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