2002 for                                                               
[enactment]  of the  producer licensing  provisions.   This  date                                                               
will  be three  years  following the  congressional enactment  of                                                               
GLBA.   If  there are  not  29 jurisdictions  reciprocal by  that                                                               
date, NARAB would  be formed.  The sooner Alaska  can get in line                                                               
with where the industry is going, the better.                                                                                   
REPRESENTATIVE   ROKEBERG  asked   if  [the   division]  proposes                                                               
adopting  the  NAIC  regulations  by reference  and  having  them                                                               
published  under the  Administrative Procedure  Act (APA)  before                                                               
July 1.                                                                                                                         
MR. LOHR answered  affirmatively for the privacy  provisions.  He                                                               
said  [the division]  should have  included the  authority to  go                                                               
ahead  and begin  a regulatory  process pending  consideration of                                                               
the bill as part of the recommended amendments.                                                                                 
Number 0824                                                                                                                     
REPRESENTATIVE  ROKEBERG said  [the committee]  could adopt  [the                                                               
provisions] by reference in statute, which  he said is not a wise                                                               
thing to do.                                                                                                                    
CHAIR  MURKOWSKI said  she is  trying to  understand the  need to                                                               
rush the  privacy provision.   [Federal regulators] have  given a                                                               
short lead time on this, she emphasized.                                                                                        
MR. LOHR added that he didn't  want to overstate the case, and he                                                               
didn't believe that if [Alaska's]  privacy provisions were not in                                                               
effect  then,  [the  division's]  authority  to  enforce  privacy                                                               
provisions  would be  preempted;  rather, there  is a  comparison                                                               
done  between [Alaska's]  privacy  regulations and  those of  the                                                               
federal agencies.   If Alaska's  are found to be  less protective                                                               
of privacy, then  some other preemptive provisions  would go into                                                               
effect;  however,  he  said  it would  take  three  years  before                                                               
[Alaska] would  be at risk  for being  preempted.  The  goal from                                                               
industry,  he explained,  has been  to  know what  the rules  are                                                               
going  to  be in  advance  and  to  hopefully have  a  consistent                                                               
national  system.   For  example, [the  division]  has issued  an                                                               
order clarifying  that [Alaska]  does not  intend to  enforce the                                                               
federal privacy rules  at the state level before  a date certain,                                                               
because  [the  division] wants  to  make  it clear  what  privacy                                                               
provisions apply.                                                                                                               
Number 0646                                                                                                                     
CHAIR  MURKOWSKI mentioned  that  it specifically  states in  the                                                               
letter from  the governor [dated  March 9, 2001] that  these need                                                               
to be  adopted and enforced  by July  1 or [Alaska]  risks losing                                                               
the   authority  to   enforce  the   state  consumer   protection                                                               
standards.    [The  state]  doesn't   want  to  risk  losing  the                                                               
authority to  do any of this,  but [the committee] needs  to know                                                               
if this is  "drop dead" date or  if it is an "it  would really be                                                               
nice if we were there by then" date.                                                                                            
MR. LOHR said  he would clarify this in writing,  but he believed                                                               
it to be  some of both.  The consumer  protection provisions that                                                               
the [governor's] letter  references are not the  entire scheme of                                                               
privacy,   and   these    are   not   all   unfair-claim-practice                                                               
regulations; rather, they  are a specific subset of  that set out                                                               
in  federal  law,  which  [the division]  will  provide  for  the                                                               
REPRESENTATIVE  ROKEBERG   said  the  committee  might   want  to                                                               
consider  a  statutory sunset  date  if  open-ended authority  is                                                               
given to  [the division] to  undertake the project, for  there to                                                               
be a review at an appropriate time.                                                                                             
Number 0535                                                                                                                     
JOHN  GEORGE,  Lobbyist,   National  Association  of  Independent                                                               
Insurers  (NAII);  American  Family  Life  Assurance  Company  of                                                               
Columbus  (AFLAC); and  the American  Council  of Life  Insurance                                                               
(ACLI), said the  three companies have diverging  opinions.  "We"                                                               
have  been working  with  the  division and  there  is  a lot  of                                                               
agreement, but there  are still some areas that  "we" are working                                                               
on and finalizing.  The first  section of the bill, the licensing                                                               
section, and  some of the  amendments were suggestions  by [NAII,                                                               
AFLAC,  and ACLI].   In  the privacy  section, however,  there is                                                               
great divergence, he said.                                                                                                      
MR. GEORGE stated that there  are some advantages to the consumer                                                               
