RULES AND REGULATIONS
[31 PA. CODE CH. 146a]
Privacy of Consumer Financial Information
[31 Pa.B. 4426]
The Insurance Department (Department) adopts Chapter 146a (relating to privacy of consumer financial information) to read as set forth in Annex A.
These final-form regulations are adopted under the Department's general rulemaking authority of sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. §§ 66, 186, 411 and 412). Likewise, the adoption of this final-form rulemaking is under the Department's rulemaking authority under the Unfair Insurance Practices Act (40 P. S. §§ 1171.1--1171.14) (act) (as such authority is further explained in PALU v. Insurance Department, 371 A.2d 564 (Pa. Cmwlth. 1977)), because the Commissioner 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.
Comments and Response
Notice of proposed rulemaking was published at 31 Pa.B. 1748 (March 31, 2001) with a 30-day comment period. During the 30-day comment period, comments were received from the Alliance of American Insurers (AAI), the American Insurance Association (AIA), Capital Blue Cross (CBC), Farmers' Insurance Group (Farmers'), Harleysville Insurance Group (Harleysville), Highmark, Inc. (Highmark), Independence Blue Cross (IBC), the Independent Insurance Agents of Pennsylvania (co-author) and the Pennsylvania Association of Insurance and Financial Advisors (co-author) (IIAP/PAIFA), the Insurance Federation of Pennsylvania, Inc. (IFP), the Pennsylvania Association of Mutual Insurance Companies (PAMIC), the Pennsylvania Bankers Association (PBA) and the Professional Insurance Agents of Pennsylvania, Maryland and Delaware (PIA).
On May 11, 2001, the Department shared with these and other interested parties an advance draft of the Department's final-form privacy regulations, which incorporated several important changes based upon the comments received during the initial comment period. In addition, the Department requested that interested parties provide additional comments based upon the advance draft of the final form privacy regulation. AAI, AIA, Highmark, IBC, IIAP/PAIFA, IFP, the National Association of Independent Insurers (NAII) (which provided no initial comment on the proposed privacy regulation), PAMIC, PBA, the Pennsylvania Association of Health Underwriters (PAHU) (which provided no initial comment on the proposed privacy regulation) and PIA provided the Department with comments. In conjunction with this request for additional comments on the advance draft of the final-form regulations, the Department held a stakeholder meeting on May 18, 2001, with many of the previously mentioned parties in attendance. The comments received as a result of this additional comment period on the advance draft of the final-form regulations will be addressed only if different from the initial comments provided by the various stakeholders. If the second comment is the same as the initial comment, the Department will make only one response in this Preamble. Comments on the advance draft of the final-form regulations that are different from the initial comments on the proposed regulations submitted by an interested party are denoted with the number 2 in parenthesis (2) after the commentators name.
During its regulatory review, the Independent Regulatory Review Commission (IRRC) also submitted comments to the Department. The following is a response to those comments as well as the public comments received by the Department in response to its proposed rulemaking and any additional comments submitted under the May 18, 2001, stakeholder meeting.
Affiliate Information Sharing
In the proposed regulations, the Department deviated from the National Association of Insurance Commissioners Model Regulation for the Privacy of Consumer Financial Information (NAIC Model) (adopted by the NAIC on September 26, 2000) by prohibiting the sharing of information without providing consumers with a notice and an opportunity to opt out for both affiliate and nonaffiliate sharing. This deviation was made because of the Department's initial interpretation of section 648 of the Insurance Department Act of 1921 (40 P. S. § 288) (Act 40) as potentially being applicable to the same activities as the privacy regulation with regard to financial institutions. Almost all of the commentators and IRRC agreed that the Department needed to reinstate the distinction between affiliate and nonaffiliate information sharing throughout the rulemaking, as in the NAIC Model, which allows affiliate information sharing without providing consumers with a notice and an opportunity to opt out. The primary reasons cited by the interested parties was the need for uniformity among the various states' privacy regulations, and the interference the restrictions on affiliate information sharing would potentially cause in the insurance industry.
In addition, when the Department initially removed the distinction between affiliate and nonaffiliate sharing in its proposed regulation, the privacy rulemaking then governed the sharing of information among any third parties. Because the term ''third party'' was undefined in the regulations, IBC(2) asked that the Department more precisely describe the conditions under which a licensee may disclose nonpublic personal financial information about individuals to affiliates and nonaffiliated third parties.
The Department agrees with the comments received, and has restored the distinction between affiliate and nonaffiliate information sharing as found in the NAIC Model. Although the Department had initially adopted a much narrower construction of Act 40, the principles of statutory construction do support a broader reading of that statute. Rather than applying to similar transactions, Act 40's privacy provision applies only to customer information (as defined in 40 P. S. § 231) gathered as a result of a financial institution's lending activities. The privacy regulations, on the other hand, applies to nonpublic personal financial information (as defined in § 146a.2 (relating to definitions)) gathered as a result of a financial institution's or other licensee's insurance activities. Therefore, because Act 40 and the privacy regulations govern separate transactions and different types of information, one is not affected by the other and the Department has restored the NAIC Model's distinction between nonaffiliate information sharing (which requires a notice and an opportunity to opt out) and affiliate information sharing (which can be done without complying with the notice or opt out procedures). However, the Department has also amended § 146a.41 (relating to effect on other laws) to recognize that financial institutions must still comply with Act 40's privacy provision for any transaction governed by that statute.
