PROPOSED RULEMAKING
INSURANCE DEPARTMENT
[31 PA. CODE CH. 146a]
Privacy of Consumer Financial Information
[31 Pa.B. 1748] The Insurance Department (Department) proposes to adopt Chapter 146a (relating to privacy of consumer financial information) to read as set forth in Annex A. The proposal is made under the general rulemaking authority of sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412), and under the guidance of section 648 of The Insurance Department Act of 1921 (40 P. S. § 288), as amended by the act of June 25, 1997 (P. L. 349, No. 40) (Act 40). Likewise, this proposal is made under the Department's rulemaking authority under the Unfair Insurance Practices Act (40 P. S. §§ 1171.1--1171.14) (as this authority is further explained in PALU v. Insurance Department, 371 A.2d 564 (Pa. Cmwlth. 1977)), because the Insurance Commissioner of the Commonwealth has determined that the improper disclosure or marketing, or both, of nonpublic personal financial information by members of the insurance industry constitutes an unfair method of competition and an unfair or deceptive act or practice.
Purpose
The purpose of this proposed rulemaking is to adopt Chapter 146a in order to implement the privacy requirements for nonpublic financial information set forth in Title V of the act of November 12, 1999 (Pub. L. No. 106-102, 113 Stat. 1338) known as the Gramm-Leach-Bliley Act (GLBA) (15 U.S.C.A. §§ 6801--6827). Title V of the GLBA requires various state and Federal regulators of the financial services industries to promulgate regulations for their respective regulated communities. For example, the Federal banking regulators (the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) and the Board of Governors of the Federal Reserve System (BGFRS)) have already promulgated final-form regulations pertaining to the privacy of nonpublic personal financial information when that information is collected by the various Federal banking entities within their regulatory jurisdiction. See, for example, 12 CFR 40.1 et seq. (OCC regulations) and 12 CFR 216.1 et seq. (BGFRS regulations).
As with the Federal banking regulators, state insurance authorities are required by Title V of the GLBA to establish appropriate consumer privacy standards for various entities in the insurance industry. The failure of a state to adopt privacy regulations will result in the state's inability to override the Federal insurance consumer protection regulations that were issued by the Federal banking agencies in final form on December 4, 2000, under section 305 of the GLBA. See 65 Fed. Reg. 233, 75821 (to be codified at 12 CFR Parts 14, 208, 343 and 536). These regulations were initially scheduled to become effective on April 1, 2001, but the compliance date of these regulations has now been delayed until October 1, 2001. These regulations pertain generally to the sale of insurance by financial institutions and specifically to matters such as referral fees, separation of banking and insurance sales areas and disclosures regarding the nature of insurance products that are sold by banks.
Background
These proposed regulations are modeled from the Privacy of Consumer Financial and Health Information Regulation that was adopted by the National Association of Insurance Commissioners (NAIC) on September 26, 2000. For purposes of this rulemaking, the Department will make available a copy of the NAIC model to the Standing Committees of the Senate and the House, and to the Independent Regulatory Review Commission (IRRC). Otherwise, this material is copyrighted and is available from the NAIC upon request. For further information, see the NAIC website at http://www.naic.org. In general, the NAIC model resembles the Federal banking privacy regulations by utilizing a notice and opt out structure for the protection of customer financial information from disclosure. The NAIC model, however, does vary from the Federal banking privacy regulations. Because of the nature of insurance products and their inherent differences from banking products and services, the NAIC model extends its privacy protections to persons who do not have a direct relationship with a regulated entity, namely insurance policy beneficiaries and claimants. Otherwise, the NAIC model and the Federal privacy regulations generally share a common ideological framework for the protection of financial information privacy.
In addition to achieving a level of parity with the Federal regulations in order to place the insurance industry on an equal footing in the financial services industry with other banking and securities counterparts, another primary goal of the NAIC model is achieving a level of uniformity among the states. Because each state is responsible for the promulgation of its own privacy regulation for the implementation of Title V of the GLBA, uniformity among these regulations is of central importance. The insurance industry generally views uniformity of the states' privacy regulations as crucial because activities in the insurance marketplace essentially transcend state boundaries and compliance with privacy regulations with dramatically differing approaches and schemes could result in significant administrative burden and impede the transaction of the business of insurance.
For these reasons and in the interest of uniformity, the Department has attempted to implement the NAIC model as closely as possible. However, because of the statutory framework established by Act 40, the Department was required to make certain substantive variations of that model regulation for this proposed rulemaking. For example, these proposed regulations require an opt out for the sharing of information between both affiliates and nonaffiliates, while the NAIC model allows the sharing of information among affiliates without providing consumers with an opportunity to opt out of such sharing. Also, because of the standing requirements in Act 40, this rulemaking requires a financial institution to send a second opt out notice to any consumer or customer who does not respond to the first notice. There is no such requirement in the NAIC model. These and other substantive differences between the NAIC Model and the proposed rulemaking are explained in greater detail below.
Preproposal Comments
The Department, on November 8, 2000, held an outreach meeting with various members of this Commonwealth's insurance industry that could be affected by this rulemaking. The purpose of the meeting was to discuss the NAIC model and the Department's intent to base its privacy rulemaking on such model, as well as to solicit comments from these groups. Written comments were submitted by the following entities and, where applicable, were considered during the design of this proposed rulemaking: the National Association of Independent Insurers (NAII), American Family Life Assurance Company of Columbus (AFLAC), Pennsylvania Association of Health Underwriters (PAHU), Independent Insurance Agents of Pennsylvania/Pennsylvania Association of Insurance and Financial Advisors (IIAP/PAIFA), Managed Care Association of Pennsylvania (MCAP), Capital Blue Cross (CBC), Pennsylvania Bankers Association (PBA), Blue Cross of Northeastern Pennsylvania (BCNP), Alliance of American Insurers (AAI), Pennsylvania Association of Mutual Insurers (PAMIC), Independence Blue Cross (IBC) and the Insurance Federation of Pennsylvania, Inc. (IFP).
