Financial Privacy: Status of State Actions on Gramm-Leach-Bliley 
Act's Privacy Provisions (12-APR-02, GAO-02-361).		 
                                                                 
Subtitle A of Title V of the Gramm-Leach-Bliley Act (GLBA) of	 
1999, requires that each financial institution, which is defined 
to include most insurance providers or companies, has "an	 
affirmative and continuing obligation to respect the privacy of  
its customers and to protect the security and confidentiality of 
those customers' nonpublic personal information". This prohibits 
the disclosure of consumers' nonpublic personal information to	 
any entity that is not an affiliate of, or related by common	 
ownership or control, to the institution unless the consumer is  
given an opportunity to opt out of such disclosure. Also,	 
financial institutions must provide consumers with privacy	 
notices that explain the institution's policies and practices for
disclosure. Subtitle A calls upon federal regulators to (1) issue
regulations implementing disclosure-related requirements and (2) 
establish standards for safeguarding the privacy and integrity of
customer information and records. The act also requires state	 
insurance authorities to enforce its provisions by adopting	 
regulations for both information disclosure and information	 
safeguards. As of March 2002, all of the states and the District 
of Columbia have acted to ensure that insurance companies under  
their jurisdiction meet Subtitle A's disclosure and notice	 
requirements. In addition some states have included or retained  
provisions in their regulations or laws that they feel provide	 
greater protections, or more restrictive requirements than those 
contained in Subtitle A. Only one state, New York, has		 
established standards for protecting the security and		 
confidentiality of insurance customer information as of March	 
2002. Another state, California, has issued proposed regulations 
establishing such standards. In contrast, as of March 2002, the  
federal regulators charged with implementing Subtitle A--with the
exception of the Federal Trade Commission--have issued their	 
final standards. FTC has received comments on proposed standards 
and is developing its final rule.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-361 					        
    ACCNO:   A03008						        
  TITLE:     Financial Privacy: Status of State Actions on	      
Gramm-Leach-Bliley Act's Privacy Provisions			 
     DATE:   04/12/2002 
  SUBJECT:   Federal/state relations				 
	     Financial institutions				 
	     Information disclosure				 
	     Insurance companies				 
	     Insurance regulation				 
	     Privacy law					 
	     Right of privacy					 
	     Law enforcement					 
	     Disclosure law					 


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GAO-02-361
     
Report to the Ranking Minority Member, Committee on Energy and Commerce,
House of Representatives

United States General Accounting Office

GAO

April 2002 FINANCIAL PRIVACY Status of State Actions on Gramm- LeachBliley
Act?s Privacy Provisions

GAO- 02- 361

Page 1 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

April 12, 2002 The Honorable John D. Dingell Ranking Minority Member
Committee on Energy and Commerce House of Representatives

Dear Mr. Dingell: This report responds to your request for information on
what states have done to implement the information privacy provisions of the
GrammLeach- Bliley Act (GLBA) of 1999 as they pertain to insurance
providers. 1 In Subtitle A of Title V of GLBA, Congress established the
policy that each financial institution, which is defined to include most
insurance providers or companies, has ?an affirmative and continuing
obligation to respect the privacy of its customers and to protect the
security and confidentiality of those customers? nonpublic personal
information.? 2 The subtitle applies this policy by generally prohibiting
financial institutions from disclosing consumers? nonpublic personal
information to any entity that is not an affiliate 3 of or related by common
ownership or control to the institution (nonaffiliated third party), unless
the consumer is given an opportunity to opt out of such disclosure. Also,
financial institutions must provide consumers with privacy notices that,
among other things, explain an institution?s policies and practices for
disclosing and protecting the privacy of nonpublic personal information.
Subtitle A calls upon federal regulators to (1) issue regulations
implementing these disclosure- related requirements and (2) establish
standards for safeguarding the privacy and

1 These provisions are set forth in Subtitle A of Title V of GLBA, Pub. L.
No. 106- 102 sect.sect. 501 - 510, 15 U. S. C. sect.sect. 6801- 6809 (2000). 2 15 U. S. C. sect.
6801( a). Subtitle A defines nonpublic personal information as personally
identifiable financial information that an institution obtains under any of
the following three sets of circumstances: (1) the consumer provides the
information to the institution to obtain a financial product or service; (2)
the information is about the consumer and results from any transaction
involving a financial product or service between the institution and the
consumer; or (3) the information is about the consumer and is otherwise
obtained in connection with providing a financial product or service to that
consumer. Nonpublic personal information also includes lists or groupings of
consumers derived from nonpublic personally identifiable information.