Workers' Compensation Insurance
A number of insurers and trade associations have recommended the deletion of workers' compensation insurance from within the purview of these regulations, noting that it is not a product or service for ''personal, family or household purposes'' as envisioned in the Gramm-Leach-Bliley Act (15 U.S.C.A. §§ 6801--6827) (GLBA). Also, the commentators sought clarification from both the Department and the Department of Labor and Industry (L&I), that these regulations do not interfere with the proper processing and examination of workers' compensation claims and settlements.
However, if workers' compensation is to be included in the scope of the final-form rulemaking, the commentators suggested that these regulations should refer to ''policyholders'' and ''claimants,'' not ''participant'' and ''beneficiaries,'' to be consistent with existing workers' compensation laws and terminology.
The Department has retained its inclusion of workers' compensation insurance in this final-form rulemaking. First, it is necessary to note that section 507 of the GLBA (15 U.S.C.A. § 6807) explicitly allows states to afford any person greater protection than that provided in the GLBA or in the Federal banking privacy regulations promulgated under Title V of the GLBA. See, for example, 12 CFR 40.1 et seq. (Office of the Comptroller of Currency privacy regulations) and 12 CFR 216.1 et seq. (Federal Board of Governors of the Federal Reserve System privacy regulations). Therefore, the GLBA not only allows, but envisions, states providing broader insurance privacy protection, as well as affording privacy protection to classes of persons not addressed in the GLBA or the Federal banking regulations.
Also, in some respects, claimants under a workers' compensation insurance policy do receive a ''personal service'' from licensees for the recovery of their personal income. Therefore, the Department asserts that workers' compensation claimants are properly within the scope of these privacy regulations.
Finally, the Department has met with and discussed this rulemaking with L&I, and they agree that workers' compensation insurance is properly covered within the scope of these regulations.
The Department does agree, however, with the commentators' suggestion that the term ''claimant'' be substituted for ''beneficiary'' and the term ''policyholder'' replace ''participant'' in the regulations. To make the regulation consistent with existing workers' compensation terminology, these changes have been made in the final-form regulations.
Assigned Risk Producers
Typically, assigned risk producers are not appointed insurance agents of the insurance carrier that is ultimately assigned to take on an assigned risk customer with whom the producer is working. For this reason, IFP recommended that assigned risk producers be considered ''agents'' of the assigned risk insurance carrier for the purpose of these regulations. Otherwise, IFP asserted that these producers would not be affiliates of the assigned risk insurance carriers and they would not be entitled to the agent exception under § 146a.2 definition of ''licensee,'' subparagraph (iii).
The Department believes that no additional changes need to be made to the final-form regulations, as this issue is readily addressed in the regulations as presently written. In § 146a.2, an agent need not comply with the opt out and notice requirements of the regulations if the principle for whom they are acting satisfies all of the requirements of the regulations, and the agent does not otherwise disclose the individual's nonpublic personal financial information. The term ''agent'' as used in this section of the regulations is not limited to insurance agents who have an appointment with an insurance carrier. Rather, the term is broader and applies to any agent acting on behalf of a principal. Therefore, despite the fact that an assigned risk agent may not necessarily have an appointment with the insurer that ultimately issues the policy (as ''agent'' is defined in the insurance laws), the licensee would still be an agent (under the broader, common law definition of an ''agent'') of the insurer and would be entitled to the exception in the regulation's definition of ''licensee.''
Also, in this situation, although the assigned risk producer would not necessarily be considered an ''affiliate'' as that term is defined in § 146a.2, the producers would be able to receive and convey a consumer's nonpublic personal financial information under any of the exceptions in §§ 146a.32 and 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) without triggering the notice and opt out requirements.
Claims Servicing and Administration
IFP also suggested that the regulations need clarification that the requirements, under the GLBA, are directed only at sharing nonpublic personal financial information for marketing purposes, and not information sharing for the purpose of claims administration.
The Department asserts that the final-form regulations are abundantly clear that information sharing that is associated with claims administration is exempted from the requirements of the regulations. For example, § 146a.32(a) explicitly states that the notice and opt out requirements of the regulations do not apply ''if the licensee discloses nonpublic personal financial information as necessary to effect, administer or enforce a transaction'' that is authorized by the consumer or in connection with a processing or servicing transaction. Section 146a.32(b)(2)(ii) further defines ''necessary to effect, administer or enforce a transaction'' to include a usual, appropriate or acceptable method ''to administer or service benefits or claims relating to the transaction.'' Therefore, it is abundantly clear that the notice and opt out requirements of these final-form regulations do not attach to information sharing associated with claims servicing and administration. However, the Department has added additional language proposed by IFP in § 146a.32(b)(2)(iii) to clarify that an agent's involvement in claims administration or servicing is also exempt from the regulation's notice and opt out requirements.
Agent Liability for Principal Disclosures or Failure to Comply
The IIAP/PAIFA commented that the regulations do not appear to include a limit on an agent's liability if an insurance company violates terms of the GLBA or of the regulations. These commentators provide the example that an agent may be required by an insurance carrier to obtain and transmit a consumer's Social Security number in order for the insurer to obtain MVRs, credit scores, and the like, as part of underwriting. If an employee of that carrier uses that consumer's Social Security number (which is considered nonpublic personal financial information) in a fraudulent or improper manner, then IIAP/PAIFA believe that both the agent and the company may ultimately be held liable. These commentators believe that agents may be forced to incur significant legal expense just to distance themselves from the improper disclosure made by the carrier employee in this situation. Therefore, it has been suggested that agent's be exempt from liability if they justifiably rely on the principal's satisfaction of the regulations' requirements under § 146a.2, definition of ''licensee,'' subparagraph (iii) or if a principal violates the regulations by disclosing nonpublic personal financial information that was initially collected and conveyed to the principal by the agent.