Copies of the written comments submitted by these groups in the preproposal period are available upon request. The following is a synopsis of the most important comments raised by the industry, and the Department's reaction thereto:
Health Information Privacy
The NAIC model tracks very closely the privacy regulations of the Federal banking agencies in most aspects, with some obvious modifications to tailor the regulation for application to the insurance industry. However, one point of departure between the NAIC model and the Federal banking regulations is their differing approaches for the treatment of health information privacy. On one hand, the Federal banking regulations treat health information in the same manner as financial information by requiring that an institution refrain from disclosing consumer health information to nonaffiliated third parties only when the consumer opts out of the disclosure. On the other hand, the NAIC model takes a different approach by requiring an affirmative opt in of the consumer before health information may be disclosed by an insurance entity. Thus, the NAIC model establishes an entirely different scheme of regulation for health information.
Also, it is important to note that Federal regulations pertaining to health information privacy under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (Pub. Law No. 104-191) (August 21, 1996) were issued in final form by the United States Department of Health and Human Services (HHS) on December 28, 2000. See 65 Fed. Reg. 250, 82461-82510 (to be codified at 45 CFR Parts 160 and 164). Generally, the HHS regulations require a ''covered entity'' to obtain an individual authorization prior to disclosing covered health information.
* Concerns regarding the inclusion of an opt in health requirement relating to health information privacy in the NAIC model were raised by NAII, AFLAC, PAHU, IIAP/PAIFA, MCAP, CBC, PBA, BCNP, AAI, PAMIC and IBC.
* These groups oppose the inclusion of an opt in requirement for health information privacy because it allegedly exceeds the scope of the GLBA, and they assert that there is no requirement in the GLBA for states to implement such rules.
* At the time of the preproposal comment period, some commentators also noted that the HHS will soon be issuing health information privacy regulations in final form and the groups assert that the provisions in the NAIC model will be duplicative and confusing for entities that have to comply with both rules (that is, health insurers), and any less protective state laws will be preempted by the HHS rules.
* The commentators also assert that the opt in requirement for health information in the NAIC model applies to the sharing of health information with both nonaffiliated third parties and affiliated third parties for marketing purposes, so treatment of health information is inconsistent with the other Federal privacy regulations for banks and securities, potentially causing an unfair disadvantage for insurance entities in the financial services industry.
The Department has reviewed these comments, the NAIC model, the GLBA and the Department's statutory authority for the promulgation of this rulemaking. While the Department believes that it has statutory authority to include an opt in requirement for health information and that section 507 of the GLBA clearly preserves the ability of states to enact more rigorous consent requirements for health information, it has decided to remove the opt in requirement for health information for the purpose of this proposed rulemaking. Rather, the Department will defer the implementation of health privacy regulations until a later date. It is the intent of the Department to develop health privacy regulations that will supplement rather than duplicate the HHS health information privacy regulations that were issued in final form on December 28, 2000.
Workers' Compensation Insurance Coverage Inclusion in NAIC Model
The NAIC model includes workers' compensation insurance coverage within the scheme for regulating privacy of consumer information.
* Concerns regarding the inclusion of workers' compensation insurance coverage in the proposed rulemaking were raised by NAII, IIAP/PAIFA, PAMIC and AAI.
* These groups oppose the inclusion of workers' compensation insurance coverage in the privacy regulation because the GLBA was intended to cover only products for personal, family or household use.
The Department considered these comments while developing the proposed rulemaking. Although workers' compensation insurance is not necessarily purchased for household purposes, carriers of this product collect and maintain nonpublic personal financial information pertaining to individuals, and the protection of this information is consistent with the purposes of this proposed regulation. Also, to the extent possible, the Department is committed to uniformity, so it will retain this provision of the NAIC model. Therefore, because nonpublic personal financial information is obtained as a regular part of the underwriting process in issuing workers' compensation policies and because of the interest in uniformity, the provisions pertaining to the inclusion of workers' compensation insurance remain in this proposal as § 146a.2 (definition of ''consumer,'' subsection (v)).
In addition, because worker's compensation insurance issues generally fall within the dual jurisdiction of both the Department and the Department of Labor and Industry (DLI), the Department has met and consulted with the DLI Bureau of Workers' Compensation in order to discuss the applicability and effect of this proposed regulation to workers' compensation insurance. As a result of these meetings, the DLI Bureau of Workers' Compensation has commented that it is supportive of the Department's privacy regulation.
Producer Issues
The NAIC model states that insurance producers are generally subject to this proposed rulemaking as licensees of the Department. However, an exception in the NAIC model states that insurance producers acting as an agent from another licensee covered by the regulation will not be subject to the notice and opt out requirements of the regulation, if the principal licensee otherwise complies with the NAIC model. Also, the NAIC model contains numerous exceptions to the notice and opt out requirements that are generally intended to preserve the ability of an insurance entity to engage in the daily operations of its business with minimal interference.
* Concerns regarding certain insurance producer issues were raised by NAII and AFLAC.
* These groups believe that producers will be subject to liability because they will be unable to determine if the insurers for which they act as agents will be in compliance.
* Also, these commentators are concerned that the NAIC model does not allow independent producers to perform certain functions on behalf of an insurer (such as, communications to resolve claims that require the disclosure of personally identifiable information) unless they individually comply with the opt out and notice requirements.
The Department has retained the exception to the opt out and notice requirements for insurance producers acting as agents for another licensee covered by the regulation when the principal licensee otherwise complies with the requirements of this proposed regulation at proposed § 146a.2 (definition of ''licensee,'' subparagraph (iii)). Without this exception, consumers would receive notices and opt out forms from both insurers and producers, and these multiple notices might be confusing to consumers, especially when they relate to the same information from the same insurance transactions. Imposing a requirement on insurance producers who are acting on behalf of an entity that is required to comply with this rulemaking is duplicative and serves no purpose toward the ultimate goal of consumer protection.