3 Under Subtitle A, the term ?affiliate? means any company that controls, is
controlled by, or is under common control with another company.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

integrity of customer information and records. 4 Concerning insurance
providers, which are state- regulated, Subtitle A calls upon state insurance
authorities to enforce its provisions and to adopt implementing regulations
regarding both information disclosure and information safeguards.

To facilitate a uniform state approach to implementing the disclosurerelated
provisions of Subtitle A, the National Association of Insurance
Commissioners (NAIC) issued its ?Privacy of Consumer Financial and Health
Information Regulation? (2000 Model Regulation) on September 26, 2000. In
most respects, the 2000 Model Regulation reflects the comparable disclosure-
related regulations promulgated by federal depository institution regulators
and the Federal Trade Commission (FTC). 5 The 2000 Model Regulation follows
an earlier effort by NAIC to protect the privacy and accuracy of personal
information obtained by insurance industry participants in connection with
insurance transactions. Specifically, in 1982 NAIC issued the Insurance
Information and Privacy Protection Model Act (1982 Model Act).

In your letter, you expressed concerns regarding the progress that states
are making in promulgating regulations under Subtitle A. Our objectives in
this review were to (1) report on the actions taken by the states to carry
out the disclosure- related provisions of Subtitle A relating to the
insurance industry and (2) ascertain the progress that states have made in
implementing the Subtitle A mandate that they establish standards for
safeguarding insurance customer records and information.

To ascertain the specific legislative and regulatory actions taken by the
states to carry out the provisions of Subtitle A relating to the insurance
industry, we primarily used publicly available data from NAIC. We also sent
a questionnaire to those state insurance authorities that continue to rely
on insurance privacy laws based on the 1982 Model Act. To ascertain the
progress that states have made in implementing the Subtitle A mandate that
they establish standards for safeguarding insurance customer records

4 The federal regulators responsible for issuing Subtitle A regulations are
the Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Federal Trade Commission, National Credit Union
Administration, Office of the Comptroller of the Currency, Office of Thrift
Supervision, secretary of the Department of the Treasury, Commodity Futures
Trading Commission, and Securities and Exchange Commission.

5 For this report, federal depository institution regulators are the Board
of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency, and Office of Thrift
Supervision.

Page 3 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

and information, we reviewed the NAIC model draft for safeguarding standards
and collected information from the NAIC Privacy Working Group, which was
tasked with developing the draft standards.

As of March 1, 2002, all of the states and the District of Columbia have
taken some action to ensure that insurance companies under their
jurisdiction meet Subtitle A?s disclosure and notice requirements. In
addition, some states have included or retained provisions in their
regulations or laws that, in their respective views, provide greater
protections or more restrictive requirements than those contained in
Subtitle A. Thirty- five states and the District of Columbia have adopted
NAIC?s 2000 Model Regulation, although 2 of those states- Vermont and New
Mexico- substituted an affirmative consent requirement (opt in) for the 2000
Model Regulation?s opt- out provision. One state, Alaska, was in the process
of finalizing regulations to implement the requirements of Subtitle A. The
remaining 14 states had previously enacted laws that were based on NAIC?s
1982 Model Act and have either amended these laws or taken some
administrative measures to ensure compliance with all of Subtitle A?s
provisions.

Only one state, New York, has established standards for protecting the
security and confidentiality of insurance customer information as of March
1, 2002. Another state, California, has issued proposed regulations
establishing such standards. In contrast, as of March 1, 2002, the federal
regulators charged with implementing Subtitle A- with the exception of FTC-
have issued their final standards. FTC has received comments on proposed
standards and is developing its final rule. In early April, NAIC adopted a
model regulation to assist the states in establishing the required
standards. NAIC staff explained that the state insurance authorities were
slower in establishing the standards due to a number of factors, such as the
need to develop a flexible regulation to cover a wide range in the types and
sizes of organizations. State insurance authorities still need to adopt the
model standards, either by legislative or regulatory action or both. During
this time period, insurance customers in these states may have reduced
assurances that they have a level of legal protection over the security and
confidentiality of their information that is consistent with that of the
customers of banking and securities companies.

