Legislature(2001 - 2002)

03/20/2001 01:30 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     ALASKA STATE LEGISLATURE                                                                                   
                 SENATE LABOR & COMMERCE COMMITTEE                                                                            
                          March 20, 2001                                                                                        
                             1:30 p.m.                                                                                          
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Randy Phillips, Chair                                                                                                   
Senator Alan Austerman                                                                                                          
Senator Loren Leman                                                                                                             
Senator Bettye Davis                                                                                                            
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator John Torgerson                                                                                                          
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 138                                                                                                             
"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."                                                                        
                                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                              
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
SB 138 - No previous action to consider.                                                                                        
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Bob Lohr, Director                                                                                                          
Division of Insurance                                                                                                           
3601 C St., Ste 1324                                                                                                            
Anchorage AK 99503                                                                                                              
POSITION STATEMENT: Commented on SB 138.                                                                                      
                                                                                                                                
Ms. Patricia Parachini                                                                                                          
Senior Director, State Relations                                                                                                
American Council of Life Insurers (ACLI)                                                                                        
1001 Pennsylvania Ave. NW.                                                                                                      
Washington, DC 20004                                                                                                            
POSITION STATEMENT: Supported intent of SB 138.                                                                               
                                                                                                                                
Mr. Michael Lovendusky, Senior Counsel                                                                                          
American Council  of Life Insurers  (ACLI)                                                                                      
1001 Pennsylvania Ave. NW.                                                                                                      
Washington, DC 20004                                                                                                            
POSITION STATEMENT: Supported intent of SB 138.                                                                               
                                                                                                                                
Mr. Michael Harrold, Northwest Regional Manager                                                                                 
National Association of Independent Insurers (NAII)                                                                             
Chicago IL                                                                                                                      
206-910-3692                                                                                                                    
POSITION STATEMENT:  Commented on  SB 138.                                                                                    
                                                                                                                                
Ms. Cinda Smith                                                                                                                 
Government Employees Insurance Company (GEICO)                                                                                  
Chevy Chase,  MD                                                                                                                
1-800-824-5405                                                                                                                  
POSITION STATEMENT:  Commented on  SB 138.                                                                                    
                                                                                                                                
Mr. Michael Combs, President                                                                                                    
Combs Insurance Agency                                                                                                          
Alaska Independent Insurance Agents                                                                                             
P.O. Box 2702                                                                                                                   
Palmer AK 99654                                                                                                                 
POSITION STATEMENT:  Commented on  SB 138.                                                                                    
                                                                                                                                
Mr. John George                                                                                                                 
American Council of Life Insurance                                                                                              
National Association of Independent Insurers                                                                                    
3328 Fritz Cove Rd.                                                                                                             
Juneau AK 99801                                                                                                                 
POSITION STATEMENT:  Commented on  SB 138.                                                                                    
                                                                                                                                
Mr. Sheldon Winters                                                                                                             
State Farm Insurance                                                                                                            
613 W. Willoughby Ave.                                                                                                          
Juneau AK 99801                                                                                                                 
POSITION STATEMENT:  Commented on  SB 138.                                                                                    
                                                                                                                                
Ms. Katie Campbell, Assistant Actuary                                                                                           
Department of Commerce and Community Development                                                                                
333 Willoughby Ave                                                                                                              
Juneau AK 99801                                                                                                                 
POSITION STATEMENT:  Commented on  SB 138.                                                                                    
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 01-12, SIDE A                                                                                                            
Number 001                                                                                                                      
                 SB 138-INSURANCE CODE AMENDMENTS                                                                           
                                                                                                                              
CHAIRMAN  RANDY   PHILLIPS  called  the  Senate  Labor   &  Commerce                                                          
Committee meeting to order  at 1:30 pm and announced SB 138 to be up                                                            
for consideration.                                                                                                              
                                                                                                                                
MR. BOB  LOHR, Director,  Division of Insurance,  said Gramm-Leach-                                                             
Bliley (GLBA)  is the term for the  Financial Service Modernization                                                             
Act of 1999, legislation  that basically removed the  barriers among                                                            
insurance,  banking and securities.  He explained  that back  in the                                                            
depression era, one of  the responses of congress to 1929 depression                                                            
was to erect some  walls among the different sectors  of the economy                                                            
and have restrictions  on cross-ownership,  the Glass-Steagall  Act.                                                            
Those barriers  were broken down by this revolutionary  legislation,                                                            
which repeals the Act.                                                                                                          
                                                                                                                                
Unlike  other  types   of  regulation,  there's  relatively   little                                                            
involvement  by the federal government  in regulation of  insurance,                                                            
MR.  LOHR said.  "We  believe  that is  a  very worthwhile  goal  to                                                            
preserve  and  continue.  GLBA does  provide  that  continued  state                                                            
regulation  of insurance will occur  only if certain conditions  are                                                            
met by the states in the way that they regulate insurance."                                                                     
                                                                                                                                
MR. LOHR said:                                                                                                                  
                                                                                                                                