The Department further believes that the concern that independent producers acting as agents on behalf of another licensee will be unable to perform certain functions on behalf of their principals is unfounded. Subchapter D (relating to exceptions to limits on disclosures of financial information) contains numerous business exceptions to general opt out and notice requirements set forth in the proposed rulemaking. Since it is not the intent of the Department or this proposed rulemaking to hinder the transaction of the business of insurance, these exceptions were carefully crafted in the NAIC model to allow insurance producers and insurers to conduct their daily business with minimal interference, while maintaining the necessary protection for the privacy of consumer information.
Definition of ''Consumer''
The NAIC Model includes within the definition of consumer, and therefore extends privacy protections to, persons who do not necessarily have a direct or contractual relationship with an insurer, producer or other licensee covered by the regulation. These individuals include claimants and beneficiaries under insurance policies or workers' compensation benefits.
* Concerns regarding the definition of consumer in the NAIC model were raised by NAII, AFLAC, MCAP, AAI, PAMIC and IBC.
* The definition of ''consumer'' in the NAIC model includes beneficiaries and third party claimants to an insurance policy, participants and beneficiaries of an employee benefit plan, individuals covered under a group or blanket insurance plan and beneficiaries of workers' compensation plans. The NAII, AFLAC, MCAP, AAI, PAMIC and IBC have asserted that they believe it is inappropriate to extend the protections of the privacy regulation to persons, thereby requiring that an entity satisfy the notice and opt out requirements of the privacy regulation before information about persons may be disclosed. These commentators base their comments on the fact that the protections of the privacy regulation will then be extended beyond persons who have a direct contractual relationship with a licensee.
The Department has carefully considered these comments, but believes that beneficiaries and third party claimants to an insurance policy, participants and beneficiaries of an employee benefit plan, individuals covered under a group or blanket insurance plan, and beneficiaries of workers' compensation plans are properly included in the definition of consumer. Licensees regularly collect and maintain nonpublic personal financial information pertaining to such individuals, so these beneficiaries, claimants, plan and group policy participants, and beneficiaries of workers' compensation plans should be afforded protection of their privacy in that information, despite the fact that they do not have a direct contractual relationship with the licensee. Consequently, these persons have been retained in the definition of consumer in this proposed rulemaking as § 146a.2 (definition of consumer, subparagraphs (iv) and (v)), and the protections set forth therein will extend to them. Also, in the interest of uniformity, the Department wants to remain as consistent as possible with the NAIC model, especially with regard to its fundamental principles and definitions.
''Unclear'' Unfair Discrimination Provisions
The NAIC model contains an ''unfair discrimination'' provision that prohibits insurance entities from discriminating against consumers on the basis of a consumer's exercising his opt out rights or otherwise directing an institution from disclosing his nonpublic personal information.
* Concerns regarding an alleged lack of clarity in the ''unclear'' unfair discrimination provisions of the NAIC model were raised by NAII and AAI.
* These groups believe that the unfair discrimination provision of the NAIC model is unclear and does not provide sufficient information as to what activities fall within this term.
Contrary to these comments, the Department believes that the unfair discrimination provisions of the NAIC model are adequately clear and has retained them in this proposed regulation at § 146a.42 (relating to nondiscrimination). As with any regulation, the Department is unable to provide an exhaustive list of activities that might constitute unfair discrimination against persons who chose to exercise their opt out rights. Rather, in the interest of consumer protection, the Department believes that it should not limit its enforcement authority on this issue in the proposal. Rather, potential violations will be considered on a case-by-case basis.
NCOIL Model Besides the NAIC, the National Conference of Insurance Legislators (NCOIL) has also developed a model for the protection of nonpublic personal information that is applicable to insurance entities. The NCOIL model is available from the NCOIL website at http://www.ncoil.org/.
* AFLAC has raised a concern that it prefers the NCOIL privacy model over the NAIC model, especially with respect to the treatment of health information, insurance producers and the electronic delivery of notices.
The Department has reviewed the NCOIL model and because the Department has decided not to require an opt in for health information, the concern raised by AFLAC in that regard has been eliminated. However, with regard to the treatment of independent producers and electronic delivery of notices, the NAIC model and the NCOIL model are very similar. Both models provide that independent producers need not provide an opportunity to opt out or notices when their principals otherwise comply with the regulation, and the independent producers do not otherwise disclose information beyond the exceptions identified in the regulation. Also, both models allow for the electronic delivery of notices when a consumer consents to such delivery. Therefore, in the interest of uniformity and because there is little substantive difference in the models, the Department has based this proposed rulemaking on the NAIC model. Finally, numerous other states have expressed a commitment to implementing the NAIC model, and some states have already introduced the NAIC model through legislation or regulation. Thus, the Department is committed to implementing the NAIC model over the NCOIL model.
Electronic Notices
The NAIC model generally allows insurance entities to provide consumers with notices through electronic means, provided that the consumer has consented to receiving notices through this means. The NAIC model also contains several examples of situations where a consumer may be deemed to have consented to receiving notices through electronic means.
* AFLAC has raised a concern that the NAIC model does not appear to be consistent in its treatment of the ability of a licensee to deliver electronic notices because the proposed rulemaking in § 146a.16(b)(1)(iii) and (2)(ii) (relating to delivery) seems to suggest that a consumer must conduct electronic transactions or purchase insurance electronically in order to be eligible for receipt of electronic notices. AFLAC believes that this is contrary to the general rule that consumers may receive notices electronically if they chose.