In Subtitle A, Congress established a two- pronged approach for protecting
the privacy of nonpublic personal information obtained by financial
institutions. The subtitle establishes restrictions and requirements
relating Results in Brief

Background

Page 4 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

to a financial institution?s disclosure of nonpublic personal information to
nonaffiliated third parties and calls upon federal regulators to promulgate
and enforce regulations implementing those provisions. In addition, the
federal regulators are to establish standards for safeguarding the security
and confidentiality of financial institution customer records and
information. The Subtitle A scheme contemplates that state insurance
authorities will establish and enforce disclosure- related requirements as
well as safeguarding standards. 6

Under Subtitle A, a financial institution generally is prohibited from
disclosing a consumer?s protected information to nonaffiliated third parties
unless the institution provides the consumer with a privacy notice and an
opportunity to opt out of such disclosures. 7 A privacy notice must describe
the institution?s policies and practices for disclosing nonpublic personal
information to nonaffiliated third parties. In addition, the privacy notice
must include specific information about the categories of persons to whom
information may be disclosed, a statement of the institution?s policies and
practices with respect to disclosing the protected information of persons
who have ceased to be customers, the categories of protected information
collected and disclosed by the institution, and the institution?s policies
for safeguarding the information. A financial institution generally may not
disclose a consumer?s nonpublic personal information to a nonaffiliated
third party unless the institution provides a privacy notice (initial
notice) to the consumer. In addition, for consumers who become customers of
a financial institution, the institution must furnish the privacy notice
when the customer relationship is established (initial customer notice) and
annually (annual notice). 8

6 Subtitle A provides that if a state insurance authority fails to adopt
regulations to carry out the subtitle, the state forfeits its eligibility
under GLBA to override certain customer protection regulations promulgated
by the federal depository institution regulators applicable to insurance
sales by or at depository institutions. 15 U. S. C. sect. 6805( c) (2000).

7 In addition, Subtitle A contains other disclosure restrictions. The
subtitle generally prohibits disclosure of an account number or similar form
of access number or access code for a credit card, deposit account, or
transaction account to third parties for marketing purposes. Also, a
nonaffiliated third party who receives protected information subject to the
opt- out requirement may not disclose the information to anyone other than
an affiliate of either the recipient or the financial institution that
disclosed the information, unless the disclosure would be lawful if made
directly by the disclosing institution.

8 Under Subtitle A, a consumer is an individual (and his or her legal
representative) who obtains from a financial institution a financial product
or service that is to be used primarily for personal, family, or household
purposes. A customer is a consumer who has established a customer
relationship with the institution.

Page 5 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

The opt- out notice must explain that nonpublic personal information may be
disclosed to nonaffiliated third parties and that the consumer may opt out
of the disclosure. The opt- out notice must, among other things, identify
the categories of information that may be disclosed and the categories of
nonaffiliated third parties to whom disclosures may be made. It also must
inform the consumer of how to exercise the nondisclosure option. A
consumer?s failure to opt out within a reasonable time after having the
opportunity to do so means that the financial institution may disclose the
consumer?s nonpublic information to nonaffiliated third parties.

The privacy notice and opt- out requirements are subject to certain
exceptions. One exception, known as the joint marketing exception, releases
a financial institution from the opt- out requirement when it discloses
protected information to nonaffiliated third parties who are service
providers or joint marketers. The exception specifically permits disclosures
for the purpose of marketing the financial institution?s products or
services as well as financial products or services offered pursuant to a
joint marketing agreement between the disclosing institution and other
financial institutions, subject to restrictions on further disclosure of the
information.

Subtitle A also contains two sets of exceptions from both the requirement to
furnish an initial privacy notice to consumers (i. e., individuals who have
interacted with the institution but who have not established a customer
relationship) and the opt- out requirement. One set of exceptions permits
the disclosure of nonpublic personal information without such notices as
necessary to effect, administer, or enforce a transaction that a consumer
requests or authorizes, such as credit or insurance, and to maintain or
service customer accounts. The other set of exceptions includes disclosures
authorized by the consumer, disclosures to the consumer?s authorized
representative, disclosures in connection with protecting the
confidentiality of institution records concerning the consumer, disclosures
required for institutional risk control and other institutional purposes,
and disclosures specifically permitted by laws or to comply with legal
requirements.

Page 6 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

All of the states and the District of Columbia have by statute, regulation,
or insurance bulletin advised the insurance institutions they regulate that
the institutions must comply with Subtitle A?s disclosure- related
provisions. Of the 51 jurisdictions, all but Alaska have in place laws or
regulations that are based on either the 2000 Model Regulation or the 1982
Model Act. 9 Thirty- five states and the District of Columbia are applying
standards and requirements that are based on the 2000 Model Regulation
developed by NAIC to help states achieve compliance with Subtitle A,
although 2 jurisdictions- Vermont and New Mexico- changed a key provision of
the 2000 Model Regulation to achieve greater privacy protection. The
remaining 14 states (Model Act states) have relied upon their versions of
the 1982 Model Act either as amended to reflect specific Subtitle A
requirements not contained in the 1982 Model Act or in combination with
administrative measures applying those requirements to insurance providers.
10 Four of the 14 Model Act states relaxed restrictions on disclosures for
marketing purposes that are contained in the 1982 Model Act but are not
imposed by Subtitle A or the 2000 Model Regulation.

