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The Gramm-Leach-Bliley Act stipulates that, in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons:
The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):
The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not to have their private information shared with other parties.
The California Financial Information Privacy Act, in effect since July 1, 2004, was enacted to provide consumers the ability to control how consumer nonpublic personal information is shared or sold to third-party financial institutions. The act, known as Cal-GLBA, is designed to provide greater privacy protections than those under the federal Gramm-Leach-Bliley Act.
The act restricts financial profiling of consumers and makes consumers aware of their rights through a clearly written and easy-to-understand notice, which provides the consumer the ability to opt-in or opt-out of sharing nonpublic personal information.
Nonpublic personal information refers to personally identifiable information collected by a financial institution by way of the consumer providing it, a transaction between the institution and consumer, or other means. Personally identifiable information includes:
An authorized privacy notice must include the following:
A financial institution is not required to obtain a consumer's consent if nonpublic personal information is shared with its wholly owned financial institution subsidiaries. If a financial institution is found to be in violation of the California Financial Information Privacy Act, the institution may be fined up to $2,500 per violation of one consumer's information being released, or $500,000 for multiple consumers.
The Insurance Information and Privacy Protection Act, as outlined in the California Insurance Code, has established standards for the collection, use, and disclosure of information gathered in connection with insurance transactions by insurance companies, agents, or insurance-support organizations. The Code requires these entities to do the following:
The information necessary for proper underwriting may be both personal and highly sensitive in nature. Because of this, there is great potential for harm to an individual if their personal information is disclosed to others who have no legitimate reason for receiving it. How, and from whom, that information is obtained, collected, held, and when or how it will or may be disseminated to others must be disclosed in advance to applicants for insurance.
In some cases, insurers may require an investigative consumer report in connection with an application. An investigative consumer report means a consumer report in which information about a natural person's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with the person's neighbors, friends, associates, acquaintances, or others who may have knowledge concerning those items of information.
Insurers or their agents may not prepare or request an investigative consumer report about an individual in connection with an insurance transaction unless they inform the individual of the following rights:
In the event of an "adverse underwriting decision," which could mean being declined, rated, or in any way deemed less than a standard risk, or even being issued coverage by a company other than the one the applicant originally intended to apply for coverage, the person must be given the reason for the decision. That information must be given to them in writing, or the person must be advised that they may request in writing that the reason for the action be furnished to them.
If the information is medically-related, and supplied by a medical care institution or medical professional, it must be disclosed, upon request, to the individual directly or to a medical professional of that person's choosing who is licensed to treat the person for the condition to which the information relates. If the information is related to a person's mental health, it may only be disclosed with the consent of the professional who is responsible for the treatment related to that information.
The Insurance Code also describes how information about a person's past adverse underwriting decisions may not be used as the basis of a new underwriting decision, unless it is received directly from the insurer or agent who made the adverse decision. Simply being declined or rated for insurance in the past, or having insurance provided by a residual carrier (one other than the original company to which the application for coverage was submitted), is insufficient for declining or rating a person for new insurance.
Additionally, applications for insurance which contain questions that are not designed to gather information about the applicant, but are designed for marketing or research purposes, must be clearly identified as such. Marketing or research questions could include those designed to reveal a person's shopping habits, for example, but they could actually reveal other privileged information that the insurer or agent has no reason to need or possess. These questions do not need to be answered, and a decision not to answer such questions cannot be used as the basis for an adverse underwriting decision.
Under most circumstances, insurance institutions, agents, and insurance-support organizations are not allowed to use pretext interviews to obtain information that relates to an insurance transaction. A pretext interview is conducted when any person, in an attempt to gain information about another natural person, does any of the following:
Pretext interviews are prohibited during any phase of the transaction process of insurance. This includes information gathering during underwriting. Obviously, the use of a pretext interview could reveal information that is privileged and would not normally be available to the insurer or agent. It could result in an adverse underwriting decision. However, in the investigation of a claim, particularly when fraud is suspected, as an investigative technique, pretext interviews are permitted. It is further required that the reason for the interview must be to investigate a claim where there is a reasonable basis for suspecting criminal activity, fraud, material misrepresentation, or material nondisclosure in connection with a claim.
Section 791 also details under what circumstances and how the Commissioner may examine insurers, agents, and others engaged in the information gathering processes, and how they maintain or distribute the information obtained. There are a variety of penalties which can be applied to the various violations that could be committed. The following are some of the penalties:
Insurers or agents can also be liable for civil damages and legal fees for the unlawful collection or distribution of personal, private, or privileged information about a person that causes harm to that person. Certain acts could also violate other criminal laws and subject a person to prosecution, resulting in fines or imprisonment.
Under the Privacy Rule for HIPAA (Health Insurance Portability and Accountability Act), protected information includes all "individually identifiable health information" held or transmitted by a covered entity or its business associate, in any form or media, whether electronic, paper, or oral. This is called protected health information (PHI).
Individually identifiable health information includes demographic data that relates to past, present, or future physical or mental health or condition, or payment information that could easily identify the individual. A covered entity must obtain the individual's written authorization to disclose information that is not for treatment, payment, or health care operations.
Insurance companies are specifically exempted under federal bankruptcy laws, which means that any liquidation of an insolvent insurer is strictly a matter for the state to pursue. To accomplish this, California has adopted the Uniform Insurers Rehabilitation Act. This Act describes the steps that the Commissioner must take when attempting to either rehabilitate an insolvent or delinquent insurer to sound financial condition, or liquidate an insurer that cannot be rehabilitated. The Code also describes the mandatory action the superior court is required to take when the Commissioner presents a petition for either a conservation or liquidation order.