In addition, the PIA suggested that principal should be required to inform agents of its notice and opt out procedures to the policyholders and confirm that the regulatory requirements of this rulemaking have been satisfied under § 146a.2, definition of ''licensee,'' subparagraph (iii). PIA(2) also requested that if the Department should not decide to address the notification provision then the Department should make known its enforcement position, in writing, for handling any enforcement actions that might arise as a result of a principal's failure to satisfy the regulations' requirements and the agent's reliance thereon.
The Department has not included this exemption from liability in the final-form regulations and asserts that this issue is best addressed individually between the agent and any principals for whom it transacts the business of insurance. Agents are able to have proper indemnification clauses negotiated into their contracts with their principals in order to avoid liability for the principal's improper disclosure of nonpublic personal financial information that was initially collected and conveyed to the principal by the agent.
To address PIA's comment, the issue of notification of a principal's privacy regulations compliance is also a matter that is best addressed between the agent and the principal rather than in the privacy regulation itself. As far as any potential enforcement action in this regard is concerned, if an agent is able to adequately demonstrate to the Department's satisfaction that it justifiably relied upon the principal's agreement to comply with the regulations' requirements on behalf of the agent and no disclosure has actually been made by the agent itself, then it is likely that no enforcement action would be taken against the agent.
The PAHU(2) commented that because agents may know health information or act as an advocate when there is a claim dispute or question, there will not be sufficient time to get an authorization signed before the agent can discuss their problem with an insurance carrier.
As explained in greater detail in the Preamble to the proposed rulemaking at 31 Pa.B. 1748, health information privacy will be the subject of a separate rulemaking that the Department intends to promulgate shortly after the final publication of this rulemaking.
Section 146a.1. Purpose.
AAI commented that § 146a.1 improperly applies to ''claimants or beneficiaries'' and that it directly conflicts with Title V of the GLBA's exemption for ''processing insurance claims.'' AAI stated that claimants and beneficiaries do not obtain any product, are not policyholders and therefore should not be included within the purview of the regulations' privacy protections. AAI also recommended the revision of § 146a.1(b) by deleting the reference to ''claimants or beneficiaries.''
IRRC also had similar concerns with the privacy regulations' application to claimants and beneficiaries, and requested that the Department explain its rationale for the inclusion of claimants and beneficiaries within the purview of the regulations' privacy protections.
The Department is unwilling to delete the reference to ''claimants and beneficiaries'' in § 146a.1 of the final-form regulations. Claimants and beneficiaries are properly included within the scope of the regulations, in that they do obtain services from licensees, namely the payment and processing of any claims that they may have against an insurance policy maintained by the licensee. Further, it is clear that licensees will obtain nonpublic personal financial information from claimants and beneficiaries, and these persons should not be excluded from the regulation merely because they do not have a direct contractual relationship with the licensee.
Finally, as with workers' compensation insurance claimants, claimants and beneficiaries are unable to choose the licensees with whom they transact business, and therefore have a licensee's privacy policies imposed upon them. Because of this, the protection of nonpublic personal financial information of claimants and beneficiaries is crucial to provide them with notice of a licensee's privacy policies and an opportunity to opt out of any unwanted disclosures of their nonpublic personal financial information.
Harleysville suggested that reliance upon Act 40, to any extent, as authority for this rulemaking is problematic, not only in regard to the originally proposed health information provisions, but also in regard to the opt out regimes of the regulations. Therefore, Harleysville suggested that every effort should be extended, as part of the rulemaking, not to go beyond the parameters set forth in the GLBA. This commentator also noted that the NAIC Model is not the appropriate authority for the regulation because it is at odds with clear Congressional intent as provided in GLBA.
The Department respectfully disagrees with Harleysville's comments. The Department does not rely on Act 40 for its statutory authority to promulgate this final-form rulemaking. Rather, the Department's statutory authority lies in the general rulemaking authority of sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 and the Department's rulemaking authority under the act (as such authority is further explained in PALU v. Insurance Department, 371 A.2d 564 (Pa. Cmwlth. 1977)). In fact, the Department has now determined that Act 40's privacy provision (40 P. S. § 288) applies only to a financial institution's lending activities, while this privacy regulation applies to a financial institution's or other licensee's insurance activities.
Also, as previously explained, section 507 of the GLBA clearly authorizes states to be more protective of nonpublic personal financial information. Therefore, the Department is wholly authorized to go beyond the parameters set forth in the GLBA.
Finally, the NAIC Model is not at odds with the GLBA because it provides greater protection to the privacy of insurance consumers' nonpublic personal financial information. Also, the NAIC Model represents a reasonable regulatory scheme for the protection of nonpublic personal financial information, and the NAIC Model was thoughtfully developed after months of deliberation and extensive contributions from both consumers and representatives of the insurance industry.
