Legislature(2001 - 2002)

04/12/2001 01:37 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                 SB 138-INSURANCE CODE AMENDMENTS                                                                           
CHAIRMAN  RANDY   PHILLIPS  called  the  Senate  Labor   &  Commerce                                                          
Committee meeting to order  at 1:37 pm and announced SB 138 to be up                                                            
for consideration.                                                                                                              
                                                                                                                                
SENATOR LEMAN  moved to adopt  the committee  substitute to  SB 138,                                                            
Ford 4/6/01/F. There were no objections and it was so ordered.                                                                  
                                                                                                                                
MR.  BOB  LOHR,  Director,  Division   of  Insurance,  said  he  was                                                            
available to answer questions.                                                                                                  
                                                                                                                                
CHAIRMAN  PHILLIPS asked  if he saw  any deficiency  other than  the                                                            
public policy question of opt in/out in the F version.                                                                          
                                                                                                                                
MR. LOHR  answered no, other  than that one  issue, the rest  of the                                                            
issues were addressed quite nicely.                                                                                             
                                                                                                                                
MR. JOHN  GEORGE,  American Council  of Life  Insurers and  National                                                            
Association  of Independent Insurers,  said the redraft of  the bill                                                            
was fine and all his clients would support it.                                                                                  
                                                                                                                                
MR. STEVE CONN, Executive  Director, Alaska Public Interest Research                                                            
Group,  said the  concern  of consumer  organizations  over the  opt                                                            
in/out policy  is that it flows from the fact that  the Gramm-Leach-                                                            
Bliley  Act  did   away  with  the  walls  established   during  the                                                            
depression  days  between  the  financial   institutions,  like  the                                                            
brokerage  houses, insurance  companies,  small  loan companies  and                                                            
banks. "It allows them to merge."                                                                                               
                                                                                                                                
     With   that  merger  comes  the   opportunity  for   these                                                                 
     financial  institutions to share important and  privileged                                                                 
     information  and, to be quite  blunt, many of them desire                                                                  
     to do so.  That is to take good customers to the  bank and                                                                 
     share  them with  their own  or a  third party  who is  an                                                                 
     insurance  company and  vice versa. So,  the consumer  who                                                                 
     gives information  for one discrete purpose may  find that                                                                 
     information  being  shared all  over. Of  course, here  in                                                                 
     Alaska with  our constitutional right to privacy,  we have                                                                 
     a  particular and  long standing  interest  in privacy  of                                                                 
     information.                                                                                                               
                                                                                                                                
     Many  of  the   institutions  suggest  that  opt   out  is                                                                 
     satisfactory,   but the  reality  of  that  is  very  much                                                                 
     something   different.  Many  of  us  have  received   the                                                                 
     documents  stuffed within statements from banks  and other                                                                 
     companies  lately, because  most of this  is beginning  at                                                                 
     the  federal level. It  is hard as the  devil to find  the                                                                 
     information  necessary to figure  out when and how and  on                                                                 
     what  basis  to opt  out. Most  people  just see  this  as                                                                 
     another  envelope  stuffer  and  pitch it  out.  This  lay                                                                 
     opinion  has now been  underscored by  an academic study.                                                                  
     Mark Hocheiser,  PhD. has conducted a study and  subjected                                                                 
     many   of  these  notices  to   the  various  readability                                                                  
     standards that have been  widely established and has found                                                                 
     out that most of these documents  according to the reading                                                                 
     scores  are  virtually  unreadable.  To  most, especially                                                                  
     people with English as a  second language and the elderly,                                                                 
     have  a difficult time  reading them.  The easiest way  to                                                                 
     deal with  this, and the way that certainly comports  well                                                                 
     with  our own concern  for privacy  in this  state and  to                                                                 
     make use of  the opportunity granted at the federal  level                                                                 
     for  each   state  to  make   this  choice,  is  to   have                                                                 
     individuals  opt in and  not opt out.  That is to say,  if                                                                 
     the  banks  think  it's  in  your  best  interest  or  the                                                                 
     insurance  company to share this information with  someone                                                                 
     in  its  corporate  family  or  with  someone  beyond  its                                                                 
     corporate  family, let  it reach out  to the consumer  and                                                                 
     offer  the opportunity  and let that  consumer deliberate                                                                  
     and  agree  to  opt in  on  the  sharing  of information.                                                                  
     Unless,  as one  lobbyist for  an insurance  company  said                                                                 
     another day, we believe  privacy is dead, in which case we                                                                 
     have nothing to discuss  about this. We're sort of tilting                                                                 
     at windmills. I encourage  the committee to pass forward a                                                                 
     bill  that  makes  opt in  and  not opt  out  the choice,                                                                  
     because  at the  end of  the day,  opt out  is no choice,                                                                  
     whatsoever.                                                                                                                
                                                                                                                                
