SENATE BILL REPORT

SB 5777

BYSenators Moore, McDermott, Williams and Talmadge

Enacting the Model Insurance Information and Privacy Protection Act.

Senate Committee on Financial Institutions

Senate Hearing Date(s):February 27, 1987; January 27, 1988

Senate Staff:Benson Porter (786-7470)

AS OF JANUARY 27, 1988

BACKGROUND:

Various statutes govern the disclosure and collection of information related to individuals.  The insurance code requires insurers to provide, upon written request, the reasons for any adverse underwriting decision, including reasons for cancellation, nonrenewal, or rejection of an insurance policy.  In addition, the insurance code requires insurance rating organizations to provide, upon written request, all pertinent information as to a rate that affects the insured.  If the insured disagrees with the way in which a rating system used by an insurer or rating organization was applied to the insured, the code establishes a procedure for challenging these rates.

The insurance code provides immunity from civil liability for certain types of information disclosure.  Insurers, agents, and their employees are immune from civil liability with respect to any information supplied to either an insurer or a policyholder as to the reasons for cancellation, nonrenewal, or refusal to issue a policy.

The Arson Reporting Immunity Act requires insurers to disclose any "relevant information" pertaining to any fire loss that an "authorized agency" deems important in the agency's discretion.  Similarly, an insurer has a right to obtain any "relevant information" pertaining to any fire loss, from an "authorized agency."  Such information must not be disclosed except as required under the act and insurers and agencies are granted immunity from any civil and criminal suit or action related to this information.

The Tort Reform Act of 1986 requires a waiver of patient-physician privilege within 90 days of filing an action for personal injury so as to allow insurers to obtain information regarding the claimant's medical condition.  This waiver applies to all physicians and medical or mental conditions.

Finally, the federal Consumer Credit Protection Act contains provisions regulating "consumer reporting agency[ies]" defined as any person who regularly engages in the practice of assembling or evaluating information on consumers for the purpose of furnishing consumer reports to third parties.  "Consumer report" includes a report containing information as to a consumer's character, general reputation, personal characteristics, or mode of living which will be used in establishing the consumer's eligibility for insurance for personal, family, or household purposes.  The act contains provisions governing the use and disclosure of consumer reports, establishes procedures for challenging information in such reports, and provides both civil and criminal penalties for violations of the act.

SUMMARY:

Insurers, agents, or insurance-support organizations, as these terms are defined, are required to comply with extensive regulations governing the collection, use, and disclosure of information in connection with insurance transactions that pertain to natural persons who are residents of this state.

Persons and organizations are identified who have rights or responsibilities under the act.  Generally, all life, health, disability, and property/casualty insurers are subject to the act including health care service contractors and health maintenance organizations.  The act grants rights to natural persons who are residents of this state and who engage in insurance transactions or who are the subject of information collected by those governed by the act.

The gathering of information under false pretexts is restricted.  The requirements for disclosure to individuals of the information practices of an agent or insurer are identified.  Insurers are required to specify those questions designed to obtain information for marketing or research purposes.  The form and use of disclosure authorization forms to be used by insurers in obtaining permission to obtain or disclose information is established.  An individual's right to notice before an investigative report may be prepared or requested is established.  An individual's right to access to information reports, subject to certain limitations is established.  Procedures for challenging and correcting information reports are identified.

Insurers are required to provide individuals with written reasons for adverse underwriting decisions including cancellations and nonrenewals of policies.  Insurers are prohibited from basing underwriting decisions upon previous adverse underwriting decisions unless the insurer bases the decision on information responsible for the previous adverse underwriting decision.  Insurers are prohibited from basing underwriting decisions upon the fact that the individual had insurance through a residual insurance market or upon personal information received from an insurance-support organization who obtained their information from another insurer.  However, insurers may go to the sources of such information and use it.

Extensive rules are created as to who is entitled to receive information and how this information is to be used.

The Commission is granted examination authority over insurers and others in order to ensure compliance with the act.  The Commission is granted enforcement authority.

Procedures for actions against insurers by the Commissioner are established.

Remedies for violations of the act are established.  Civil immunity is granted to persons who obtain and disclose information in conformance with the act.  Criminal penalties are established for knowingly or willfully obtaining information from an insurer, agent, or insurance-support organization under false pretenses.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Effective Date:January 1, 1989, but the rights under sections 9, 10 and 14 take effect January 1, 1988.