The Department believes that there is no inconsistency in the proposed rulemaking with regard to electronic notices. Rather, § 146a.16(b)(1)(iii) and (2)(ii) are only included as examples of compliant and noncompliant activities with regard to electronic notices, and do not otherwise limit the general rule set forth in the proposed rulemaking in § 146a.16(a) which allows consumers to consent to the electronic delivery of notices, regardless of the means through which the consumer obtained the insurance product. Finally, the Commonwealth has adopted the Electronic Transactions Act (73 P. S. §§ 2260.101--2260.903) (ETA), and these proposed regulations are consistent with the ETA in that consumers are not required to conduct transactions electronically, but are free to consent to the transaction of business through electronic means.
Delivery of Notices Through Policyholder
The NAIC model includes a provision that allows for the satisfaction of the notice requirements when notices are delivered to a main policyholder, as opposed to providing notices to each individual that obtains a certificate of coverage under a group policy.
* AFLAC has also commented that it would like a new subsection added to the proposed rulemaking that clarifies that a licensee may satisfy the delivery requirements to insurance beneficiaries, account insureds or claimants by delivering the notice to the policyholder.
The Department believes that the delivery requirements for insurance beneficiaries, account insureds or claimants are abundantly clear in the proposed rulemaking in § 146a.2 (definition of ''licensee'', subparagraph (v)) and has not made any changes to the NAIC model in that regard.
Compliance Date
Both the NAIC model and § 146a.44 (relating to effective date) provide that the effective date of the regulations will be July 1, 2001, especially since the date is of central importance in avoiding the loss of the Commonwealth's ability to override the Federal insurance consumer protection regulations that were issued in final form on December 4, 2000. See 65 Fed. Reg. 233, 75821 (to be codified at 12 CFR Parts 14, 208, 343 and 536).
* Concerns relating to the compliance date for the proposed rulemaking were raised by AFLAC, IIAP/PAIFA, MCAP, PBA and BCNP.
* These groups assert that there is insufficient time to comply with the privacy regulations by July 1, 2001, especially if the regulations are not promulgated in final form until after that date.
The Department previously issued Insurance Department Notice 2000-08 to provide guidance to insurers authorized to do business in this Commonwealth in regard to the compliance date for the privacy provisions of the GLBA.
Under the Insurance Department Act of 1921 (40 P. S. §§ 1--321), and the Insurance Company Law of 1921 (40 P. S. §§ 341--991), the Insurance Commissioner and the Department are charged with the regulation and oversight of insurers and insurance producers within this Commonwealth. See 40 P. S. §§ 1, 341; 71 P. S. § 66, 186, 411, 412. The GLBA recognizes the Department's jurisdiction by reaffirming the McCarran-Ferguson Act (15 U.S.C.A. §§ 1011 et seq.), which provides for the functional regulation of insurance by the states. See section 301 GLBA.
The GLBA recognizes that states are the functional regulators of the insurance industry and directs state insurance regulators to promulgate privacy regulations for its regulated community. In addition, state insurance regulators are also charged with the duty of enforcing the customer privacy requirements contained in the Federal statute. Although there is no requirement that state insurance regulators promulgate their regulations prior to a specific date, the GLBA's general statutory privacy requirements would have become effective on November 12, 2000, and all relevant insurance entities would have been required to comply with these statutory provisions by that time. However, because enforcement of the GLBA's statutory privacy provisions is within the jurisdiction of state insurance regulators, it was clear that the Department was authorized to extend the date on which all relevant insurance entities must comply with the GLBA's statutory privacy requirements.
While enforcement of the GLBA's statutory privacy requirements for insurers and insurance producers is within the jurisdiction of the state insurance regulators, enforcement for banking entities is within the jurisdiction of the Federal banking agencies. Like the state insurance regulators, the Federal banking agencies are authorized to extend the compliance date for enforcement of the GLBA's statutory privacy requirements. However, unlike the state insurance regulators, the Federal banking agencies were required to develop their ''appropriate standards'' in the form of final regulations by May 12, 2000. In these regulations, the Federal banking agencies determined that the compliance date should be extended to July 1, 2001.
To achieve a sense of parity between insurance entities and other members of the financial services industry, the Department joined other members of the NAIC in a June 11, 2000, resolution which details that it was the intent of state insurance regulators to extend the GLBA privacy requirements compliance date to July 1, 2001, for entities within their respective jurisdictions.
Therefore, under its regulatory authority under the Insurance Department Act and the Insurance Company Law, as recognized by the section 505 of GLBA, the Department issued Insurance Department Bulletin No. 2000-08, which stated that the compliance date for the GLBA's statutory privacy requirements as they apply to insurers and insurance producers shall be extended until July 1, 2001. The bulletin also informed this Commonwealth's insurance industry that prior to this date, no action to enforce the GLBA's statutory privacy requirements would be taken against an insurer or insurance producer subject to the Department's jurisdiction. For these reasons, the Department intends to have this proposed rulemaking become effective on July 1, 2001, to avoid the potential loss of its authority to override the Federal insurance consumer protection regulations as previously discussed.
Although the Department intends to make this proposed rulemaking effective on July 1, 2001, it intends to remain flexible with regard to its initial enforcement of the regulations and the privacy provisions of the GLBA. For approximately 6 months after the promulgation of the privacy regulations, the Department intends to utilize its Market Surveillance Unit to monitor the insurance industry's implementation of the privacy regulation and provide assistance to the industry. The Department believes that this enforcement approach will best serve both the insurance industry and this Commonwealth's insurance consumers, especially since implementation of the privacy regulation may prove to be a time consuming and complex undertaking for some insurance entities.
Uniformity
As previously explained, because each state is responsible under the GLBA to enact privacy regulations for its regulated community, uniformity of the regulations is of central importance to the insurance industry.
* Concerns regarding uniformity of insurance privacy regulations implemented under the GLBA among all 50 states were raised by PAHU, IIAP/PAIFA and PBA.
* These groups assert that there is a need for uniformity among the states with regard to the privacy regulations, which they must implement under the GLBA.