     The  primary  goal  of  state  regulators  is  to protect                                                                  
     insurance  consumers,  taking  a pro-active  and flexible                                                                  
     approach to  regulation. State regulators must  streamline                                                                 
     the  processes and  become more  efficient  in the highly                                                                  
     competitive  world economic environment. If you  are going                                                                 
     to  allow  insurance  companies  to  compete  with banks,                                                                  
     compete   with  securities   firms,   allow  mergers   and                                                                 
     acquisitions  among those  different  categories, then  if                                                                 
     any  one sector is at  a disadvantage  because of the  way                                                                 
     it's  regulated  in competing  with those  other sectors,                                                                  
     that's  not a level  playing field and  that's not a  fair                                                                 
     opportunity  to compete.  The goal  of Gramm-Leach-Bliley                                                                  
     and the goal of the state  legislation is to try to insure                                                                 
     that   there  is  a  level  playing   field  there;   that                                                                 
     regulatory  restriction  will not  impair  the ability  to                                                                 
     compete  openly  and freely.  State regulators  must  work                                                                 
     cooperatively   with   other  state   officials,  federal                                                                  
     officials, consumers, and interested parties.                                                                              
                                                                                                                                
     A  primary goal  of this legislation  is  to simplify  the                                                                 
     process  of licensing  insurance  producers,  protect  the                                                                 
     privacy of  consumer information and to protect  consumers                                                                 
     who buy insurance through banks.                                                                                           
                                                                                                                                
     Producer  licensing  - one of  these restrictions  that  I                                                                 
     mentioned - If a total of  29 jurisdictions do not achieve                                                                 
     either  uniformity or reciprocity  for their non-resident                                                                  
     licensing  process  by three  years from  the adoption  of                                                                 
     GLBA, then  a national system of licensing will  be put in                                                                 
     place. This  essentially states we'll lose authority  over                                                                 
     licensing to the national  government. This is in response                                                                 
     to  a  perception  by  national  companies  that  getting                                                                  
     licensed  in  every single  state  is a  very cumbersome,                                                                  
     difficult   process  that  involves  different   rules  in                                                                 
     different states and is extremely slow.                                                                                    
                                                                                                                                
     NAIC  refers  to the  National  Association  of Insurance                                                                  
     Commissioners.   This  is  the  gathering  of  the   chief                                                                 
     regulators  for  insurance   purposes  from  each  of  the                                                                 
     different  jurisdictions  around  the country.  It is  our                                                                 
     national organization,  which serves a quasi-governmental                                                                  
     function.  It is  because there  is no  federal insurance                                                                  
     regulatory  entity,  the NAIC is  the closest  thing to  a                                                                 
     national  perspective on insurance  regulation that  there                                                                 
     is. It's also  complimented by the National Conference  of                                                                 
     Insurance  Legislators that has a national focus  from the                                                                 
     point  of view of legislators  involved in the regulation                                                                  
     of insurance.                                                                                                              
                                                                                                                                
     In October  2000, the NAIC adopted the Producer  Licensing                                                                 
     Model Act for states to  use as a guideline for developing                                                                 
     legislation  to meet the reciprocity  elements of GLBA.  I                                                                 
     mentioned  the  two  choices  of  either  reciprocity   or                                                                 
     uniformity  that 29 jurisdictions  have to achieve one  or                                                                 
     the other  of those. Reciprocity  basically means that  if                                                                 
     another  state  accepts  a licensee  as  acceptable  under                                                                 
     their  rules, that we will accept  them as a non-resident                                                                  
     license applicant under our rules and vice versa.                                                                          
                                                                                                                                
     Uniformity,  in  essence, means  that those  states  would                                                                 
     have the  same conditions for  licensing for an agent.  It                                                                 
     would  essentially be national  legislation replicated  in                                                                 
     each of the  50 jurisdictions. Alaskan licensee  include a                                                                 
     total of over  10,700 of which 2,900 are residents,  7,800                                                                 
     are non-residents.  We have noticed  a dramatic growth  in                                                                 
     the  non-resident licensees  in the last  three years  and                                                                 
     pretty  much  a  level  trend  for  the  purposes  of  the                                                                 
     resident licensees - 38 percent increase.                                                                                  
                                                                                                                                
     Based  on  the  NAIC model  with  the  goal  of achieving                                                                  
     reciprocity  and  moving toward  uniformity  later,  these                                                                 
     licensing  provisions in SB 138  would give licenses  on a                                                                 
     reciprocal  basis. A non-resident applicant would  receive                                                                 
     a  license upon  request for  licensure and  payment of  a                                                                 
     fee.  The fees  would be collected  at  one central  point                                                                 
     nationally  and  the  applications   would  be  turned  in                                                                 
     nationally,  but processed electronically,  if a producer                                                                  
     is licensed and in good standing in the home state.                                                                        
                                                                                                                                