and   to   the   insurance  company   to   disclosing   financial                                                               
information,  and  there  are  some  efficiencies,  for  example,                                                               
passing on information that results  in a 2 percent interest rate                                                               
break on  a credit card because  a person is part  of a preferred                                                               
group or  getting the platinum  card instead of the  regular card                                                               
and so forth.                                                                                                                   
Number 0354                                                                                                                     
MR.  GEORGE said  direct  deposit  is another  example,  or if  a                                                               
person wanted a direct billing to  his or her bank account to pay                                                               
an  insurance premium;  those are  the kinds  of things  that are                                                               
developing now, and there is  a great opportunity to develop more                                                               
if   [companies]  can   share   minimal   amounts  of   financial                                                               
information.  He  pointed out that buying  group health insurance                                                               
is  cheaper than  buying individual  [insurance],  because it  is                                                               
easier  to market.    Sharing information  that  is protected  in                                                               
certain ways allows for some efficiencies and benefits.                                                                         
MR. GEORGE explained  that when buying an  insurance company, the                                                               
buyer is  going to want to  know what the "book  of business" is.                                                               
That information  can't be disclosed, he  explained, because only                                                               
some  of  these  people have  opted  in.    There  are a  lot  of                                                               
different  things   that  financial  information  is   used  for,                                                               
including reinsurance  with affiliates and nonaffiliates.   Right                                                               
now, information is  being shared and one doesn't  know about it,                                                               
but under  GLBA every financial  institution is going to  have to                                                               
[disclose] that information,  and the consumer gets  to decide if                                                               
he or she wants  to opt out.  Under GLBA the  customer will get a                                                               
notice  saying what  the information  will  be used  for, and  if                                                               
there  is a  change to  what is  going to  be done  with it,  the                                                               
[company]  has to  notify  the customer.    The protection  under                                                               
[GLBA] is greater than what is there today.                                                                                     
MR. GEORGE  referred to  the consumer  protection section  of the                                                               
bill.   There has been much  discussion between the ACLI  and the                                                               
division about  this, he expressed,  and the preference  would be                                                               
that it  not be  in [the  bill]; however,  the division  has been                                                               
working with "us"  to come up with language that  works, and "we"                                                               
are not going  to object to it.   The NAIC is working  on a model                                                               
with standardization as its ultimate goal.                                                                                      
Number 0018                                                                                                                     
CHAIR MURKOWSKI pointed  out that Mr. George had  said that there                                                               
was  some divergence  among  his clients  on  the privacy  issue;                                                               
however, the comments  that he made were pretty much  in favor of                                                               
the opt-out provision through GLBA.                                                                                             
TAPE 01-48, SIDE A                                                                                                              
MR. GEORGE  said the  divergence is  regarding whether  this bill                                                               
ought  to  include  medical  health  information  or  not.    But                                                               
everyone is  in line with the  opt-out standard as opposed  to an                                                               
opt in for financial information.                                                                                               
REPRESENTATIVE ROKEBERG asked  Mr. George if he  would prefer not                                                               
to have  Section 44 and the  other provision in the  bill, to not                                                               
have it be GLBA-oriented or required.                                                                                           
MR.  GEORGE   clarified  that  he   has  three  clients   and  he                                                               
[personally] doesn't have an opinion.   The financial protections                                                               
are  absolutely needed.   One  client of  his has  said from  the                                                               
outset  that  it supports  the  NAIC  model, which  includes  the                                                               
health  and  financial  information  regulations;  other  clients                                                               
would prefer to go with just  the financial information.  He said                                                               
he  presents it  to the  committee  as factual.   Life  insurance                                                               
companies,  he  explained,  have   a  different  philosophy  than                                                               
property  casualty; for  example,  property  casualty deals  with                                                               
medical  or  health  information  much differently  than  a  life                                                               
insurance or  a health insurance  company would deal  with health                                                               
information.  The company  adjusting workers' compensation claims                                                               
would  like to  be able  to access  health insurance  information                                                               
from  other sources  so the  claim  can be  properly adjusted  to                                                               
avoid  fraud.   For instance,  in the  case of  a person  who has                                                               
filed  27  slip-and-fall  claims  against  grocery  stores,  that                                                               
information  would be  useful,  although  health insurers  really                                                               
have a different use for that information.                                                                                      
