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CONSUMERS UNION URGES CALIFORNIA INSURANCE COMMISSIONER TO ADOPT STRICTER RULES
GOVERNING CONSUMER PRIVACY
Commissioner's Proposed Rule Falls Short of Protecting Consumers
SAN FRANCISCO, CA - The California Insurance Commissioner is considering a new regulation governing the ability of insurance companies to share or sell their customer's personal financial information that consumer advocates charge is too weak. At a hearing on the proposed regulation today in San Francisco, Consumers Union urged the Insurance Commissioner to adopt a stronger protection rule to give consumers more control over their financial privacy.
"There is nothing more private and personal than information about a person's health and finances," said Norma Garcia, a Senior Attorney with Consumers Union's West Coast Regional Office. "The Insurance Commission's privacy proposal falls far short of the protection consumers want and need."
Under a proposed "opt-out" rule now being considered by the Insurance Department, insurance companies would be free to share or sell a customer's personal financial information unless the customer notified them not to do so. Consumers Union has urged the Insurance Department to adopt a stricter "opt-in" rule, which would require insurance companies to get their customers' permission before information can be shared with an affiliated company or sold to a third party.
In November 1999, President Clinton signed the Gramm-Leach-Bliley Act to permit financial institutions to affiliate and offer a wide variety of financial services and products. This dramatic change in the services offered by banks, insurers, and securities firms also created a new challenge for consumers wishing to keep their personal financial information private. Financial institutions are now selling and sharing such information as a customer's account balance, payment history, parties to transactions, credit card usage, employment, and demographic information.
As a result, decisions about services and products offered to a consumer from one financial entity might be determined by information provided in the past to another entity. For example, a life insurance company might decide to charge a consumer a higher premium based on information about purchases they made on their credit card. Or a life insurance company might decide to offer a consumer a higher rate than is typical because the company knows that this consumer pays high rates for homeowner and car insurance and therefore probably doesn't comparison shop.
In her testimony before the Insurance Commissioner, Garcia noted that the proposed "opt-out" rule is completely contrary to the notion that the consumer should have control over his or her private, nonpublic information held by insurance companies. Under the "opt-out" system, consumers can prevent disclosure only if they object when given the opportunity by the insurer. If they do not object, their permission is assumed. But experience has shown that consumers do not understand the nature and significance of the complicated privacy disclosure statements sent to them by insurance companies and other financial institutions.
Congress did not include strong consumer privacy protections in the Gramm-Leach-Bliley Act but invited states to enact legislation to protect consumers' financial privacy. So far, stricter privacy rules have not been adopted by California, although a proposal by Senator Jackie Speier would provide consumers with much greater control over the disclosure of their personal financial information. Under SB 773, consumers would have to the right to opt-in for all information sharing with third parties and to opt-out for sharing with affiliates. Last December, the New Mexico Insurance Superintendent adopted a regulation establishing an 'opt-in" system for the disclosure of personal financial information by insurance companies.
"Consumers have an expectation of privacy when they share their personal information with a financial institution or an insurance company," said Garcia. "We urge Insurance Commissioner Low to adopt a new rule that gives consumers an opt-in right to decide whether their personal information will be shared or sold by their insurance company."
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