In most aspects, the 2000 Model Regulation, which was issued by NAIC to
facilitate a uniform state approach to implementing the disclosure- related
requirements of Subtitle A, closely tracks similar regulations issued by the
federal depository institution regulators and FTC. The 2000 Model Regulation
contains similar notice requirements, disclosure restrictions, and
exceptions. However, the 2000 Model Regulation differs in two ways from
Subtitle A and the regulations of the federal depository institution
regulators and FTC.

One difference between Subtitle A and the 2000 Model Regulation pertains to
the scope of individuals who qualify as consumers entitled to receive
privacy and opt- out notices. For purposes of both Subtitle A and the 2000
Model Regulation, a consumer is defined as an individual (or the
individual?s legal representative) who seeks to obtain, obtains, or has

9 Alaska enacted a statute requiring the director of the Division of
Insurance to adopt privacy regulations ?at least as restrictive? as the 2000
Model Regulation. Alaska issued a draft regulation for public comment that
?sets standards that an insurance company and its representatives must
comply with in order to disclose personal information about a consumer.? The
final regulation was still pending as of March 1, 2002.

10 The 14 Model Act states are Arizona, California, Connecticut, Georgia,
Maine, Massachusetts, Minnesota, Montana, Nevada, New Jersey, North
Carolina, Ohio, Oregon, and Virginia. All of the States Have

Taken Action to Implement Subtitle A?s Disclosure- Related Provisions

NAIC?s 2000 Model Regulation Generally Reflects Comparable Regulations of
the Depository Institution Regulators

Page 7 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

obtained an insurance product or service from a licensee 11 that is to be
used primarily for personal, family, or household purposes and about whom
the licensee has nonpublic information. The 2000 Model Regulation is broader
than the regulations of the federal depository institution regulators and
FTC in that it specifies that beneficiaries of life insurance policies,
claimants on policies, insured individuals, and mortgagors can qualify as
consumers if an insurance provider discloses nonpublic personal information
about such individuals and the disclosure is not subject to an exception
from opt- out and initial notice requirements. Moreover, the examples in the
2000 Model Regulation effectively broaden the definition of a consumer by
including participants in and beneficiaries of employee benefits or workers?
compensation plans as well as persons covered by group or blanket policies.
Such individuals are considered to be consumers unless the licensee (1)
provides initial, annual, and, if necessary, revised notices to the group or
blanket policyholder and (2) does not disclose nonpublic personal financial
information about the individuals unless permitted under generally the same
exceptions provided under Subtitle A. In contrast, under the regulations of
the federal depository institution regulators and FTC, these individuals are
not consumers protected by Subtitle A because it is the plan sponsor or
manager who obtained a financial product or service from the financial
institution rather than the individuals covered by the plan.

The second difference between the 2000 Model Regulation and Subtitle A and
the federal regulations relates to health information. The 2000 Model
Regulation treats health information differently from other nonpublic
personal information. It defines health information as information recorded
in any form or medium that is created or derived from a health care provider
or the consumer and relates to the consumer?s health, the provision of
health care to the consumer, or payment for health care services. Under the
2000 Model Regulation, an insurance provider is prohibited from disclosing
health information to any person unless the consumer affirmatively
authorizes the disclosure (opt in). This section of the 2000 Model
Regulation is subject to an extensive set of exceptions relating to
insurance functions. Neither Subtitle A nor the regulations of

11 Under the 2000 Model Regulation, ?licensee? means all licensed insurers,
producers, and other persons licensed or required to be licensed, or
authorized or required to be authorized, or registered or required to be
registered pursuant to the insurance law of the state.

Page 8 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

the federal depository institution regulators or FTC separately address
health information. 12

As of March 1, 2002, 35 states and the District of Columbia have adopted
statutes or regulations that are based on the 2000 Model Regulation. 13 Of
those 36 jurisdictions, 2- Vermont and New Mexico- substituted an opt- in
requirement, which can provide greater privacy protection, for the 2000
Model Regulation?s opt- out provision.

