LEXIS-NEXIS® Congressional Universe-Document

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Document 107 of 261.

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May 11, 2000, Thursday

SECTION: PREPARED TESTIMONY

LENGTH: 2969 words

HEADLINE: PREPARED TESTIMONY OF ROBERTA MEYER THE AMERICAN COUNCIL OF LIFE INSURERS

BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS SUBCOMMITTEE ON SOCIAL SECURITY

SUBJECT - THE MISUSE OF THE SOCIAL SECURITY NUMBER

BODY:
INTRODUCTION

The American Council of Life Insurers (ACLI) is pleased to be here today to testify regarding the ways in which life, disability income, and long term care insurers use consumers' personal information, including their Social Security Numbers, and our position on protection of the confidentiality of that information. The ACLI is a national trade association whose 435 member companies represent approximately 73 percent of the life insurance and 87 percent of the long term care insurance in force in the United States. They also represent 71 percent of the companies that provide disability income insurance.

LIFE, DISABILITY INCOME, AND LONG TERM CARE INSURANCE POLICIES The fundamental purpose of life, disability income and long term care insurance is to provide financial security for individuals and families. Life insurance provides financial protection to beneficiaries in the event of the insured's death. Proceeds from a life insurance policy may help a surviving spouse pay a mortgage or send children to daycare or college. Disability income insurance replaces lost income when a person is unable to work due to injury or illness. Long term care insurance helps protect individuals and families from the financial hardships associated with the costs of services required for continuing care, for example, when someone suffers a catastrophic or disabling illness. ACLI POLICY POSITION

ACLI member companies are strongly committed to the principle that individuals have a legitimate interest in the proper collection and handling of their personal information and that insurers have an obligation to assure individuals of the confidentiality of that information. We also recognize that consumers have special confidentiality concerns in relation to medical information. Therefore, the ACLI Board has adopted separate policies regarding first, the confidentiality of medical information; and second, the confidentiality of other nonpublic personal information. Social Security Numbers would fall within the second category nonpublic personal information.

ACLI's Confidentiality of Medical Information Principles of Support and Confidentiality of Nonpublic Personal Information Principles Support are grounded in the industry's long history of dealing with highly sensitive information in a professional and appropriate manner. These principles also acknowledge the changing horizon of the financial marketplace resulting from financial services modernization. Copies of the ACLI "Principles of Support" are attached.

The ACLI supports strict protections for medical record confidentiality, including a prohibition on an insurer sharing medical records with a financial company, such as a bank, for use in determining eligibility for a loan or other credit - even if the insurance company and the financial company are commonly owned. We also support a prohibition on the sharing of medical information by an insurer for marketing purposes.

Our principles on nonpublic personal information reflect our attempt to balance consumers' legitimate privacy concerns with their demands for prompt, efficient service and innovative products. Among other things, we support a requirement that financial institutions, including insurers, establish and maintain policies and practices designed to protect the confidentiality and security of nonpublic personal information against anticipated hazards and unauthorized access to or use of such information. We support a requirement that financial institutions provide notice to consumers and customers describing these policies and practices. We also support a requirement that financial institutions, upon request, provide customers with access and correction rights regarding nonpublic personal information collected about them in connection with applications for life, disability income or long term care insurance.

At the same time, our principles reflect the fact that in order for insurers to serve their prospective and existing customers, they must use and share nonpublic personal information, including Social Security Numbers, in connection with the origination, administration, and servicing of insurance products and services. For example, an insurer may need to use Social Security Numbers to obtain medical information, essential to underwriting, from a particular doctor or hospital, to authenticate consumer callers using a call center, to locate missing policyholders to whom it owes death benefits, to investigate fraud, or to report certain information to the Internal Revenue Service.

THE GRAMM-LEACH-BLILEY ACT

In line with these principles, the ACLI strongly supports the privacy provisions set forth in Title V of the recently-enacted financial services modernization legislation, the Gramm-LeachBliley Act (the Act). Title V of the Act subjects financial institutions, including insurers, to one of the most extensive regimes of privacy regulation that has ever been imposed in the United States. As a result of the Act and other federal privacy statutes, including the Fair Credit Reporting Act, consumers doing business with financial institutions now have clear, comprehensive, and rigorous privacy protections, which extend to Social Security Numbers, among many other forms of nonpublic personal information.