     Basically,  we envision a system where an applicant  for a                                                                 
     license  in Alaska,  if there  are no  regulatory issues,                                                                  
     such as  previous administrative  or criminal background,                                                                  
     could be processed within  a 24-hour period. That would be                                                                 
     a  dramatic  change  from the  current  system.  We  would                                                                 
     accept the  home state's continuing education  requirement                                                                 
     as  they would  accept ours.  Any retaliatory  provisions                                                                  
     that Alaska  might apply to others would be eliminated  by                                                                 
     this   bill.   It   would   remove   all   discriminatory                                                                  
     requirements   based   on  the  place   of  residency   or                                                                 
     operations.  We would use and accept the National  Uniform                                                                 
     License Application.                                                                                                       
                                                                                                                                
     A  consistent approach  on a  national basis  would  truly                                                                 
     simplify  the task of getting  multiple licenses. Some  of                                                                 
     the   benefits   of  enacting   the   producer  licensing                                                                  
     provisions would include:                                                                                                  
                                                                                                                                
         · Streamlining the license process and eliminating                                                                     
           duplicative requirements for licensure.                                                                              
         · It would be a more efficient and a cheaper                                                                           
           process.                                                                                                             
         · There would be no requirement to apply retaliatory                                                                   
           fees                                                                                                                 
         · We would level the playing field                                                                                     
         · We would work collaboratively to identify rogue agents.                                                              
           If one state was able to identify problems in the                                                                    
           background of a licensee, other states would have access                                                             
           to that information on a confidential basis.                                                                         
                                                                                                                                
Number 700                                                                                                                      
                                                                                                                                
SENATOR AUSTERMAN asked if there was no federal oversight or                                                                    
regulation of the insurance agency.                                                                                             
                                                                                                                                
MR. LOHR answered  that is basically  correct. At the federal  level                                                            
there is  the McCaren Ferguson  Act, which  provides that if  states                                                            
are regulating  the business of insurance, then insurance  companies                                                            
are protected  from the anti-trust  provisions in federal  law. This                                                            
was in response to a U.S.  Supreme Court case. It is truly a state's                                                            
rights or state regulated business.                                                                                             
                                                                                                                                
SENATOR AUSTERMAN  asked if  GLBA allows  everyone to come  together                                                            
and do a national standards of insurance.                                                                                       
                                                                                                                                
MR. LOHR answered  that was correct and that they  are trying to get                                                            
closer to a national approach  so that companies doing business on a                                                            
multi national  basis will not face the quirks and  warts of all the                                                            
different systems.                                                                                                              
                                                                                                                                
SENATOR  AUSTERMAN asked  if the  national approach  was based  upon                                                            
state laws or insurance standards as well.                                                                                      
                                                                                                                                
MR. LOHR answered  that it is based  typically on model legislation                                                             
and  regulations  developed  by  the  NAIC  that  takes  input  from                                                            
interested  parties. He said  there are privacy  provisions  in this                                                            
bill and he referred to  the Alaska Constitutional Right to Privacy,                                                            
Article  1, Section 22  which states,  "The right  of the people  to                                                            
privacy is  recognized and shall not  be infringed. The legislature                                                             
shall  implement this  section." This  is a  more stringent  privacy                                                            
standard than is found in the U.S. Constitution.                                                                                
                                                                                                                                
     The consumer  privacy provisions of this bill  confirm the                                                                 
     Director   of  Insurance's  authority  to  adopt  privacy                                                                  
     standards   that  are   consistent  with,   but  no   less                                                                 
     restrictive than the NAIC model regulation.                                                                                
                                                                                                                                
MR.  LOHR summarized  information  that  is  protected  in the  NAIC                                                            
Privacy Model:                                                                                                                  
   · Personally identifiable financial or health information                                                                    
   · Has standards for protected financial information that are                                                                 
     consistent  with Gramm-Leach-Bliley  Act  and they are  opt-out                                                            
     provisions. Opt-put  means if you don't want to share your non-                                                            
     public  personal  information  with  insurance  companies  with                                                            
     other  companies, then  you must  tell them  you don't want  to                                                            
     share. That means  if you don't exercise your option to opt-out                                                            
     in the little  billing stuffers, you are giving  them the right                                                            
     to share  that information. That is a lower form  of protection                                                            
     for  that information  than  opt-in. Opt-in  information  means                                                            
     that  the company  may not  share that  information with  other                                                            
     companies except affiliates  unless you give them permission to                                                            
     do  so. Opt-in is  a tighter  form of control  with respect  to                                                            
     protecting privacy.                                                                                                        
                                                                                                                                
MR. LOHR  said the current  proposal is that  health information  be                                                            
protected on an opt-in basis.                                                                                                   
                                                                                                                                
MR. LOHR reiterated:                                                                                                            
                                                                                                                                
        · Opt-out standard means that insurers may share                                                                        
          protected financial information unless the consumer                                                                   
          affirmatively says they do not want the information                                                                   
          shared.                                                                                                               
        · Insurers must provide notices to consumer describing                                                                  
          their privacy policies.                                                                                               
        · Protected financial information may be shared among                                                                   
          affiliates without restriction.                                                                                       
                                                                                                                                
MR. LOHR explained  the opt-in standard  means insurance  companies:                                                            
                                                                                                                                
         · May not share protected health information without                                                                   
           explicit permission from the consumer.                                                                               
         · Exceptions to this standard allow insurers to perform                                                                
           day-to-day operations.                                                                                               
         · Unlike the financial standards, insurers are not                                                                     
           required to provide notices describing their privacy                                                                 
           policies.                                                                                                            
                                                                                                                                