MR. GEORGE,  upon being asked  if his clients have  objections to                                                               
the NAIC model  regulations, replied that NAII  supports the NAIC                                                               
model  on privacy,  and his  other  two clients  would suggest  a                                                               
different standard.                                                                                                             
Number 0239                                                                                                                     
REPRESENTATIVE  ROKEBERG said  this  is what  troubles him  about                                                               
adopting [regulation]  by reference,  because it  basically gives                                                               
the division the authority to take up those regulations.                                                                        
MR.  GEORGE remarked  that  these are  policy  decisions for  the                                                               
legislature to make.                                                                                                            
REPRESENTATIVE ROKEBERG  said it would  be helpful if  Mr. George                                                               
could  glean out  the problem  areas  in the  regulations so  the                                                               
committee could  address them  in statute  and give  direction to                                                               
the division.                                                                                                                   
Number 0338                                                                                                                     
MR.  GEORGE  responded  that  it   is  primarily  in  the  health                                                               
information [section].   [His three clients] agree  that there is                                                               
going  to be  something on  financial  information.   There is  a                                                               
National Conference of Insurance  Legislators (NCIL) model, which                                                               
deals  somewhat  differently with  health,  he  said; that  is  a                                                               
greater standard than GLBA, but less than the NAIC model.                                                                       
Number 0420                                                                                                                     
SHELDON WINTERS, Lobbyist, State  Farm Insurance, said State Farm                                                               
has  some concerns  with  the bill,  primarily  with the  privacy                                                               
section,  and has  been in  contact  with the  division.   [State                                                               
Farm] is  hopeful it  can be  worked out, he  said, and  he would                                                               
like  to  reserve  the  opportunity   to  come  back  before  the                                                               
legislature if that doesn't happen.                                                                                             
MR. WINTERS  expounded that  there are a  couple of  word changes                                                               
that seem technical,  but which have some  significant meaning in                                                               
the producer licensing section.                                                                                                 
REPRESENTATIVE  MEYER  asked  if  the  privacy  question  is  too                                                               
restrictive or not restrictive enough.                                                                                          
Number 0549                                                                                                                     
MR. WINTERS said in a "nutshell"  State Farm does not support the                                                               
NAIC model that  is proposed in this bill.   [State Farm] takes a                                                               
different look  at how the  state ought to enact  the regulations                                                               
that are  required by GLBA.   In  Section 44, instead  of setting                                                               
the NAIC model  as the floor, set GLBA as  the floor because that                                                               
is what  [the state] is  trying to comply  with by July  1, 2001.                                                               
As  long  as  the  division  is  given  the  authority  from  the                                                               
legislature to  enact regulations  that are consistent  with, but                                                               
no less restrictive  than GLBA, [the state]  has accomplished "to                                                               
the extent of a drop-dead deadline, that problem."                                                                              
MR. WINTERS  said essentially that  gives all  interested parties                                                               
the ability  to sit  down in the  regulatory process  and express                                                               
concerns and work  through that.  It also gives  the division the                                                               
opportunity to  adopt the NAIC provision  if it feels that  it is                                                               
the requirement,  but it  also allows  flexibility.   The privacy                                                               
regulations are  dynamic, and the NAIC  is considering amendments                                                               
to its  model.   Mr. George  had stated in  his testimony  to the                                                               
committee that there  is an NCIL model, and  State Farm's concern                                                               
is that if  through this legislative process the  NAIC model sets                                                               
this minimum  requirement, it  basically ties  everybody's hands;                                                               
if it  turns out that  it is not a  working model, next  year the                                                               
only way to change it would  be to come to the legislature again,                                                               
instead of working through the division.                                                                                        
Number 0688                                                                                                                     
CHAIR MURKOWSKI said she appreciates  the comments and encourages                                                               
Mr.  Winters to  work  with the  division.   She  added that  the                                                               
committee will  not be  moving the bill  today, because  there is                                                               
still a lot  of work that has to  be done.  If the  bill is still                                                               
being considered  by the  committee, she said,  and if  the input                                                               
[Mr. Winter]  provides [to the division]  isn't being considered,                                                               
she encourages him to come back and testify.                                                                                    
Number 0719                                                                                                                     
STEVE CONN,  Executive Director, Alaska Public  Interest Research                                                               
Group (AkPIRG),  via teleconference, explained that  the group is                                                               