The Department agrees that uniformity is of central importance in the promulgation of privacy regulations by the various states. Each state must enact either legislation or regulation to be in compliance with GLBA or it could lose its regulatory authority over certain consumer protection issues addressed in the Federal regulations on this subject. However, as do other states, this Commonwealth has an existing statutory framework for privacy of insurance information in section 648 of the Insurance Department Act (40 P. S. § 288). Therefore, the Department has adhered to the NAIC model to every extent possible, but certain changes were required to ensure compliance with section 648.
Explanation of Regulatory Changes
Subchapter A. General provisions
Section 146a.1 (relating to purpose) contains the purpose, scope and compliance requirements needed to govern the treatment of nonpublic personal information about individuals in this Commonwealth by licensees of the Department.
Section 146a.2 (relating to definitions) contains the definitions as they are used in this chapter and gives examples that, to the extent applicable, constitute compliance and noncompliance with this proposed rulemaking.
Subchapter B. Privacy And Opt Out Notices For Financial Information
Section 146a.11 (relating to initial privacy notice to consumers required) contains the requirements for the provision of an initial privacy notice to consumers and customers by a licensee. It also contains the exceptions, under which subsequent notice is permissible.
Section 146a.12 (relating to annual privacy notice to customers requires) contains the general rule and provides examples for the provision of annual privacy notice to customers.
Section 146a.13 (relating to information to be included in privacy notices) describes the information that shall be included in initial, annual and revised privacy notices. It also contains the exceptions to the inclusion of the required information. The situations when the use of simplified and short-form initial notice is permissible is set forth.
Section 146a.14 (relating to form of opt out notice to consumers and opt out methods) describes the form of the opt out notice and specifies the information that shall be contained in the notice. It also specifies reasonable opt out means and gives examples of what would be unreasonable. It also contains the means for treating joint consumers of an insurance product or service.
Section 146a.15 (relating to revised privacy notices) contains the requirements imposed on licensees for providing revised privacy notices.
Section 146a.16 (relating to delivery) describes how notices shall be delivered and provides examples of when a licensee may reasonably expect that a consumer has received actual notice. It also describes when a licensee may reasonably expect that a customer will receive actual notice of a licensee's annual privacy notice.
Subchapter C. Limits On Disclosures Of Financial Information
§ 146a.21 (relating to limits on disclosure of nonpublic personal financial information to nonaffiliated third parties) contains the limits on disclosure of nonpublic personal financial information to nonaffiliated third parties. It lists the conditions for disclosure and describes the opt out direction. It includes examples of when a licensee shall provide a consumer with a reasonable opportunity to opt out.
Section 146a.22 (relating to limits on redisclosure and reuse of nonpublic personal financial information) contains the limits on redisclosure and reuse of nonpublic personal financial information in situations when the licensee receives the information under one of the exceptions contained in this proposed rulemaking, as well as when the licensee receives the information outside of an exception.
Section 146a.23 (relating to limits on sharing account number information for marketing purposes) contains a prohibition of sharing certain account number information and the exceptions to this prohibition.
Subchapter D. Exceptions To Limits On Disclosures Of Financial Information
Section 146a.31 (relating to exception to opt out requirements for disclosure of nonpublic personal financial information for service providers and joint marketing) describes when the opt out requirements contained in §§ 146a.13 and 146a.20 do not apply for service providers and joint marketing.
Section 146a.32 (relating to exceptions to notice and opt out requirements for disclosure of nonpublic personal financial information for processing and servicing transactions) contains the exceptions to the notice and opt out requirements for disclosure of nonpublic personal financial information for certain processing and servicing transactions.
Section 146a.33 (relating to other exceptions to notice and opt out requirements for disclosure of nonpublic personal financial information) contains certain other exceptions to the notice and opt out requirements contained in §§ 146a.10, 146a.13, 146a.20 and 146a.30.
Subchapter E. Additional Provisions
Section 146a.41 (relating to Protection of Fair Credit Reporting Act) provides that nothing in this proposed rulemaking should be construed to modify, limit or supersede the Federal Fair Credit Reporting Act (15 U.S.C.A. §§ 1681--681u).
Section 146a.42 (relating to nondiscrimination) prohibits a licensee from discriminating against a consumer or customer because the consumer or customer has opted out from the disclosure of his nonpublic personal financial information.
Section 146a.43 (relating to violation) provides that a contravention of this proposed rulemaking shall be deemed to be an unfair or deceptive act and practice in the conduct of the business of insurance and shall be deemed to be a determined violation, as defined in section 2 of the Unfair Insurance Practices Act (40 P. S. § 1171.2).
Section 146a.44 (relating to effective date) provides that this proposed rulemaking is effective on July 1, 2001.
To provide guidance to licensees that are covered by the regulation, Appendix A of this proposed rulemaking provides numerous examples of sample clauses that may be used in Appendix A for the privacy notices that are required by the regulation.
Fiscal Impact
There will be a fiscal impact as a result of the proposed rulemaking. However, Federal statute requires that this provision be mandated, therefore, the adoption of these regulations should not have a significant cost impact over what is currently being required.
Paperwork
Unless specifically executed under § 146a.2 definition of ''licensee'' of the proposed rulemaking, the rulemaking will affect all licensees doing the business of insurance in this Commonwealth by imposing additional paperwork requirements pertaining to the delivery and treating of opt out notices.
Effectiveness/Sunset Date
The proposed rulemaking will become effective July 1, 2001, as previously provided in Insurance Department Notice 2000-08.
Contact Person
Questions or comments regarding the proposed rulemaking may be addressed in writing to Peter J. Salvatore, Regulatory Coordinator, Insurance Department, 1326 Strawberry Square, Harrisburg, PA 17120, within 30 days following the publication of this notice in the Pennsylvania Bulletin. Questions and comments may also be e-mailed to psalvatore@state.pa.us or faxed to (717) 772-1969.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on March 21, 2001, the Department submitted a copy of this proposed rulemaking to IRRC and to the Chairpersons of the Senate Banking and Insurance Committee and the House Insurance Committee. In addition to the submitted proposed rulemaking, the Department has provided IRRC and the Committees with a copy of a detailed Regulatory Analysis Form prepared by the Department in compliance with Executive Order 1996-1, ''Regulatory Review and Promulgation.'' A copy of that material is available to the public upon request.