MR. LOHR  said  the health  information  standards do  not apply  to                                                            
insurers  who  are  in compliance  with  the  newly  developed  U.S.                                                            
Department   of  Health  and  Human   Services  regulations,   which                                                            
implement the  Health Insurance Portability  and Accountability  Act                                                            
(HIPAA) taking  effect in  2002. Sharing  among both affiliates  and                                                            
non-affiliates  is  restricted.  He  explained  if  you  don't  want                                                            
insurance  companies   making  decisions  about  whether   to  write                                                            
insurance  for you based  on your health  history and prescriptions                                                             
you may have taken, these are important provisions.                                                                             
                                                                                                                                
MR. LOHR said  it's important to have  strong privacy standards  for                                                            
health  insurance  and the  Gramm-Leach-Bliley  standard  is  geared                                                            
toward  banks and  securities  firms,  not the  insurance  industry.                                                            
There is  a much  larger volume  of health  information and  greater                                                            
sensitivity. There is a  greater sharing of information among banks,                                                            
securities  firms and  insurance companies  who are  now allowed  to                                                            
affiliate. Reasons in support of the NAIC Privacy Model include:                                                                
                                                                                                                                
   · Preserves the insurance industry's ability to transact                                                                     
     insurance while protecting consumers.                                                                                      
   · Broad support from industry, consumer groups and others,                                                                   
     although there are diverging points of view on the privacy                                                                 
     issue.                                                                                                                     
   · Makes a strong statement that state regulation of insurance                                                                
     can work effectively to protect consumers while allowing the                                                               
     insurance industry to remain competitive in a changing                                                                     
     financial services marketplace.                                                                                            
                                                                                                                                
Number 1200                                                                                                                     
                                                                                                                                
MR. LOHR said consumer  protections in financial institutions' sales                                                            
of insurance are consistent  with Sections 104 (often referred to as                                                            
the 13 safe harbors)  and 305 of GLBA. SB 138 expands  applicability                                                            
beyond depository institutions  as provided in GLBA to all financial                                                            
institutions that may transact insurance business in Alaska.                                                                    
                                                                                                                                
     There  are four  major  areas of  protection  relating  to                                                                 
     licensing, misrepresentations,  disclosure, anti-tying and                                                                 
     anti-coercion.   There   are   two  other   GLBA  related                                                                  
     provisions.  One  requires  that a  person with  a felony                                                                  
     conviction  involving  dishonesty  or  a breach  of  trust                                                                 
     obtain   consent  of  the  director   before  transacting                                                                  
     insurance  as  required  by a  provision  in  the Federal                                                                  
     Violent  Crime Control  Act,  Section 1033,  Title 18  USC                                                                 
     1033 and 1034. Basically  the federal government says that                                                                 
     anyone engaged  in the business of insurance,  certainly a                                                                 
     licensee,  but also anyone working in an insurance  office                                                                 
     who has been  convicted of a felony involving  dishonesty,                                                                 
     cannot work in the business  of insurance without approval                                                                 
     of the state insurance regulator.                                                                                          
                                                                                                                                
MR. LOHR said that currently  the federal government has much better                                                            
information in its criminal  data basis than is readily available to                                                            
states.  States  do  not have  access  to  the FBI  data  base  that                                                            
includes non-criminal  information on applicants,  because our state                                                            
laws are not consistent  with the requirements that the FBI and U.S.                                                            
Department of Justice.  This bill includes language that conforms to                                                            
those federal requirements  and would give us direct access to those                                                            
data  bases. "This  would  really  enhance  law enforcement  in  the                                                            
business of insurance in Alaska."                                                                                               
                                                                                                                                
MR. LOHR said  it also removes barriers in current  law to allow for                                                            
electronic submissions.                                                                                                         
                                                                                                                                
Number 1500                                                                                                                     
                                                                                                                                
MS. PATRICIA  PARACHINI, Senior Director,  American Council  of Life                                                            
Insurers  (ACLI),  said  they  have  275  member  companies  who  do                                                            
business in  Alaska out of 426. They  account for 97 percent  of the                                                            
life insurance and 85 percent of the annuity business in Alaska.                                                                
                                                                                                                                
MS. PARACHINI  said  that they are  very supportive  of the  general                                                            
intent of SB  138, particularly in  the areas of producer  licensing                                                            
and privacy.  "Compliance with GLBA  is very important to  us, as is                                                            
uniformity  in  this area.  Our  competitors  who are  regulated  by                                                            
federal entities have one  regulator to issue rules to them. We have                                                            
a more difficult time with 50, so uniformity becomes critical.                                                                  
                                                                                                                                
She said it is their view  that state regulators are not required to                                                            
do anything by GLBA where federal regulators are. She said:                                                                     
                                                                                                                                
     There  are two areas in which,  if the states do not  act,                                                                 
     their  authority may be preempted  by federal regulators.                                                                  
     One   area  has  to   do  with  internal   data  security                                                                  
     requirements  to try  to avoid  hacking. This  is an  area                                                                 
     that is not addressed in  SB 138. The NACI have not looked                                                                 
     at this area.                                                                                                              
                                                                                                                                