PIA stated that in § 146a.1, the regulation limits the applicability to personal lines of insurance. Questions arise when commercial policies have more than one purpose. For example, personal umbrella coverages may be added by endorsements to commercial umbrella policies, or personal automobiles may be covered by commercial policies. The PIA believes that the regulation should be made clearer in these types of circumstances.
As explained at the stakeholders meeting on May 18, 2001, this rulemaking provides the general framework for the protection of nonpublic personal financial information. Specific questions such as those posed by the PIA are best addressed in the implementation phase of this rulemaking rather than in the text of the rulemaking itself. The Department intends to provide guidance to the insurance industry on questions such as this by developing a formal question and answer procedure, meeting with the industry to address any issues that may arise in the implementation of this regulation and through the assistance of the Department's market surveillance unit.
IRRC questioned the need for § 146a.1 and requested a clarification of certain aspects of that provision. IRRC commented that subsection (a) states the regulations govern the treatment of nonpublic personal financial information about individuals. Similarly, subsection (b) states that the chapter applies to nonpublic personal financial information. IRRC noted, however, that the term ''nonpublic personal financial information'' is not defined in § 146a.2. Instead, the terms ''nonpublic personal information'' and 11personally identifiable financial information'' are defined. Given the stated purpose and scope of the regulation, IRRC recommended that either the terms in § 146a.1 be modified or that the term nonpublic personal financial information be defined in § 146a.2 and used consistently throughout the regulations. Other commentators also raised this issue with the Department.
The Department agrees that the regulations lacked consistency in the use of the terms ''nonpublic personal information'' and ''nonpublic personal financial information.'' To remedy this inconsistency, the Department has changed the definition of ''nonpublic personal information'' to ''nonpublic personal financial information'' and any reference throughout the regulations to ''nonpublic personal information'' was changed to ''nonpublic personal financial information.''
Subsection (d) clarifies that the examples contained in the regulation are illustrative and do not restrict the scope of Chapter 146a. IRRC noted that the language in this subsection, however, varies from section 3 of the NAIC Model. Given the Department's stated goal of implementing the NAIC Model ''as closely as possible,'' why is the proposed language different from the NAIC Model language?
The Department has modified this language in the NAIC Model because it is reluctant to limit its enforcement authority of the regulations. The examples throughout the regulations are provided only to explain or clarify the rules set forth in the regulations and to act as guidance for entities that must comply with the regulations. While strict compliance with the examples might constitute a ''safe harbor'' in some instances, other situations may arise where licensees could potentially misconstrue or extend the examples in ways that the Department would not necessarily consider as complying with the regulation. Therefore, the Department modified the NIAC Model to indicate that the examples are provided for guidance or clarification purposes.
Section 146a.2. Definition of ''company.''
The PIA(2) believes the phrase ''similar organization'' in the regulations' definition of ''company'' should be changed to ''similar entity.''
The Department believes that its use of the phrase ''similar organization'' is essentially identical to the PIA's suggestion for the use of to ''similar entity,'' and has not made this change in its final-form rulemaking.
Section 146a.2. Definition of ''consumer.''
Comments from the IBC, PBA and IRRC suggested the need for clarification in the definition of ''consumer'' in the final-form regulations. Also, the CBC believes that the Department should eliminate any requirement to send notices to the individual members covered by group contracts.
The Department has clarified the definition of ''consumer'' in its final-form regulations by moving language in subparagraph (iv)(E) to the prefatory language in subparagraph (iv). In response to the CBC's comment, there is no requirement that notices be sent to the individuals covered by group insurance contracts or workers' compensation plans if a licensee does not disclose nonpublic personal financial information about the individuals outside of the permitted exceptions in §§ 146a.31, 146a.32 and 146a.33 and the group policyholder or contract holder receives any applicable notices required by the regulations. This ''exception'' for individuals covered by a group insurance contract or workers' compensation plan is found in the definition of ''consumer'' subparagraph (v), and adequately addresses IBC's comment.
Section 146a.2. Definition of ''control.''
Farmers' believes clarification is needed to make certain that contractual control is included in the proposed regulations. Current practices in the insurance industry and language in existing insurance laws provide support that exchanges and management companies are affiliates. Farmers' would like clarification to confirm that control can be established through management contracts, so as to minimize their risk while developing a structure that permits nonpersonal public information to be disclosed between an exchange and its administrative manager.
PAMIC initially commented on the proposed regulation that it the NAIC definition of ''control'' should be restored in the final-form regulation. This change was made in the advance draft of the final-form regulation, which prompted IFP(2) to comment that it would like the Department to reinstate the original 10% standard included in the proposed draft of the regulations.
In response to Farmers' comments, the Department believes that the definition of ''control'' in the final-form regulations, and specifically subparagraph (iii) of that definition, is sufficiently broad to cover contractual control such as through management contracts.
In response to IFP's comments, the Department believes that it was required to reinstate the NAIC's definition of ''control'' when it restored the provisions allowing affiliate information sharing. If the 10% standard of the Holding Company Law were retained as in the proposed regulations, it is possible that the Department's regulations would not meet the minimum privacy standards required by the GLBA, as the entities meeting the definition of affiliate would be greater and there would be more information sharing permitted without compliance with the regulations' opt out and notice requirements. Therefore, the Department has restored the definition of ''control'' to that found in the NAIC Model.
Section 146a.2. Definition of ''customer.''