Under section 5(g) of the Regulatory Review Act, if IRRC has objections to any portion of the proposed rulemaking, it will notify the Department within 10 days after the close of the Committees' review. The notification shall specify the regulatory review criteria that have not been met by that portion. The Regulatory Review Act specifies detailed procedures for the Department, the Governor, and the General Assembly to review these objections before final publication of the regulations.
M. DIANE KOKEN,
Insurance CommissionerFiscal Note: 11-206. No fiscal impact; (8) recommends adoption.
Annex A
TITLE 31. INSURANCE
PART VIII. MISCELLANEOUS PROVISIONS
CHAPTER 146a. PRIVACY OF CONSUMER FINANCIAL INFORMATION Subch.
A. GENERAL PROVISIONS B. PRIVACY AND OPT OUT NOTICE FOR FINANCIAL INFORMATION C. LIMITS ON DISCLOSURES OF FINANCIAL INFORMATION D. EXCEPTIONS TO LIMITS ON DISCLOSURES OF FINANCIAL INFORMATION E. ADDITIONAL PROVISIONS
Subchapter A. GENERAL PROVISIONS Sec.
146a.1. Purpose. 146a.2. Definitions. § 146a.1. Purpose.
(a) Purpose. This chapter governs the treatment of nonpublic personal financial information about individuals by various licensees of the Department. This chapter:
(1) Requires a licensee to provide notice to individuals about its privacy policies and practices.
(2) Describes the conditions under which a licensee may disclose nonpublic personal financial information about individuals to third parties.
(3) Provides methods for individuals to prevent a licensee from disclosing that information.
(b) Scope. This chapter applies to nonpublic personal financial information about individuals who obtain or are claimants or beneficiaries of products or services primarily for personal, family or household purposes from licensees. Unless otherwise specified, this chapter generally does not apply to information about companies or about individuals who obtain products or services for business, commercial or agricultural purposes.
(c) Compliance. A licensee domiciled in this Commonwealth that is in compliance with this chapter in a state that has not enacted laws or regulations that meet the requirements of Title V of the act of November 12, 1999 (Pub. L. No. 106-102, 113 Stat. 1338) known as the Gramm-Leach-Bliley Act (Financial Services Modernization Act of 1999) (15 U.S.C.A. §§ 6801--6827) may nonetheless be deemed to be in compliance with Title V of the Gramm-Leach-Bliley Act in the other state.
(d) Examples. The examples provided in this chapter are for illustrative purposes only and do not otherwise limit or restrict the scope of this chapter.
§ 146a.2. Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context requires otherwise:
Act--The Insurance Department Act of 1921 (40 P. S. §§ 1--321)
Affiliate--A company that controls, is controlled by or is under common control with another company.
Clear and conspicuous--That a notice is reasonably understandable and designed to call attention to the nature and significance of the information in the notice. Examples include:
(i) Reasonably understandable. A licensee makes its notice reasonably understandable if it:
(A) Presents the information in the notice in clear, concise sentences, paragraphs and sections.
(B) Uses short explanatory sentences or bullet lists whenever possible.
(C) Uses definite, concrete, everyday words and active voice whenever possible.
(D) Avoids multiple negatives.
(E) Avoids legal and highly technical business terminology whenever possible.
(F) Avoids explanations that are imprecise and readily subject to different interpretations.
(ii) Designed to call attention. A licensee designs its notice to call attention to the nature and significance of the information in it if the licensee:
(A) Uses a plain-language heading to call attention to the notice.
(B) Uses a typeface and type size that are easy to read.
(C) Provides wide margins and ample line spacing.
(D) Uses boldface or italics for key words.
(E) In a form that combines the licensee's notice with other information, uses distinctive type size, style and graphic devices, such as shading or sidebars.
(iii) Notices on websites. If a licensee provides a notice on a web page, the licensee designs its notice to call attention to the nature and significance of the information in it if the licensee uses text or visual cues to encourage scrolling down the page if necessary to view the entire notice and ensure that other elements on the web site (such as text, graphics, hyperlinks or sound) do not distract attention from the notice, and the licensee either:
(A) Places the notice on a screen that consumers frequently access, such as a page on which transactions are conducted.
(B) Places a link on a screen that consumers frequently access, such as a page on which transactions are conducted, that connects directly to the notice and is labeled appropriately to convey the importance, nature and relevance of the notice.
Collect--To obtain information that the licensee organizes or can retrieve by the name of an individual or by identifying number, symbol or other identifying particular assigned to the individual, irrespective of the source of the underlying information.
Commissioner--The Insurance Commissioner of the Commonwealth.
Company--A corporation, limited liability company, business trust, general or limited partnership, association, sole proprietorship or similar organization.
Consumer--An individual who seeks to obtain, obtains or has obtained an insurance product or service from a licensee that is to be used primarily for personal, family or household purposes, and about whom the licensee has nonpublic personal information, or that individual's legal representative.
(i) Examples of consumers.
(A) An individual who provides nonpublic personal information to a licensee in connection with obtaining or seeking to obtain financial, investment or economic advisory services relating to an insurance product or service is a consumer regardless of whether the licensee establishes an ongoing advisory relationship.
(B) An applicant for insurance prior to the inception of insurance coverage is a licensee's consumer.
(C) An individual who is a consumer of another financial institution is not a licensee's consumer solely because the licensee is acting as agent for, or provides processing or other services to, that financial institution.
(D) An individual is a licensee's consumer if the licensee discloses nonpublic personal financial information about the individual to a third party other than as permitted under Subchapter D (relating to exceptions to limits on disclosures of financial information), and the individual is:
(I) A beneficiary of a life insurance policy underwritten by the licensee.