Unlike virtually any other types of consumers, financial institution consumers must receive detailed annual disclosures regarding a financial institution's policies for collecting and disclosing their personal information. They must also receive prior notice and the opportunity to "opt-out" of the institution's transfer of their nonpublic personal information to nonaffiliated third parties except under certain limited circumstances. The confidentiality and security of their personal information will be subject to extensive new standards that financial regulators are required to impose on financial institutions.At the same time, these comprehensive new privacy protections expressly recognize that consumers benefit from financial institutions using consumer information for certain purposes. In short, the new federal privacy law is a carefully constructed balance between the need to protect the privacy of a consumer's nonpublic personal information, which would include Social Security Numbers, and the need to protect the consumer benefits that result from certain uses of that information.

The very nature of life, disability income and long term care insurance involves personal and confidential relationships. These insurers must be able to obtain, use, and share their customers' personal health and nonpublic personal information, including their Social Security Numbers, to perform legitimate insurance business functions. These functions are essential to insurers' ability to serve and meet their contractual obligations to their existing and prospective customers. ACLI member companies also believe that the use and responsible sharing of information generally increases efficiency, reduces costs, and makes it possible to offer economies and innovative products and services to consumers that otherwise would not be available.

INDUSTRY FUNDAMENTALS: USE OF PERSONAL HEALTH AND NONPUBLIC PERSONAL INFORMATION BY LIFE, DISABILITY INCOME, AND LONG TERM CARE INSURERS

Once a life, disability income, or long term care insurer has an individual's personal health and nonpublic personal information, the insurer limits who sees it. However, the insurer must use and share that information to perform legitimate, essential insurance business functions - to underwrite the applications of prospective customers, to administer and service contracts with existing customers, and to perform related product or service functions. Life, disability income, and long term care insurers must use and disclose personal information in order to comply with various regulatory/legal mandates and in furtherance of certain public policy goals (such as the detection and deterrence of fraud). Activities in connection with ordinary proposed and consummated business transactions, such as reinsurance treaties and mergers and acquisitions, also necessitate insurers' use and responsible sharing of personal information.

UNDERWRITING THE POLICY

The price of life, disability income, or long term care insurance is generally based on the proposed insured's gender, age, present and past state of health, possibly his or her job or hobby, and the type and amount of coverage sought. Life, disability income, and long term care insurers gather this information during the underwriting process. Based on this information, the insurer groups insureds into pools in order to share the financial risks presented by dying prematurely, becoming disabled or needing long term care.

This system of classifying proposed insureds by level of risk is called risk classification. It enables insurers to group together people with similar characteristics and to calculate a premiumbased on that group's level of risk. Those with similar risks pay the same premiums. The process of risk classification provides the fundamental framework for the current private insurance system in the United States. It is essential to insurers' ability to determine premiums which are adequate to pay future claims and fair relative to the risk posed by the proposed insured.

Insurers must be able to obtain, use, and sometimes share both medical and nonpublic personal information, including Social Security Numbers, in order to underwrite applications for coverage. Social Security Numbers are used in a number of different ways in connection with this process. Insurers sometimes must use proposed insureds' Social Security Numbers in order to obtain medical information about them from doctors and hospitals which use Social Security Numbers as identification numbers. Insurers sometimes use motor vehicle record information in underwriting. In some states, insurers are required to use Social Security Numbers to obtain this information from the motor vehicle department. Insurers sometimes use information from credit reporting agencies in underwriting. Social Security Numbers are sometimes required to obtain information from consumer reporting agencies.

PERFORMANCE OF ESSENTIAL INSURANCE BUSINESS FUNCTIONS

Once an insurance policy is issued, insurers use their customers' personal information to perform essential, core functions associated with an insurance contract, such as claims evaluations and policy administration. In addition, insurers also use this information to perform important business functions, not necessarily directly related to a particular insurance contract, but essential to the administration or servicing of insurance policies generally, such as, for example, development and maintenance of computer systems. The ability to use this information for these purposes is crucial to insurers' ability to meet their contractual obligations to their customers and to perform important related service and administrative functions.

Many insurers use affiliates or third parties to perform these business functions which are necessary to effect, administer, or enforce insurance policies or the related product or service business of which these policies are a part. Often these arrangements with affiliates or unaffiliated third parties provide the most efficient and economical way for an insurer to serve prospective and existing customers. The economies and efficiencies devolving from these relationships inure to the benefit of the insurer's customers.