MS. PARACHINI  said the second area  that is addressed in  SB 138 is                                                            
if a majority  of states  fail to achieve  either uniform  standards                                                            
for producer licensing  or reciprocity among states for non-resident                                                            
applicants  by  November  2002, then  the  National  Association  of                                                            
registered  Agents and Brokers  (NARAB) would  be created.  It would                                                            
issue non-resident  licenses to applicants,  which the states  would                                                            
be forced to honor.  They, therefore, encourage the  adoption of the                                                            
first part of the bill.                                                                                                         
                                                                                                                                
Their three areas of concern are:                                                                                               
                                                                                                                                
     In producer  licensing, which is based on the  NAIC Model.                                                                 
     We're  very  supportive  of this  section.  The  way  that                                                                 
     Alaska adopted  this model was to retain a lot  of current                                                                 
     law and go ahead and adopt  pieces of the model and that's                                                                 
     an absolutely  fine way to do it. In our view  there are a                                                                 
     couple  of areas  that, from  the model,  we weren't  sure                                                                 
     were picked  up when this was  drafted and we were having                                                                  
     very   productive discussions  with Linda Brunette at  the                                                                 
     Division  about that. It's our  view that they would  like                                                                 
     to see three areas of the model put into the statute.                                                                      
                                                                                                                                
     The second  area on privacy where,  in fact, the industry                                                                  
     asked  the NAIC  to do  a model  on financial  and health                                                                  
     privacy.  The ACLI  worked very  hard with  NAIC to  adopt                                                                 
     this and we, in fact, support  this model. We support both                                                                 
     the financial and health  information provisions. The only                                                                 
     concern  we have really with  the way part of the statute                                                                  
     is  drafted  is  that  it  says that,  "Alaska's  privacy                                                                  
     regulations   must  be  consistent   with,  but  no   less                                                                 
     restrictive  than, the NAIC model."  To us that means  you                                                                 
     can  go beyond the NAIC  model. We would  rather see  that                                                                 
     word "less" be changed to  "more" because the model should                                                                 
     be  the ceiling, because  it's a very  conservative  model                                                                 
     the way it is. That would  be the only change we would ask                                                                 
     for.                                                                                                                       
                                                                                                                                
     The  final section  of consumer  protection  is regarding                                                                  
     insurance sales by banks.  We have a difference of opinion                                                                 
     with the division  and with the NAIC, in fact,  on whether                                                                 
     there's  really  any  need  for a  state  to  adopt  these                                                                 
     consumer  protections,  because if banks  sell insurance,                                                                  
     they  are required to  meet all the  laws and regulations                                                                  
     that  insurance  companies  currently  meet and  we  think                                                                 
     there  are  already  provisions  in  the  code  for  this.                                                                 
     However, if  Alaska would like to adopt these  provisions,                                                                 
     what  we  respectfully  ask is  that  the NAIC,  which  is                                                                 
     meeting next weekend, is  currently drafting amendments to                                                                 
     their  Unfair Trade Practices  Act. The Alaska wording  in                                                                 
     front  of you  is an  older version.  The NAIC  has  since                                                                 
     changed  the version  to different  language,  which  does                                                                 
     address some of the industry's concern.                                                                                    
                                                                                                                                
     My  understanding is  that after next  weekend, they  will                                                                 
     have  close to  a final  amendment  to that  model and  we                                                                 
     would  prefer  that Alaska  wait, if  you have  the  time,                                                                 
     until that's done so that  there is uniformity. Otherwise,                                                                 
     Alaska will  be the only state that is putting  these into                                                                 
     statute this  year. It would be out of sinc with  the rest                                                                 
     of  the nation,  uniformity  being  very important  to  us                                                                 
     here.                                                                                                                      
                                                                                                                                
MS. PARACHINI said she looked forward to working with the committee                                                             
on some of these concerns.                                                                                                      
                                                                                                                                
SENATOR AUSTERMAN asked her to comment more on the opt-in/out                                                                   
issue.                                                                                                                          
                                                                                                                                
MR. MICHAEL LOVENDUSKY, Senior Counsel, ACLI, responded:                                                                        
                                                                                                                                