MR. GEORGE responded:                                                                                                           
                                                                                                                                
     There's  two important  points.  One is  that the federal                                                                  
     government  has already regulated  financial institutions                                                                  
     that  are regulated  under  the federal  government  under                                                                 
     Gramm-Leach-Bliley.  So certain institutions already  have                                                                 
     the  opt out  provision.  By changing  that  standard  for                                                                 
     insurance companies, you  are now creating a different set                                                                 
     of  rules  for  insurance  companies   to  play  than  the                                                                 
     national  banks,  the  stock brokerages,  and  others.  So                                                                 
     automatically,  the insurance  companies  are placed at  a                                                                 
     disadvantage.  We can't  change the  federal standard  for                                                                 
     those federally  regulated institutions. We can  only deal                                                                 
     with the state.                                                                                                            
                                                                                                                                
     We  believe  that  there are  certain  advantages  to  the                                                                 
     sharing  of  information,  not  only  from  the financial                                                                  
     institution   side,  but  from  the  consumer  side.   For                                                                 
     instance,  rather  than  an  institution  mailing  a  mass                                                                 
     mailing  to everyone in America,  they can target markets                                                                  
     of  people  who  are  more  likely  interested   in  their                                                                 
     product. As the prior witness  stated, we all get a lot of                                                                 
     junk mail  and we toss it, because it's totally  unrelated                                                                 
     to  us, but  once in  a while  you find  something that's                                                                  
     really hits your target.  Something you are interested in.                                                                 
     If we  could focus more  of these mailings  on things  you                                                                 
     are  interested in,  I think  that's an  advantage to  the                                                                 
     consumer.  It does improve competition  among the players                                                                  
     if they can get access to  the information and, therefore,                                                                 
     target  the consumers.  It creates  some efficiencies  and                                                                 
     those  can be passed  on as cost savings.  It's certainly                                                                  
     cheaper  to mail to  a target group  than to everybody  in                                                                 
     America.  Lastly,  the standard  that is going  to be  set                                                                 
     across the country for insurance  companies is going to be                                                                 
     opt out. I'm confident that  will be the case. Alaska will                                                                 
     be  different. That,  therefore, makes  it more expensive                                                                  
     for  insurance  companies  to  operate  for  that limited                                                                  
     purpose  in the state  of Alaska and,  therefore, may  not                                                                 
     provide  the opportunities  to people  in Alaska to  avail                                                                 
     themselves of these new and creative products.                                                                             
                                                                                                                                
MR. GOERGE  said that  the efficiencies  technology  has brought  to                                                            
this industry  will be lost  and the cost  will be passed on  to the                                                            
consumer. "We  have done studies and  consumers are more  protective                                                            
of their time than their privacy on these types of issues."                                                                     
                                                                                                                                
SENATOR DAVIS  moved to delete all  materials on page 25,  line 31 -                                                            
page 26, line 10 (the opt out provision).                                                                                       
                                                                                                                                
MS. SUZANNE  HANCOCK, Staff  to Alan Austerman,  explained  that the                                                            
amendment gives  people the opportunity  to opt in, if they  choose,                                                            
but does  not put the onus  on the individual  to seek out a  way of                                                            
removing themselves from these lists.                                                                                           
                                                                                                                                
CHAIRMANT PHILLIPS called  for the vote. SENATORS LEMAN and PHILLIPS                                                            
voted nay;  SENATOR DAVIS  voted yeah;  and the  motion failed  by a                                                            
vote of 2 to 1.                                                                                                                 
                                                                                                                                
SENATOR  LEMAN moved  to pass  CSSB 138  (L&C) from  committee  with                                                            
individual recommendations.  There were no objections  and it was so                                                            
ordered.                                                                                                                        

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