The AIA and IFP recommended adding a sentence to the definition of ''customer'' to confirm that a consumer's status as a beneficiary or claimant alone does not make that consumer a licensee's ''customer'' (as defined in the final-form rulemaking). They suggested that the new sentence added to the definition would read: ''In no event, however, shall a beneficiary or a claimant under a policy of insurance, solely by virtue of their status as a beneficiary or claimant, be deemed to be a customer for purposes of this regulation.'' The AIA and IFP suggest that the additional sentence is consistent with the NAIC Model Regulation (see §§ 4F(2)(d) & 4J(2)(b)(iv), (v)) and the FAQs recently released by the NAIC. Furthermore, the AIA and IFP noted that the additional language it proposed is identical to the confirming sentence added to the final version of the National Conference of Insurance Legislators (NCOIL) Privacy Model.
The Department believes that the final-form regulations are abundantly clear that merely because a person is a claimant or beneficiary, that person is not necessarily a customer. However, there are instances when a claimant or beneficiary could become a customer when a long-term relationship is developed between the claimant or beneficiary and the licensee. Also, the definition of ''customer'' is of central importance to the regulatory scheme established by the NAIC Model, and there is no additional language in the NAIC Model. Therefore, in order to preserve National uniformity, no change has been made to the definition of ''customer'' in the final-form regulations with regard to this issue.
Section 146a.2. Definition of ''customer relationship.''
AIA and IFP recommended deleting the word ''airline'' in examples listed in the regulations' definition of ''customer relationship'' relating to situations that do not constitute a ''customer relationship'' (see subparagraph (ii)(B)). They wanted the provision to read as follows: ''The licensee sells the consumer travel insurance in an isolated transaction.''
It is important to note that airline insurance is used in the regulations only as an example of a situation that clearly does not give rise to a customer relationship. That is because airline insurance generally exists for only a short duration, and there is commonly no long-term customer relationship developed between the airline insurance carrier or agent and the consumer. Travel insurance, on the other hand, is not as clear an example as airline insurance because this type of insurance covers a broader spectrum of products, which may lead to the development of a long-term customer relationship between the consumer and the travel insurance carrier or agent. For example, travel insurance may include a health insurance component covering any illnesses or injuries sustained by a consumer while traveling. If the illness or injury were to have a long-term impact on the life of the consumer, a long-term customer relationship might develop between the travel insurance consumer and the licensee. Therefore, although the Department recognizes that there are situations where travel insurance (as opposed to airline travel insurance) might not give rise to a customer relationship, some types of travel insurance may involve long-term relationships, so the Department has not modified the airline travel insurance example in the regulation's definition of ''customer relationship.''
The IBC(2) believed that the Department inadvertently used the term ''invalid'' in the first sentence of the section relating to a customer's last known address, and requested that this be changed.
The thrust of this provision is to exclude consumers whose last known address has been deemed invalid from the definition ''customer relationship.'' Otherwise, licensees would be expected to comply with the annual notice requirements for customers' whose last known address has been deemed invalid. Therefore the use of the term ''invalid'' is proper. However, the Department agrees that this language lacks clarity and has deleted the phrase ''for the purposes of this regulation'' from the start of the first sentence in subparagraph (ii)(H) in the definition of customer relationship, and has moved that phrase to the start of the second sentence in that clause.
Section 146a.2. Definition of ''licensee.''
CBC believed that the reference in the definition of ''licensee'' to ''entities licensed, authorized or registered under the insurance laws'' was too vague, and recommended that the definition be revised to more specifically identify by category the specific entities subject to the regulations.
The Department has retained this language in its final-form regulations because it is necessary to capture all of the Department's licensees. Also, this language is more efficient than specifically listing all of the licensees of the Department that are subject to the requirements of these regulations, and this list would have to be modified any time the Department licenses a new category or type of insurance entity.
With regard to the quoted privacy notice text for surplus lines entities, the AIA suggested that the text not be provided in all capital letters. The AIA stated that the identical language in the NAIC Model is not printed in all capital letters and asserts that if this notice language remains in all capital letters, it may be inconsistent with other jurisdictions following the NAIC Model precisely, and surplus lines companies or brokers may be required to provide a separate Commonwealth notice.
The AIA's assertions made in its comment are inaccurate. The NAIC Model, does, in fact, set forth the privacy notice for surplus lines entities in all capital letters. Therefore, the Department has rejected this comment and has not modified the surplus lines notice in the definition of ''licensee'' in its final-form regulations.
Several commentators suggested that the Children's Health Insurance Program (CHIP), Medicaid and Medicare+Choice programs be specifically excluded from the definition of licensee. Also, the IBC(2) suggested that licensees that administer these programs be included in the exceptions, and that they not be subject to the requirements of the privacy regulations. The IBC believed that it was inconsistent to exclude the government agency that may provide nonpublic personal financial information to a licensee from the requirements of the regulations while requiring the licensee that administers the program to abide by the terms of the regulations.
Although the Department believes that the CHIP, Medicaid and Medicare+Choice programs would not be subject to the privacy regulations without a specific exception because these programs are not licensed or required to be licensed by the Department, it has included specific exceptions for these programs in the definition of ''licensee.'' Please note, however, that this exception does not extend to entities that enroll participants through these programs. The Department does not agree with IBC that CHIP, Medicaid and Medicare+Choice enrollees are not entitled to the same protection as other consumers merely because they obtain their health insurance through these governmental assistance programs. Therefore, although there are exceptions for CHIP, Medicaid and Medicare+Choice in the definition of ''licensee,'' these exceptions do not extend to licensees who enroll participants through these programs.