If an insurer were to be prohibited from using this information, or if an individual were to be permitted to withhold consent or to "opt out" of a life, disability income, or long term care insurer's right to use or share his or her personal information for purposes of performing insurance business functions, it would be extremely difficult, if not impossible in some cases, for the insurer to provide that consumer with the coverage, service, benefits, or economies that otherwise would be available. Insurers need to use Social Security Numbers to perform a number of these functions. Insurers view Social Security Numbers as unique identifiers and use them in a number of ways which enable them to better and more efficiently serve their customers and to protect their interests.

For example, Social Security Numbers are used by insurers to find missing or lost policyholders to inform them that they are entitled to life insurance proceeds. Social Security Numbers are used to identify policies owned by an individual who does not have the account or policy number available when a service request is made. Insurer call centers use Social Security Numbers as part of the data requested to authenticate customers who call in with requests for service or for product or account information or status. Social Security Numbers are often needed to transfer assets from one financial institution to another, for example, for purposes of transfers between mutual funds or annuities and life insurance. (Since one financial institution generally does not know the individual's account number at the other financial institution, the Social Security Number is needed to identify the client's identity for the two institutions. This reduces delay, error, and misplaced assets in such transfers.) Insurers also use Social Security Numbers in connection with the administration of pension plans, as identification numbers. They use them as PIN numbers for customers' use of on-line services. They use them in reporting to employer policyholders under employee group insurance plans and in connection with payroll deductions under these plans. These activities inure to the benefit of insurers' customers.

DISCLOSURES PURSUANT TO REGULATORY/LEGAL MANDATES OR TO ACHIEVE CERTAIN PUBLIC POLICY GOALS

Life, disability income, and long term care insurers must regularly disclose personal health and nonpublic personal information to: (1) state insurance departments as a result of their general regulatory oversight of insurers, which includes regular market conduct and financial examinations of insurers; (2) self-regulatory organizations, such as the Insurance Marketplace Standards Association (IMSA), which imposes and monitors adherence to requirements with respect to member insurers' conduct in the marketplace; and (3) state insurance guaranty funds, which seek to satisfy policyholder claims in the event of impairment or insolvency of an insurer or to facilitate rehabilitations or liquidations which typically require broad access to policyholder information. Any limitation on these disclosures would seem likely to operate counter to the underlying public policy reasons for which they were originally mandated - to protect consumers.

Life, disability income, and long term care insurers are required to make certain disclosures of information by the federal government. They also need to (and, in fact, in some states are required to) disclose personal information in order to protect against or to prevent actual or potential fraud. Such disclosures are made to law enforcement agencies, state insurance departments, or the Medical Information Bureau (MIB), the primary purpose of which is to reduce the cost of insurance by helping insurers detect (and deter) attempts by insurance applicants to conceal or misrepresent facts. Any limitation on insurers' right to make these disclosures would seem likely to undermine the public policy goal of reducing fraud, the costs of which are ultimately borne by consumers.

Social Security Numbers are used or disclosed by insurers for a number of these purposes. Life insurers are required to use Social Security Numbers to report to the IRS a variety of payments including, but not limited to, interest payments, certain dividends, and policy withdrawals and surrenders. Social Security Numbers are often integral to insurers' fraud investigations. Social Security Numbers are sometimes used verify identity in connection with inquiries to the MIB. At least one state, Rhode Island, requires that insurers match "deadbeat" parents data before making payments on claims. Social Security Numbers are required for that matching.

ORDINARY BUSINESS TRANSACTIONS

In the event of a proposed or consummated sale, merger, transfer, or exchange of all or a portion of an insurance company, it is often essential that the insurer be able to disclose company files. Naturally, these files can contain personal information, including customers' Social Security Numbers. Such disclosures are often necessary to the due diligence process which takes place prior to consummation of the deal and are clearly necessary once the deal is completed when the newly created entity often must use policyholder files in order to conduct business.

Insurers also frequently enter into reinsurance contracts in order to, among other things, increase the amount and volume of coverage they can provide. These arrangements often necessitate the disclosure of personal information, which may include Social Security Numbers, by the primary insurer to the reinsurer.

CONCLUSION

Again, the ACLI would like to thank Chairman Shaw for calling this heating and giving us an opportunity to testify. Life, disability income, and long-term care insurers have a long history of dealing with highly sensitive personal information. The industry is proud of its record of protecting the confidentiality of medical information and nonpublic personal information; the industry is also committed to the principles that individuals have a legitimate interest in the proper collection and use of individually identifiable information and that insurers must continue to handle such information in a confidential manner.

END

LOAD-DATE: May 13, 2000

Document 107 of 261.


Search Terms: personal w/5 information w/5 privacy, House or Senate or Joint
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