     The  previous   comment  that   opt-in  provides  greater                                                                  
     consumer  protection is  something of  the mythology  that                                                                 
     goes  along  with  the discussion,  but  it's  never  been                                                                 
     empirically  demonstrated  that  that's  true. In  any  of                                                                 
     these  privacy regulatory  schemes, there  balancing  that                                                                 
     has  to  be  undertaken  with  regard  to  the  degree  of                                                                 
     protection  that will  be awarded  to consumers  with  the                                                                 
     legitimate  business uses of  information. What has  to be                                                                 
     discussed  and looked at is not so much what is  opt-in or                                                                 
     opt-put, but what the exceptions  are to either the opt-in                                                                 
     or  opt-out   statute  or  regulations  that  allows   the                                                                 
     transfer  of  information  among businesses.  And  so  the                                                                 
     environment  that is imagined by the federal law,  Title 5                                                                 
     of the GLBA, carefully weighs  the benefits of the opt-out                                                                 
     approach   of  information  sharing  with  a  variety   of                                                                 
     business   exceptions  for  the  permissive  exchange   of                                                                 
     information  among  both  affiliated   entities  and  non-                                                                 
     affiliated  third  parties. To  come up with  a plan  that                                                                 
     satisfies congress would  be a good plan for all financial                                                                 
     service  sectors,  both  federally  regulated as  well  as                                                                 
     state  regulated.  It is  the achievement  of  a coherent                                                                  
     national  plan that  will achieve  for all  Americans  the                                                                 
     first systematic  protection of their privacy  right. This                                                                 
     is  one of the  reasons why  we are so  supportive of  the                                                                 
     model  regulation  development by  the NAIC  and ACLI  and                                                                 
     other interested parties for the states.                                                                                   
                                                                                                                                
SENATOR AUSTERMAN  asked if the national  standards are opt-out,  is                                                            
everyone opt-out?                                                                                                               
                                                                                                                                
MR. LOVENDUSKY answered yes.                                                                                                    
                                                                                                                                
     The goal of Title 5 is to  have an opt-out environment for                                                                 
     the  exchange   of  information.   The  seldom  discussed                                                                  
     elements  of  Title  5 are:  the  requirement  that  every                                                                 
     financial  institution  for the  first time  will have  to                                                                 
     have  a privacy policy  and: secondly,  they will have  to                                                                 
     disclose  those  privacy policies  to all  consumers,  not                                                                 
     just  at  the  first  time  of  their  relationship,   but                                                                 
     annually   thereafter,   once  the  consumer   becomes   a                                                                 
     financial  institution's customer. These are the  two most                                                                 
     important  changes  in this  law. Financial  institutions                                                                  
     know who knows  what about whom and what can be  done with                                                                 
     that   information   to  deliver   better   products   and                                                                 
     information to American  consumers in the responsible way.                                                                 
                                                                                                                                
SENATOR AUSTERMAN said  he could argue just the opposite of that. We                                                            
could  set  standards saying  that  the  government  is responsible                                                             
rather than the industry being responsible.                                                                                     
                                                                                                                                
MR. LOVENDUSKY  responded that either  way they would still  have to                                                            
look at  what the  business exceptions  for the  use of information                                                             
are, whether  it's for  opt-in or  opt-out. "When  you think  of the                                                            
billions of  information transactions  that occur every year  in the                                                            
United  States for  many  years already,  and  compare  that to  the                                                            
number  of problems  that  have actually  arisen,  the problems  are                                                            
really very  small, while the benefits  that have arisen  from these                                                            
kinds of  information transfers  have been  tremendous. It's  been a                                                            
responsible  use of information by  and large by American  financial                                                            
institutions.  Title  5  of  the  federal  law  recognized  that  in                                                            
fashioning and accepting  the opt-out regime and balancing it with a                                                            
variety of business exceptions for use."                                                                                        
                                                                                                                                
SENATOR AUSTERMAN asked if it totally excludes opt-in.                                                                          
                                                                                                                                
MR. LOVENDUSKY  answered that it doesn't  exclude opt-in,  except in                                                            
two respects.                                                                                                                   
                                                                                                                                
     One  is that  there is  a provision  of federal  law  that                                                                 
     permits  states that have more  protective regimes on  the                                                                 
     books  to exist so long  as they work  within the Title  5                                                                 
     scheme.   The  second   aspect  is   something  that   was                                                                 
     bequeathed  to the  insurance  industry from  the federal                                                                  
     regulators and that was  that federal regulators, on their                                                                 
     own initiative, decided  to expand their interpretation of                                                                 
     non-public personal information  under the federal statute                                                                 
     to include health information.  That was a relatively easy                                                                 
     thing  to do for the banks and  their federally regulated                                                                  
     entities   because  they  don't  have  a  lot  of  health                                                                  
     information,   but  insurers  do  have  a  lot  of health                                                                  
     information. So when the  issue was presented to the state                                                                 
     regulators  at  the  National  Association   of Insurance                                                                  
     Commissioners, there was  a large contention that is still                                                                 
     going  on today about whether  health insurance should  be                                                                 
     proactively  addressed  by the NAIC  model regulation.  It                                                                 
     was  decided  that it  would be.  Then,  if it  was to  be                                                                 
     addressed,  whether it would be addressed on an  opt-in or                                                                 
     an  opt-out  basis. The  model  regulation  addresses  the                                                                 
     disclosure  of  health  information  on an  opt-in basis,                                                                  
     which  is, in  fact, a continuation  of  many policies  in                                                                 
     many  states with regard  to treatment  of medical record                                                                  
     information   and   health  information.   The   ACLI   is                                                                 
     supportive  of the approach of the NAIC model  with regard                                                                 
     to health  information and so  that is a second area  that                                                                 
     has  evolved  from  the  Title  5  interpretation  by  the                                                                 
     federal  banks and regulators  that is not opt-out based.                                                                  
                                                                                                                                