IRRC and the PIA suggested that a definition for ''producer'' as used in the definition of ''licensee'' be made clearer in the final-form regulations. The PIA suggested that the term ''producer'' as used in the definition of ''licensee'' be defined as ''a person required to be licensed to sell, solicit or negotiate insurance.''
The term ''producer'' is commonly used and understood in the insurance industry to mean a person engaging in the activities of an insurance agent or an insurance broker. Also, the Department is currently undertaking the enactment of the NAIC Producer Licensing Model Act under Title III of the GLBA. This forthcoming statute will provide an extensive definition of the term ''producer.''
In § 146a.2(iii)(D), ''surplus lines broker'' is not defined anywhere in the laws of the Commonwealth, and the PIA was unsure as to the precise meaning of the term.
The Department has modified its definitions with regard to ''surplus lines licensees'' so that they are consistent with the definitions in Article XVI of the Insurance Company Law (40 P. S. §§ 991.1601--991.1625).
Section 146a.2. Definition of ''nonpublic personal information.''
The IFP, Highmark, PBA, IBC and AIA(2) recommended that the term ''health information'' should be added under the exclusions from definition of ''nonpublic personal information'' to clarify the scope of the regulations. IRRC also commented that health information should be excluded from the definition of ''nonpublic personal financial information.''
The IBC(2) also suggested that the Department adopt a definition of ''health insurance'' that is consistent with protected health information under HIPAA so that it will be much easier for insurers and providers to come into compliance with State privacy requirements.
The Department has included ''health information'' as an exception to nonpublic personal financial information, and has defined ''health information,'' ''health care'' and ''health care provider'' consistent with the NAIC Model. However, the Department would like to clarify that any financial information that is obtained in tandem with health information is protected pursuant to this regulation. Simply because ''nonpublic personal financial information'' is received or obtained in the context of other ''health information,'' the ''nonpublic personal financial information'' is still entitled to the full protections of this final-form rulemaking. As discussed previously, the Department intends to begin the process of promulgating a health component of the privacy regulation during the implementation phase of the final-form regulations.
The PBA(2) believed that the word ''mean'' should be used rather than ''include,'' as used in the NAIC Model. PBA asserted that using ''include'' might cause a question to arise as to whether ''other'' items might be included in the definition.
The Department agrees and has made this change in its final-form regulations.
Section 146a.2. Definition of ''personally identifiable financial information.''
The IFP suggested that the Department's reference to the definition of ''customer information'' in section 601 of Act 40 (40 P. S. § 231) is flawed, as that applies only to information of financial institutions.
The Department agrees and has removed the reference to ''customer information'' in the definition of personally identifiable financial information.
Section 146a.11. Initial privacy notice to consumers required.
The PIA and IRRC noted that § 146a.11(e)(ii) allows a customer to receive the initial notice at a later time provided that customer agrees to the delay. Both IRRC and the PIA believed that clarification was needed in this section, specifically, as to what constitutes a customer's agreement as well as what is satisfactory evidence of meeting the consented delay requirements.
The Department does not believe that it is necessary to specifically define what constitutes a customer's agreement to receive the initial notice at a time later than when the customer relationship is formed. Rather, the Department believes that it is best to leave flexibility for licensees to implement this provision of the regulations, and the Department will enforce this provision on a case-by-case basis, depending on the facts and circumstances surrounding evidencing the customer's agreement. Also, there is no definition of ''customer agreement'' in the NAIC Model, and in the interest of National uniformity, no definition will be included in the Department's final-form rulemaking.
Section 146a.12. Annual privacy notice to customers required.
The PAMIC expressed concerns with the annual notices. Their concern is that the requirement to send all customers an annual notice covers all licensees, and burdens that are inevitably placed on smaller companies are disproportionately larger in their operational impact than the burdens placed on larger companies.
The Department asserts that the annual notice serves an important function in the regulatory scheme developed by the privacy rulemaking, regardless of the size of the entity that is subject to the regulation's requirements. Therefore, the annual notice requirement has been retained in this final-form rulemaking. Also, because the annual notice may be mailed with other materials (such as a policy renewal or billing) that will already be delivered to customers irrespective of the privacy notice, the Department believes that the impact on smaller and larger licensees is similar.
Section 146a.13. Information to be included in privacy notices.
IRRC believed that § 146a.13 required clarification. Subsection (c)(2)(i) states that the requirements of § 146a.13(c) are satisfied if a licensee ''provides a few examples.'' Similar language is used in subsection (c)(3)(ii) that requires ''a few illustrative examples.'' IRRC suggested that these requirements are vague and that the regulations should specify the minimum number of examples required.
In response to IRRC's comment, the Department is reluctant to include a definite number of examples that would be required to comply with the regulations. Rather, the industry requires flexibility with regard to the drafting and development of its privacy notices, and to require a certain number would eliminate this much-needed flexibility. Instead, licensees should use an adequate number of examples to make the categories of information it discloses so that the notice is reasonably understandable (as defined in the definition of ''clear and conspicuous'' in § 146a.2). However, for the purpose of clarifying this final-form regulations, the Department has removed the phrase ''a few'' from both provisions identified by IRRC.