Each year, on or before March 1, every insurer doing business in California is required to report its financial condition to the Commissioner. At that time, or at any other time, if an insurer's legal reserve funds are less than the minimum required by law, the company is impaired in its ability to pay claims, and is technically insolvent. The Commissioner has authority under the Code to take control of the insurance company, and the superior court must grant the Commissioner's petition for conservation.
The court order gives the Commissioner absolute control over the assets and operations of the company. The Commissioner's first responsibility is to attempt to rehabilitate the company, if at all possible. Initially, all new business transactions are terminated. Existing and new claims are paid, and ways to return the company to solvency are explored. If it becomes clear that there is no possibility of rehabilitating the company, the Commissioner's final move will be to liquidate the company, selling assets to continue to pay claims, and if all claims have been satisfied, any remaining assets will be used to satisfy the claims of other creditors.
If the company cannot pay any or all of its claims, the two Guarantee Associations in California are prepared to pay a portion of the claims, depending on the type of policy. If either or both of the Guarantee Associations have paid claims due to the inability of the company to pay, they become creditors of the company and can seek repayment through the liquidation process.
In a conservation or liquidation effort, the Commissioner also has the power to sue officers, directors, or others who may bear responsibility for the company's condition, including managing general agents, auditors and accountants, or actuaries, in order to add to the "estate" of the company to pay claims of insureds or creditors. Even industry rating companies have been held responsible for their published inaccuracies.
Additionally, in a liquidation, other parties not normally associated with the claims-paying responsibility of the company may have their assets seized. If the insolvent insurer was a substantial owner of another business or partnership, those assets may be taken to satisfy the obligations of the insurer, regardless of whether that business was involved in the business of insurance.
When the Commissioner is engaged in liquidating an insurer, there is a legal requirement to publish the notice of liquidation for 4 consecutive weeks, and, in most cases, to also mail notices to known potential claimants against the estate of the company. Once the notices have been published or mailed, claimants have no more than 6 months to file their claims. The Insurance Code establishes the priority of claims, and only when the claims of a class or group have been fully satisfied will the next in order be entitled to pursue their claims.
When persons are covered under group life or disability insurance policies, there are provisions in the Insurance Code to protect them in the event the coverage is being discontinued, or they are no longer eligible to be covered by the policy. These provisions are discussed in the Code as discontinuance, extension of benefits, and replacement coverage.
The term discontinuance is described as the termination of a plan of insurance between the insurer and the entire group of employees. It does not refer to the termination of benefits with regard to an individual employee whose employment is terminated, or whose eligibility under the group plan has been affected because of a reduction of work hours or other qualifying factor.
Extension of benefits provisions have been established to protect covered persons, employees, or dependents, who are totally disabled prior to the discontinuance or termination of their group insurance, while they remain totally disabled. The Insurance Code provides for up to 12 months of continued coverage for disability and health care claims beyond the termination of the preceding policy, as long as the person remains totally disabled.
If an existing group policy is being replaced by a new group policy, the new policy is required to accept all the insureds covered under the previous policy. However, the insurer is not required to take over existing claims. In this case, a person who is totally disabled at the time of replacement must have their continuing claim paid for by the former insurer if the new insurer elects not to cover pre-existing claims. However, it is possible for a replacing insurer to agree to accept all covered persons and their existing claims.
In this case, a continuing claim does not have to be covered longer than 12 months following the date of replacement, since this is the same amount of time a former insurer would have been required to provide coverage under the "discontinuance" provision. But all new claims unrelated to the person's total disability would have to be covered by the new policy. This concept is also known as no loss, no gain — the covered person would not be entitled to receive more or less benefits than the preceding insurer would have been required to provide. The person must be treated the same as any other covered employee with respect to new claims.
Additionally, in the event replacement coverage does not actually become effective at the same time as the former policy ends, all discontinuance obligations must be covered by the new policy, without exception, only if the new policy takes effect within 60 days of the date of discontinuance.
A replacement policy taking effect more than 60 days following discontinuance of a previous policy, and any group policy which includes a life insurance benefit and allows conversion to an individual plan of insurance if eligibility is lost, must also permit conversion to an individual policy at the conclusion of the extension of benefits period. This would permit a person to have a continuous period of total disability covered without the payment of further premiums for up to 12 months, and then allow the covered person, even if still totally disabled, to convert the group coverage to individual coverage without proof of insurability.
Since there is always the possibility that a party to a policy may attempt to avoid responsibility under the policy by falsely claiming that they sent a notice, or that the other party never sent an important notice, the law explains what is considered to be sufficient proof of mailing.
If the notice had postage applied and was put in the hands of the U.S. Postal Service with the last known address of the recipient on it, then an affidavit by the sender, stating such facts, is proof of the mailing. Any notice provided by electronic transmission must be treated as if mailed or given for the purposes of any provision of the Insurance Code. A valid electronic signature will be sufficient for any provision of law requiring a written signature.
A licensee must acquire an insured's consent to opt in to receiving records electronically. Additionally, a licensee must disclose to the insureds that they may opt out of electronic transmission at any time, a description of the records the insured will receive, a process to change or correct an insured's email address, and the licensee's contact information.
The insurance company must retain a copy of the confirmation and electronic signature, when either is required, with the policy information, so that they are retrievable upon request by the Department of Insurance while the policy is in force and for 5 years thereafter. Upon the request of the insured, a licensee must provide at least one free printed copy of records on an annual basis.