a statewide  consumer group that has  been in the state  for over                                                               
25 years.   He  said he  would explain  why every  consumer group                                                               
including  AkPIRG, both  nationally  and  locally, believes  that                                                               
opt-in should  be required in situations  involving disclosure of                                                               
financial  or health  information.   Let  the  consumer make  the                                                               
choice,  he  emphasized,  because   we  all  know  from  personal                                                               
experience from  daily mailings that  opt-out is often  no choice                                                               
at all.                                                                                                                         
Number 0851                                                                                                                     
MR.  CONN clarified  that opt-in  means  sharing information  not                                                               
only  with  third  parties, but  also  within  the  institutional                                                               
family or  affiliates.  He  said he  hopes the new  situation and                                                               
the  new  danger  is  understood.   The  Glass-Steagall  Act  was                                                               
repealed  by GLBA  when the  stock market  was a  lot higher  and                                                               
everyone was feeling flush.   The reason the barriers were broken                                                               
down from  the corporate  side, he  expressed, was  quite simple.                                                               
The  banks  want to  share  the  information with  the  insurance                                                               
companies,  with brokerage  firms,  and with  the small-loan  and                                                               
often predatory  loan companies  funded by banks.   They  are all                                                               
one big family, and  this is what they want to do.   They want to                                                               
determine from whose customer base to proceed.                                                                                  
MR. CONN  said it is  in [the  companies'] interest to  merge and                                                               
share  information,  but it  isn't  in  the consumers'  interest.                                                               
Many  consumers,  particularly elderly  ones,  do  not know  that                                                               
insurance and brokerage products are not federally insured.                                                                     
MR.  CONN emphasized  that Alaska's  constitution  has a  privacy                                                               
section that  is explicit.   He thinks Alaskan  consumers believe                                                               
that their privacy  is not dead.  [Alaskans]  want the capability                                                               
to opt  in, and  if there  is an important  subject that  must be                                                               
shared between  entities, then certainly the  corporation that is                                                               
taking  the  business  can  do  [the  consumer]  the  service  of                                                               
reaching out and asking whether  it can share information, either                                                               
health or financial information.                                                                                                
MR. CONN said  he disagrees with those who suggest  that there is                                                               
a small amount of financial  information; in the insurance realm,                                                               
for  example, he  personally deals  with his  house, cars,  and a                                                               
number of things.   [The company] has  a long-term [relationship]                                                               
with  him, and  he said  he has  a reliable  insurance agent;  he                                                               
doesn't want that agent sharing  his information with a corporate                                                               
partner  or  to  a  third-party   affiliate  merely  to  increase                                                               
business.  He  said he doesn't think being strong  in the area of                                                               
opting in  will throw [Alaska]  out of  compliance.  He  said the                                                               
compliance has more to do with licensing and reciprocity.                                                                       
Number 1008                                                                                                                     
MR. CONN said there is the  constant theme song that if insurance                                                               
doesn't like what is happening, is  it might go elsewhere, but he                                                               
doubts whether  that is true.   He  looks to the  legislature, he                                                               
emphasized, not to  the Division of Insurance, which  has been so                                                               
reluctant   to  share   this   legislation   with  the   consumer                                                               
organizations until  being asked  by a committee.   He  asked the                                                               
lawmakers to stand up for the  right to privacy, as was done with                                                               
the patients'  bill of rights,  and press for opt-in  rather than                                                               
opt-out at every turn, both in HB 184 and in HB 106.                                                                            
CHAIR MURKOWSKI  indicated that the  bill would be held  over and                                                               
that she would  be looking to Mr. Lohr for  notice regarding when                                                               
the bill could be rescheduled.                                                                                                  
Number 1115                                                                                                                     
REPRESENTATIVE HAYES asked if [the  committee] is going to try to                                                               
get this bill through both chambers, or just parts of it.                                                                       
CHAIR MURKOWSKI  said [SB 138,  the companion bill] was  heard in                                                               
Senate Labor and Commerce Standing Committee in one hearing.                                                                    
MR. LOHR  agreed and said  it will be  up again tomorrow  [in the                                                               
Senate]  and he  thought there  might be  a committee  substitute                                                               
(CS)  offered at  that time.   He  said [the  division] would  be                                                               
happy to provide  the text of the amendments as  soon as they are                                                               
back  from Mr.  Ford.   He mentioned  that the  consultation with                                                               
industry would hopefully happen on Friday.                                                                                      
[HB 184 was held over.]                                                                                                         

Document Name Date/Time Subjects