The IBC believed that the provision found in § 146a.13(d) pertaining to short form initial notices was in direct conflict with § 146a.11. Section 146a.11 does not require a licensee to provide an initial privacy notice to a consumer if the licensee: (1) does not disclose any nonpublic personal financial information about the consumer to a third party except as authorized by §§ 146a.32 and 146a.33; and (2) the licensee does not have a customer relationship with the customer. Section 146a.13(d) provides that a licensee may satisfy the initial notice requirements for consumers by providing a short form notice that is described in the regulation. According to the IBC, § 146a.13(d) was inconsistent with § 146a.11 and should be deleted.
The Department has not deleted § 146a.13(d), as the short form initial notice applies to both customers and consumers. While it is true that no initial notice may be required for consumers when a licensee does not intend to disclose that person's nonpublic personal financial information, an initial notice is required when a licensee does disclose a consumer's nonpublic personal financial information. The short form initial notice described in § 146a.13(d) allows for added flexibility in this situation and cannot be deleted from the final-form regulations.
Section 146a.14. Form of opt out notice to consumers and opt out methods.
IRRC indicated that § 146a.14 also required clarification. Subsection (a)(1) requires a notice to be ''clear and conspicuous'' and provide a ''reasonable opt out means.'' Subsection (a)(2)(ii) and (iii) provide examples of reasonable and unreasonable opt out means that clearly relate to subsection (a)(1). However, subsection (a)(2)(i) and (iv) provide examples that describe ''adequate opt out notice'' and ''specific opt out means.'' IRRC commented that the regulation is unclear regarding what requirement the examples in subsection (a)(2)(i) and (iv) are describing.
Also, subsection (a)(2)(iv) was listed as an example based upon its placement under paragraph (a)(2) relating to examples. However, subsection (a)(2)(iv) stated ''a licensee may require each consumer to opt out through a specific means, as long as that means is reasonable for that consumer.'' This is phrased as a requirement for ''specific opt out means,'' not an example. Subsection (a)(2)(iv) should be moved out of subsection (a)(2) and clarified.
In response to IRRC's comments and by way of clarification, the term ''clear and conspicuous'' is extensively defined in § 146a.2, and § 146a.14(a)(2)(i) merely provides an example of what information would be contained in an ''adequate'' opt out notice (that is, a notice is clear and conspicuous). As such, the Department has not made any changes in this regard to the final-form regulations.
The Department does agree, however, that § 146a.14(a)(2)(iv) is improperly included as an example, and the Department has renumbered subsection (a)(2)(iv) as subsection (a)(3) of § 146a.14.
Section 146a.16. Delivery of notices.
The PIA(2) stated that traditionally in insurance law, an offer is made in request by an individual applicant for coverage. In § 146a.16(b)(iv), notice is required to be given to each consumer when a ''quote'' is provided. The PIA would like to know the elements the Department considers to be part of a ''quote'' because of the apparent conflicting exempting language that appears regarding a transaction instituted at the request of a customer, and a quote traditionally is regarded as a reply to that offer to do business.
Although the Department has not included a definition of the term ''quote'' in the final-form regulations, as it believes such a definition is unnecessary, it will provide some clarification of § 146a.16(b)(iv). It is important to note that a consumer is required to receive an initial notice only if the licensee intends to disclose that consumer's nonpublic personal financial information other than as allowed under the regulations' permitted exceptions. Therefore, if in the context of providing a quote, a licensee does not intend to disclose the consumer's nonpublic personal financial information, no initial notice would be required. Section 146a.16(b)(iv) is not inconsistent with this scenario. Section 146a.16(b)(iv) merely provides an example of when an initial notice could be reasonably expected to be received by a consumer receiving a quote if the licensee is required to provide the notice. Section 146a.16(b)(iv) does not in any way impose an additional requirement that all consumers receiving a quote be provided an initial notice.
Section 146a.21. Limitation on disclosure of nonpublic personal financial information to nonaffiliated third parties.
The AAI, AIA, Harleysville, IBC, IFP and PBA all believed that the double opt requirement in this provision extended beyond the scope of the GLBA and conflicts with the NAIC Model. IRRC also questioned the requirement for a second opt out notice. IRRC believed that the regulations should be consistent with the statute and recommended the deletion of the double opt out requirement.
As explained in greater detail previously, the Department now interprets Act 40 as applying to a financial institution's lending activities while the privacy regulation applies to a financial institution's or other licensee's insurance transactions. Therefore, consistent with the comments received, the Department has deleted § 146a.21(c)(3).
Section 146a.31. Exception to the opt out requirements for disclosure of nonpublic personal financial information for service providers and joint marketing.
The CBC suggested that § 146a.31 be modified to mirror §§ 146a.32 and 146a.33 to provide that the exception applies to both the notice and the opt out requirements. IRRC also believed that § 146a.31 should be clarified because the exceptions in §§ 146a.32 and 146a.33 do not require initial notice under § 146a.11, while the exception in § 146a.31 maintains the requirement for an initial notice.
