HB1623 - Testimony

Appendix A

April 6, 2000

Presented by Christopher C. Gallagher*
Testimony before the New Hampshire General Court House Commerce Committee

DOMESTIC INSURERS UNDER HB 1623

HB 1623

Financial institution (FI) includes any institution which sells, services or underwrites insurance or insurance products. HB 1623, RSA 383-A:1, V.
383-A:2 provides that except as otherwise expressly provided, FI officers, etc., shall not disclose any financial information relating to a customer and adopt reasonable procedures to assure compliance with this chapter.
383-A:3 "Exceptions" do not include any exception that would exempt the disclosures of domestic insurance carriers.1

Federal Law

GLBA, Title V imposes its privacy policies on all FI's. FI's domiciled in N.H. are required to comply with its provisions with respect to their handling of consumer and customer information. If they are domiciled in New Hampshire, New Hampshire is where its information policies and practices will be carried out. Rather than having to deal with 50 different state regulatory schemes on standards and practices, GLBA understandably applies the rules of the domiciliary state to all of its customers everywhere. GLBA Section 502 provides:

No FI can disclose any non-public personal information (NPPI) to a non-affiliated third party (NTP) unless such FI complies with the consumer opt-out notice provisions of GLBA Section 502 and the policy and practice notice provisions of GLBA Section 503. GLBA Section 505 (a) provides that compliance with GLBA is to be enforced with respect to insurance carriers by the NH DOI. GLBA Section 505. This includes "financial institutions and other persons subject to their jurisdiction under applicable law, as follows:"

"(6) Under State insurance law, in the case of any person engaged in providing insurance, by the applicable State insurance authority of the State in which the person is domiciled, subject to Section 104 of this Act." Section 104 includes the provisions relating to the anti-discrimination issues concerning state laws regarding insurance sales, including the preeminence of McCarran Ferguson, the requirements for a DOI license, and the sales safe harbors, so-called.2

It should be clear from all of the above that the regulation of domestic insurance carriers and providers will apply the law of the domiciliary State which, if HB 1623 were to pass, would require "OPT-IN," (even for information-sharing with affiliates) for all consumers and customers wherever those consumers and customers may reside. Clearly, the N.H. domestic carriers would be given another reason to leave N.H.3

Note also in GLBA Section 507 (b) the "Greater Protection" provision, the issue of such protection will be considered and ruled upon by the FTC. Any such ruling will be appealed. Accordingly, the first State to apply the added layering of "protections" provided by HB 1623 will be the legal testing ground of the new federal regulation. That expensive process could take five years! New Hampshire thus will be the victim of the costs and regulatory and economic paralysis that will accompany that FTC process and appeal.

The problem presented by FCRA preemptions and inconsistent state laws will also affect the competitive status of smaller individual insurance companies versus larger financial service conglomerates.

*Christopher C. Gallagher is admitted in New Hampshire.

Notes

1. If it did, it would trigger the preemption provisions of GLBA by discriminating against financial institutions covered by GLBA. HB 1623, therefore, cannot be amended to "fix" that problem.

Note also in Section 505 (7) (c) the requirements for State action and the loss of FDIA powers for failure to enact "regulations to carry out this subtitle," a process that should rationally await completion of the federal agency regulatory process ending on May 12, 2000. FCRA regulations and the regulatory definition of "standards" for security have yet to be initiated. In any case, it is likely that all carriers, except those domiciled in states with identical opt-in coverage and the software to treat consumers in N.H. differently regarding sharing with affiliates, would bypass New Hampshire.

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Appendix B: FCRA AND HB 1623

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