(II) A claimant under an insurance policy issued by the licensee.
(III) An insured or an annuitant under an insurance policy or an annuity, respectively, issued by the licensee.
(IV) A mortgagor of a mortgage covered under a mortgage insurance policy.
(ii) Examples of nonconsumers.
(A) Provided that the licensee provides the initial, annual and revised notices under §§ 146a.11, 146a.12 and 146a.15 (relating to initial privacy notice to consumers required; annual privacy notice to customers required; and revised privacy notices) to the plan sponsor, group or blanket insurance policyholder or group annuity contractholder, workers' compensation plan participant, and further provided that the licensee does not disclose to a third-party nonpublic personal financial information about an individual other than as permitted under Subchapter D, an individual is not the consumer of the licensee solely because the individual is:
(I) A participant or a beneficiary of an employee benefit plan that the licensee administers or sponsors or for which the licensee acts as a trustee, insurer or fiduciary.
(II) Covered under a group or blanket insurance policy or group annuity contract issued by the licensee.
(III) A beneficiary in a workers' compensation plan.
(B) The individuals described in subparagraph (v) are consumers of a licensee if the licensee does not meet all the conditions of subparagraph (v).
(C) Individuals, solely by virtue of the status described in subparagraph (v), may not be deemed to be customers for purposes of this chapter.
(D) An individual is not a licensee's consumer solely because the individual is a beneficiary of a trust for which the licensee is a trustee.
(E) An individual is not a licensee's consumer solely because the individual has designated the licensee as trustee for a trust.
Consumer reporting agency--Has the same meaning as in section 603(f) of the Federal Fair Credit Reporting Act (15 U.S.C.A. § 1681a(f)).
Control--As defined in section 1401 of The Insurance Company Law (40 P. S. § 991.1401).
Customer--A consumer who has a customer relationship with a licensee.
Customer relationship--A continuing relationship between a consumer and a licensee under which the licensee provides one or more insurance products or services to the consumer that are to be used primarily for personal, family or household purposes. Examples include:
(i) A consumer has a continuing relationship with a licensee if:
(A) The consumer is a current policyholder of an insurance product issued by or through the licensee.
(B) The consumer obtains financial, investment or economic advisory services relating to an insurance product or service from the licensee for a fee.
(ii) A consumer does not have a continuing relationship with a licensee if:
(A) The consumer applies for insurance but does not purchase the insurance.
(B) The licensee sells the consumer airline travel insurance in an isolated transaction.
(C) The individual is no longer a current policyholder of an insurance product or no longer obtains insurance services with or through the licensee.
(D) The consumer is a beneficiary or claimant under a policy and has submitted a claim under a policy choosing a settlement option involving an ongoing relationship with the licensee.
(E) The consumer is a beneficiary or a claimant under a policy and has submitted a claim under that policy choosing a lump sum settlement option.
(F) The customer's policy is lapsed, expired or otherwise inactive or dormant under the licensee's business practices, and the licensee has not communicated with the customer about the relationship for a period of 12-consecutive months, other than annual privacy notices, material required by law or regulation, communication at the direction of a state or Federal authority, or promotional materials.
(G) The individual is an insured or an annuitant under an insurance policy or annuity, respectively, but is not the policyholder or owner of the insurance policy or annuity.
(H) For the purposes of this regulation, the individual's last known address according to the licensee's records is deemed invalid. An address of record is deemed invalid if mail sent to that address by the licensee has been returned by the postal authorities as undeliverable and if subsequent attempts by the licensee to obtain a current valid address for the individual have been unsuccessful.
Department--The Insurance Department of the Commonwealth.
Financial institution--An institution the business of which is engaging in activities that are financial in nature or incidental to the financial activities as described in section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C.A. § 1843(k)). The term does not include the following:
(i) A person or entity with respect to any financial activity that is subject to the jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C.A. §§ 1--25).
(ii) The Federal Agricultural Mortgage Corporation or any entity charged and operating under the Farm Credit Act of 1971 (12 U.S.C.A. §§ 2001--2279cc).
(iii) Institutions chartered by Congress specifically to engage in securitizations, secondary market sales (including sales of servicing rights) or similar transactions related to a transaction of a consumer, as long as the institutions do not sell or transfer nonpublic personal information to a third party.
Financial product or service--A product or service that a financial holding company could offer by engaging in an activity that is financial in nature or incidental to the financial activity under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C.A. § 1843(k)). Financial service includes a financial institution's evaluation or brokerage of information that the financial institution collects in connection with a request or an application from a consumer for a financial product or service.
Insurance product or service--A product or service that is offered by a licensee under the insurance laws of the Commonwealth. Insurance service includes a licensee's evaluation, brokerage or distribution of information that the licensee collects in connection with a request or an application from a consumer for an insurance product or service.
Licensee--
(i) A licensed insurer, as defined in section 201-A of the act (40 P. S. § 65.1-A), a producer and other persons or entities licensed or required to be licensed, or authorized or required to be authorized, or registered or required to be registered under the act, including health maintenance organizations holding a certificate of authority under section 201 of the Health Care Facilities Act (35 P. S. § 448.201).
(ii) The term does not include:
(A) Bail bondsmen as defined in 42 Pa.C.S.A. § 5741 (relating to definitions).
(B) Motor vehicle physical damage appraisers as defined in section 2 of the Motor Vehicle Physical Damage Appraiser Act (63 P. S. § 852) and § 62.1 (relating to definitions).
(C) Public adjusters as defined in section 1 of the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § 1601) and § 115.1 (relating to definitions).
(D) An entity providing continuing care as defined in section 3 and licensed under section 4 of the Continuing-Care Provider Registration and Disclosure Act (40 P. S. §§ 3203 and 3204).