The Department has not modified § 146a.31 to be an exception to both the notice and opt out requirements as in §§ 146a.32 and 146a.33. Rather, the Department maintains that it is proper for consumers to receive notice that their nonpublic personal financial information is disclosed to nonaffiliated third party service providers and under joint marketing agreements, despite the fact that there is no opportunity to opt out of these disclosures. With this information, consumers may choose whether or not to engage in business with that licensee. The exceptions under §§ 146a.32 and 146a.33 do not require an initial notice because they are the exceptions that apply so that the requirements of the regulation do not interfere with the day to day transaction of the business of insurance. The exceptions in §§ 146a.32 and 146a.33 are necessary for licensees to transact business, while the exception in § 146a.31 is for sharing information with nonaffiliated third party service providers or joint marketing agreements, both of which are not necessary components of the business of insurance. Also, to be consistent with the NAIC Model and to promote National uniformity, no change has been made to this provision of the regulations.
Harleysville believed that the exceptions to the opt out requirements should be clarified to include claims processing and fraud investigation service providers as § 146a.31 exceptions. IRRC also noted that commentators stated that the exceptions from the opt out requirements should include claims processing and fraud investigation as exceptions in this section.
The Department has not specifically included claims processing and fraud investigation in the § 146a.31 exceptions because this exception is adequately addressed in §§ 146a.32 and 146a.33. Sections 146a.32 and 146a.33 specifically state that the requirements for service providers and joint marketing in § 146a.31 (that is, written agreement and initial notice) do not apply when a disclosure is made under one of the exceptions in §§ 146a.32 and 146a.33. Therefore, the exception for fraud investigation and claims processing performed by third parties is adequately addressed in §§ 146a.32 and 146a.33 and is not included in § 146a.31.
Section 146a.32. Exceptions to notice and opt out requirements for disclosure of nonpublic personal financial information for processing and servicing transactions.
The AIA(2) recommended adding a new paragraph to § 146a.32 to explicitly allow for servicing policyholder accounts. The AIA asserted that this addition simply clarifies the regulatory intent to preserve the ability to service policyholder accounts.
The IFP also expressed a concern whether the exceptions to the notice and opt out requirements for processing and service transactions in § 146a.32 sufficiently cover all applicable situations. The IFP(2) provided the Department with language from South Dakota's privacy regulations under which an insurer's sharing information on a claim with its agents does not trigger privacy requirements with respect to claimants.
In its comments, the PAMIC stated that certain transactions should be authorized without delivery of privacy notice under § 146a.32, when the transaction is ''necessary to effect, administer, or enforce a transaction'' and authorized by the consumer.
Finally, the NAII(2) believed that, as drafted, § 146a.32 was not sufficient and the regulation would prohibit agents, producers and brokers to provide services to consumers because they would be denied access to necessary nonpublic personal financial information. Specifically, agents, producers and brokers are often asked to review claims and loss runs. The NAII believes that these services could no longer be performed by them under the present draft, and presented the Department with an amendment that is similar to the amendment suggested by the IFP.
In this final-form regulation, the Department has amended the language in § 146a.32(b)(2)(iii) and (v) as suggested by IFP and NAII. This additional language appears to be sufficient to address all of the comments raised on this issue.
Section 146a.33. Other exceptions to notice and opt out requirements for disclosure of nonpublic personal financial information.
Harleysville believed that exceptions should be expanded under subsection (a)(7), thereof, to include claims processing and fraud investigation service providers.
Fraud investigation and claims processing are adequately addressed as exceptions to the notice and opt out requirements in §§ 146a.32 and 146a.33.
Section 146a.42. Nondiscrimination.
The AAI believes that the regulation's nondiscrimination provision is not authorized by the GLBA and directly conflicts with Title V's insurance underwriting exemption. The AAI preferred language from the NCOIL version in this regard.
Section 146a.42, which prohibits discrimination against a consumer for exercising the opportunity to opt out, is not contrary to the GLBA. First, it is important to recall that section 507 of the GLBA authorizes state insurance regulators to provide greater protection to insurance consumers than those provided in the GLBA or the Federal banking privacy regulations. Also, the underwriting exception in the GLBA only applies to exempting the sharing of information for underwriting purposes, not for the purposes of unfairly discriminating against consumers who chose to exercise the rights conferred upon them by the regulation. Therefore, the Department has retained the regulation's nondiscrimination provision in its final-form rulemaking.
Section 146a.43. Violations.
The AIA recommended revising § 146a.43 as follows: ''Violations of this chapter may be deemed and defined by the Commissioner to be an unfair method of competition and an unfair or deceptive act or practice and may be subject to a cease and desist order or to fines contained in sections 9--11 of the act (40 P. S. §§ 1171.9--1171.11).'' Suspending or revoking a license for noncompliance with this proposed rule is a drastic measure and should not be included.
Also, the IFP recommended deletion of this section as unnecessary. The IFP believed that the regulation is being promulgated under the act, so violations of it could only be prosecuted under that act. The IFP also believes that the Department wants to ''deem and define'' any violation of these regulations as a violation of the act. The bulk of the UIPA, however, penalizes patterns of conduct, not single acts, as done here. In addition, the IFP believed that while the Commissioner is given some discretion to expand the specific conduct listed in the UIPA, it is generally limited to conduct uncovered in an investigation, and its penalties come only after hearings.
Finally, the IIAP/PAIFA(2) wanted language in this section stating that producers who make a good faith effort to ensure insurer compliance with this regulation will be held harmless if an insurer is found to be noncompliant by the Department.
The Department has modified § 146a.43 to state that violations will be subject to ''any applicable penalties or remedies'' as opposed to ''all penalties'' contained in the UIPA. The concerns asserted by IIAP/PAIFA are addressed previously in this Preamble.
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