Number 2000                                                                                                                     
                                                                                                                                
MR.   MICHAEL  HARROLD,   Northwest   Regional   Manager,   National                                                            
Association  of Independent  Insurers,  said  in terms  of  producer                                                            
licensing  that they  are committed  to preserving  state  insurance                                                            
regulation  and this  is an important  component  of that. They  are                                                            
especially  appreciative   that  they  have  the  customer   service                                                            
representative  exemption  in there  which  allows  CSRs to  service                                                            
existing policy holders with questions on existing policies.                                                                    
                                                                                                                                
MR. HARROLD  said they are  concerned with  the privacy language  in                                                            
the bill and think it's  important to try to have the regulations in                                                            
the state as close as possible  to GLBA to keep the playing field as                                                            
level  as  possible,  particularly  when  you get  into  the  health                                                            
privacy aspect.  He said that companies  could become very  confused                                                            
about how  to respond to  this. "Property  and casualty insurers  do                                                            
not  have  to comply  with  HSS  rules  per  se, but  they  do  have                                                            
interactions  with a number of others  who do. We think holding  off                                                            
on that and waiting  for the federal rules to be promulgated  and to                                                            
let  them settle  a  little bit  might  be more  helpful  as far  as                                                            
letting states  know how they may  best proceed from that  point on.                                                            
                                                                                                                                
MR.  HARROLD said  the final  area  is in  Sections 49  and 59  that                                                            
involve the  victims of  domestic violence.  It's not clear  exactly                                                            
what the division  is trying to do  and they are looking  forward to                                                            
hearing more on that issue.                                                                                                     
                                                                                                                                
MS. CINDA SMITH,  Government Employees Insurance Company,  said they                                                            
support language in section  2, which allows employees of an insurer                                                            
to respond  to a request  from a simple  policy holder for  existing                                                            
policies without the necessity of a license.                                                                                    
                                                                                                                                
     We  feel  the  language  simply  recognizes  the  way  the                                                                 
     insurers  conduct their business  now. Insurers presently                                                                  
     use consumer  representatives,  CSRs, to respond to  phone                                                                 
     calls or other  enquiries made by existing policy  holders                                                                 
     when  they call  to implement  changes on  their existing                                                                  
     policy.  These people do not  sell new policies [indisc.]                                                                  
     or contact  people who  are not policy  holders by making                                                                  
     cold  calls.  They implement  such  changes as  adding  or                                                                 
     deleting  a  vehicle or  adding  a collision  coverage  or                                                                 
     comprehensive  coverage  when  a new  company  replaces  a                                                                 
     clunker. The reason we think  this is important is because                                                                 
     now, with  a computer, a customer is able to make  changes                                                                 
     to his or  her insurance policy at any hour of  the day or                                                                 
     night,  seven  days  a  week. They  can  do  that without                                                                  
     interaction  with  a licensed  agent. The  convenience  of                                                                 
     this has  raised consumer's expectations  to a new level.                                                                  
     They  want  to  be  able  to  conduct  their  business  by                                                                 
     computer, by telephone or  in person about 24 hours a day,                                                                 
     seven  days a week.  The use  of CSRs  allows insurers  to                                                                 
     provide the level of service  at a minimum cost. We simply                                                                 
     want to be  able to allow by telephone or person  what you                                                                 
     can already do over the Internet.                                                                                          
                                                                                                                                
     Maintaining  this language allows insurers to  continue to                                                                 
     modernize  the  marketplace,  maintain  a  more  low  cost                                                                 
     insurance  environment and keep  the ease and convenience                                                                  
     that consumers  have come to expect. SB 138 clarifies  the                                                                 
     permissible  activities   of CSRs  and  sets  the uniform                                                                  
     standards for regulators.                                                                                                  
                                                                                                                                
MR.  MICHAEL  COMBS,  President,  Combs  Insurance   Agency,  Alaska                                                            
Independent  Insurance Agents, said  they have no opposition  to the                                                            
bill as presented.                                                                                                              
                                                                                                                                
TAPE 01-12, SIDE B                                                                                                            
                                                                                                                              
MR.  JOHN GEORGE,  American  Council  of  Life  Insurance,  National                                                            
Association  of  Independent  Insurers,  said his  organization  had                                                            
already testified and he would be available to answer questions.                                                                
                                                                                                                                
MR. SHELDON  WINTERS, State Farm Insurance  Co., asked that  they be                                                            
given time to  work with the division before the bill  is passed. He                                                            
thought there would be positive comments.                                                                                       
                                                                                                                                
SENATOR AUSTERMAN  said he  has a couple  of inherent problems  with                                                            
talking  about federal  laws  that create  national  standards  that                                                            
don't have any federal  regulation to control them. He needs to know                                                            
how the final decisions  are made on national standards and how that                                                            
affects what is passed  in Alaska. He also wanted to know more about                                                            
the National  Insurance Commissioners  Association  - who they  are,                                                            
how they're appointed  and what control they have,  etc. He also has                                                            
concerns  with the opt-out  provision. "I think  if we do  something                                                            
like  this, it's  the industry's  responsibility  to  make sure  the                                                            
customer is protected,  rather than the customer having to make sure                                                            
he protects himself from the industry."                                                                                         
                                                                                                                                
