California Approves Amendments to Privacy Regulations

In what’s being called “a major victory for insurance agents and brokers,” the California Office of Administrative Law has approved Department of Insurance plans to repeal certain portions of its privacy regulations.

The recent action should make it easier for agents and brokers to shop for insurance for their clients, according to Insurance Brokers and Agents of the West.

CDI filed with OAL on Sept. 22, 2010, a “change without regulatory effect,” arising out of the enactment of the California Financial Information Privacy Act, a comprehensive statewide privacy law that superceded earlier provisions in CDI regulations.

On Nov. 4, 2010, OAL filed notice with the California Secretary of State of its approval of the CDI action. The amendments take effect immediately.

As a result of the most recent OAL regulatory action, California Code of Regulations Section 2689.8(c)(3) is repealed. That provision required agents and brokers to annually mail privacy policies to all customers, and to provide an “opt out” form that, if returned by the customer, prevented broker-agents from shopping on renewal to find better policies from other insurance companies, explained IBA West, which requested the change.

The repeal was required by the 2004 enactment of Financial Code Section 4056.5(b), which expressly permits broker-agents to use nonpublic personal information without obtaining prior customer consent to shop on renewal.

“We are tremendously grateful to Insurance Commissioner Steve Poizner and CDI lawyers for recognizing and solving this problem,” said IBA West General Counsel Steve Young. “The Department had no legal authority to enforce opt-out notification, but so long as the requirement was on the books, many broker-agents incurred very substantial expense attempting to meet those requirements.”

Customers come to independent agents and brokers to shop with multiple companies, Young explained. He said if consumers sent back the “opt out” form to an agent or broker, the agent/broker was prohibited from shopping the customer’s information in the market to find a better policy and rate. Insurance agents also likely had to call the customers back to explain how their signing the form prohibited them from searching for coverage with competing carriers.

However, now the changes will make it easier for customers to shop the market, and it will also prevent them from being bombarded with multiple, identical privacy policies on every insurance product they purchase, Young said.

In addition to repealing the regulatory section, OAL also approved a clarification by CDI that a key exemption in its regulations applies to all brokers and agents.

California Code of Regulations Section 2689.8(c) was intended by CDI to exempt producers from sending out their own privacy policies, provided that the insurance company issuing the policy has complied with the notification requirements. Those regulations were based on the Insurance Information and Privacy Protection Act, Sections 791, et seq. The statute defined “licensee” to mean all brokers and agents, but the regulations promulgated thereunder used slightly different semantics. The definitional modification approved today conforms the regulation to the statute, Young said.