(iii) A licensee is not subject to the notice and opt out requirements for nonpublic personal financial information in Subchapters A--D if the licensee is an employee, agent or other representative of another licensee (''the principal'') and:
(A) The principal otherwise complies with, and provides the notices required by, this chapter.
(B) The licensee does not disclose nonpublic personal information to any person other than the principal in a manner permitted by this chapter.
(C) Subject to subparagraph (ii), the term ''licensee'' shall also include an unauthorized insurer that accepts business placed through a licensed surplus lines broker in this Commonwealth, but only in regard to the surplus lines placements placed under section 1601 of The Insurance Company Law (40 P. S. § 991.1601).
(D) A surplus lines broker or surplus lines insurer shall be deemed to be in compliance with the notice and opt out requirements for nonpublic personal financial information in Subchapters A--D provided:
(I) The broker or insurer does not disclose nonpublic personal information of a consumer or a customer to third parties for any purpose, including joint servicing or marketing under § 146a.31 (relating to exception to opt out requirements for disclosure of nonpublic personal financial information for service providers and joint marketing), except as permitted by § 146a.32 or § 146a.33 (relating to exceptions to notice and opt out requirements for disclosure of nonpublic personal financial information for processing and servicing transactions; and other exceptions to notice and opt out requirements for disclosure of nonpublic personal financial information).
(II) The broker or insurer delivers a notice to the consumer at the time a customer relationship is established on which the following is printed in 16-point type:
PRIVACY NOTICE ''NEITHER THE U.S. BROKERS THAT HAVE HANDLED THIS INSURANCE NOR THE INSURERS THAT HAVE UNDERWRITTEN THIS INSURANCE WILL DISCLOSE NONPUBLIC PERSONAL INFORMATION CONCERNING THE BUYER TO THIRD PARTIES EXCEPT AS PERMITTED BY LAW.''
Nonaffiliated third party--Any person except:
(i) A licensee's affiliate.
(ii) A person employed jointly by a licensee and any company that is not the licensee's affiliate (but nonaffiliated third party includes the other company that jointly employs the person).
(iii) Nonaffiliated third party includes any company that is an affiliate solely by virtue of the direct or indirect ownership or control of the company by the licensee or its affiliate in conducting merchant banking or investment banking activities of the type described in section 4(k)(4)(H) or insurance company investment activities of the type described in section 4(k)(4)(I) of the Federal Bank Holding Company Act (12 U.S.C.A. §§ 1843(k)(4)(H) and (I)).
Nonpublic personal information--
(i) The term includes the following:
(A) Personally identifiable financial information.
(B) Any list, description or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available.
(ii) The term does not include:
(A) Publicly available information, except as included on a list described in clause (B).
(B) Any list, description or other grouping of consumers (and publicly available information pertaining to them) that is derived without using any personally identifiable financial information that is not publicly available.
(iii) Examples of lists are as follows:
(A) Nonpublic personal financial information includes any list of individuals' names and street addresses that is derived in whole or in part using personally identifiable financial information that is not publicly available, such as account numbers.
(B) Nonpublic personal financial information does not include any list of individuals' names and addresses that contains only publicly available information, is not derived in whole or in part using personally identifiable financial information that is not publicly available, and is not disclosed in a manner that indicates that any of the individuals on the list is a consumer of a financial institution.
Personally identifiable financial information--
(i) Customer information, as defined in section 601 of The Insurance Department Act (40 P. S. § 231) and includes the following:
(A) Information that a consumer provides to a licensee to obtain an insurance product or service from the licensee.
(B) Information about a consumer resulting from a transaction involving an insurance product or service between a licensee and a consumer.
(C) Information that the licensee otherwise obtains about a consumer in connection with providing an insurance product or service to that consumer.
(ii) Examples are as follows:
(A) Information included. Personally identifiable financial information includes:
(I) Information a consumer provides to a licensee on an application to obtain an insurance product or service.
(II) Account balance information and payment history.
(III) The fact that an individual is or has been one of the licensee's customers or has obtained an insurance product or service from the licensee.
(IV) Information about the licensee's consumer if it is disclosed in a manner that indicates that the individual is or has been the licensee's consumer.
(V) Information that a consumer provides to a licensee or that the licensee or its agent otherwise obtains in connection with collecting on a loan or servicing a loan.
(VI) Information the licensee collects through an Internet cookie (an information-collecting device from a web server).
(VII) Information from a consumer report.
(B) Information not included. Personally identifiable financial information does not include:
(I) A list of names and addresses of customers of an entity that is not a financial institution.
(II) Information that does not identify a consumer, such as aggregate information or blind data that does not contain personal identifiers such as account numbers, names or addresses.
Publicly available information--Information that a licensee has a reasonable basis to believe is lawfully made available to the public from:
(i) Federal, State or local government records.
(ii) Widely distributed media.
(iii) Disclosures to the public that are required to be made by Federal, State or local law.
Reasonable basis--
(i) A licensee has a reasonable basis to believe that information is lawfully made available to the public if the licensee has taken steps to determine:
(A) That the information is of the type that is available to the public.
(B) Whether an individual can direct that the information not be made available to the public and, if so, that the licensee's consumer has not done so.
(ii) The term includes the following conditions:
(A) A licensee has a reasonable basis to believe that mortgage information is lawfully made available to the public if the licensee has determined that the information is of the type included on the public record in the jurisdiction where the mortgage would be recorded.
(B) A licensee has a reasonable basis to believe that an individual's telephone number is lawfully made available to the public if the licensee has located the telephone number in the telephone book or the consumer has informed the licensee that the telephone number is not unlisted.
(iii) Examples are as follows:
(A) Government records. Publicly available information in government records includes information in government real estate records and security interest filings.
(B) Widely distributed media. Publicly available information from widely distributed media includes information from a telephone book, a television or radio program, a newspaper or a web site that is available to the public on an unrestricted basis. A web site is not restricted merely because an Internet service provider or a site operator requires a fee or a password, so long as access is available to the public.
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