Number 2249                                                                                                                     
                                                                                                                                
SENATOR PHILLIPS  asked how the governor,  who introduced  the bill,                                                            
circulated the bill prior to introduction.                                                                                      
                                                                                                                                
MR. LOHR answered  that the Division drafted the bill,  submitted it                                                            
to the Department  of Law for legal review and circulated  copies of                                                            
the work draft of the bill  to the known interest groups. They tried                                                            
to provide  to  Mr. George,  insurance  industry,  the interest  and                                                            
focus groups.  They did not distribute  the bill to consumers  as it                                                            
is harder  to identify  who  the groups  would be for  that type  of                                                            
distribution. He said that  he had discussed privacy provisions with                                                            
Mr. Conn.                                                                                                                       
                                                                                                                                
SENATOR PHILLIPS asked what anti-tying was.                                                                                     
                                                                                                                                
MS.  KATIE CAMPBELL,  State  Actuary,  explained  that  it is  tying                                                            
insurance  to a financial  transaction.  "So if you  go in to  get a                                                            
loan and they're  saying no, you can't  get the loan unless  you buy                                                            
insurance from us."                                                                                                             
                                                                                                                                
MR.  LOHR   added  that  the  National   Association  of   Insurance                                                            
Commissioners  consists of the chief insurance regulator  in each of                                                            
the  50  states, the  territories  and  the  District  of  Columbia;                                                            
typically those  are at the department level, like  the commissioner                                                            
of Insurance.  "We review draft regulations,  draft statutes,  model                                                            
statutes, that are prepared  by staff based on consensuses developed                                                            
from different  states of approaches.  For example, there's  a model                                                            
act for  consumer protection;  there's a model  act that deals  with                                                            
the privacy provisions.  Those are developed according  to extensive                                                            
testimony  from   members  of  the  public,  from  funded   consumer                                                            
representation,  to that  national group  from insurance  companies.                                                            
There's  active  participation   by insurance   companies  in  those                                                            
provisions and they truly  do represent a consensus of what the best                                                            
form of  regulation of  the industry is.  Typically, with  witnesses                                                            
that diverse,  there's  a very  balanced approach  there. There's  a                                                            
very  middle  ground   approach  toward  trying  to  get   insurance                                                            
regulations  and  statutes  that  are both  workable  and  going  to                                                            
provide solid consumer  protection. There's a very extensive hearing                                                            
process. Some  of those regulations  and bills take literally  years                                                            
to  develop  until a  consensus  is  achieved.  Then they  are  made                                                            
available to states as possible models for state legislation."                                                                  
                                                                                                                                
SENATOR AUSTERMAN asked  if that means the commissioners agreed with                                                            
the federal  legislation that the  opt-out provision is better  than                                                            
the opt-in for consumers.                                                                                                       
                                                                                                                                
MR. LOHR answered:                                                                                                              
                                                                                                                                
     For purposes  of financial information  held by insurance                                                                  
     companies,  the commissioners did agree that that  was the                                                                 
     best approach.  That doesn't  mean that would necessarily                                                                  
     be  the best approach  for financial  information held  by                                                                 
     banks, for example. You  could get a very different answer                                                                 
     in  that regard.  One of the  reasons we  recommended  the                                                                 
     language in  SB 138 is to establish a floor rather  than a                                                                 
     ceiling  using the  NAIC model  precisely  to address  the                                                                 
     reality  that Alaskan's concerns  about privacy typically                                                                  
     are  far  more focused  and  developed  than they  may  be                                                                 
     elsewhere  in the country.  That's why  we didn't want  to                                                                 
     have  something  that   would  set  a ceiling   using  the                                                                 
     national model. We felt  like at a minimum, there needs to                                                                 
     be  a floor there.  The federal  law, fairly  uniquely  in                                                                 
     this  area,  does provide  that  if  state laws  are  more                                                                 
     protective   of  privacy  than  the  federal  regulations                                                                  
     adopted  on this subject, the  state laws will be upheld.                                                                  
     They will  not be preempted by federal law. If  there is a                                                                 
     debate about whether a state  provision is more protective                                                                 
     of privacy  than a federal regulation,  the Federal  Trade                                                                 
     Commission  actually  sits as  a court and  decides  which                                                                 
     provision is more protective.  So by having a floor there,                                                                 
     we do believe it allows  the NAIC model regs as a starting                                                                 
     point  for public promulgation  as a proposed regulation,                                                                  
     taking public  comment on that, making sure there's  ample                                                                 
     consumer   participation  as  well  as  interested   party                                                                 
     insurance  industry participation  in that discussion  and                                                                 
     debate;  and development  of a good  solid set of privacy                                                                  
     regulations.                                                                                                               
                                                                                                                                
CHAIRMAN PHILLIPS  asked if anyone  had any final comments  and said                                                            
he wanted  to bring  this bill  up again  next week.  There were  no                                                            
further comments and he adjourned the meeting at 2:30 pm.                                                                       

Document Name Date/Time Subjects