Because New Mexico and Vermont substituted an opt- in requirement for the
opt- out requirement, an insurance provider in these states generally is
prohibited from disclosing nonpublic personal information to nonaffiliated
third parties unless the provider first obtains the consumer?s affirmative
authorization to do so. Both states have retained the exception for
disclosures to nonaffiliated third parties who perform functions or services
for the institution and for joint marketing purposes. Vermont, however,
limits the information that can be disclosed for joint marketing purposes to
the consumer?s name, contact information, and the institution?s own
transaction and experience information, because that information is defined
under the Fair Credit Reporting Act (FCRA) 14 and Vermont?s own fair credit
reporting act.

12 Pursuant to regulations promulgated by the Department of Health and Human
Services (HHS) under the Health Insurance Portability and Accountability Act
of 1996 (HIPAA), Pub. L. No. 104- 191, 110 Stat. 1936 (codified in scattered
sections of 42 U. S. C.), institutions covered by HIPAA that electronically
maintain or transmit individually identifiable health information generally
must obtain written authorization before disclosing such information. Some
institutions subject to Subtitle A also may be subject to the HHS
regulations. See the FTC Subtitle A regulations, Privacy of Consumer Health
Information, 65 Fed. Reg. 33648. (May 24, 2000).

13 For a complete listing of the 35 states, see appendix I. 14 FCRA
regulates the collection and dissemination of personal information by
consumer reporting agencies. A Majority of States Have

Adopted the 2000 Model Regulation

Page 9 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

As of March 1, 2002, 14 states were relying on previously enacted laws that
are based on the 1982 Model Act but had amended their laws or taken
administrative measures to ensure compliance with Subtitle A?s provisions. A
number of the 14 Model Act states told us that they did not adopt the 2000
Model Regulation because their existing laws and regulations, together with
any additional requirements under Subtitle A, generally provided more
protections for their residents. However, all of the 14 states took varying
actions to ensure compliance with Subtitle A?s annual notice requirement and
requirements governing the content of the notices sent to customers.
Although the 1982 Model Act contains additional protections not provided by
Subtitle A, a number of the Model Act states modified some of the more
protective provisions of their laws to obtain greater consistency with the
less restrictive requirements of Subtitle A.

NAIC issued the Model Act in 1982 to address privacy concerns relating to
the collection and disclosure of insurance information by insurance
institutions, insurance agents, and organizations that assemble and provide
information to insurers. Three of the 14 Model Act states- California,
Connecticut, and Nevada- told us that they were in the process of adopting
regulations, which would be based on the 2000 Model Regulation, to clarify
or supplement their existing requirements. The remaining 11 states indicated
that they planned to maintain their existing insurance laws with some
modifications, because they believed that the privacy provisions contained
in those laws meet or exceed Subtitle A requirements in most areas.

As an illustration from one of the Model Act states, the Montana State
Auditor?s Office, Insurance Department, stated that ?? a decision was made
to keep Montana?s existing Privacy Act. It was already substantially
compliant with GLBA and contained many important consumer protections that
the current NAIC model privacy regulations do not provide for.? In
particular, the Insurance Department cited the requirement to provide notice
of adverse underwriting decisions, the right to access recorded personal
information, and the protection of all personal information as additional
protections provided by Montana?s law. Another example comes from the Ohio
Department of Insurance, which explained, ?Early in the process, the Ohio
Department of Insurance considered adopting the recent NAIC Privacy Model
[Regulation][ sic]. However, the department concluded that current law
already meets or exceeds the recent Model [Regulation?s][ sic] protections
in most areas.? Fourteen States That

Continue to Rely on the 1982 Model Act Took Steps to Achieve Compliance with
Subtitle A Requirements

Page 10 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

The Model Act states recognized that changes were needed in two areas to
make their laws and regulations fully consistent with Subtitle A?s
requirements. First, although the 1982 Model Act requires insurance
providers to give applicants and policyholders a notice of its information
collection practices, the 1982 Model Act does not contain an annual notice
requirement. Second, the content requirements for notices under the 1982
Model Act differ from the requirements in Subtitle A. While the notice
required by the 1982 Model Act must describe the types of personal
information that may be collected on an individual and the sources and
investigative techniques that may be used to collect such information, the
1982 Model Act does not require that the privacy notice contain specific
information on an institution?s policies and practices for protecting
privacy and information security.

Despite differing approaches to the notice requirements, all of the Model
Act states have taken measures to ensure compliance with Subtitle A.
Arizona, for example, amended its law to require annual notice to customers
and to provide that a notice containing the information required by Subtitle
A also satisfies the content requirements of the state?s law if the notice
also informs the individual of his or her right to access and correct
information obtained by an insurance provider. Oregon issued regulations
requiring that notices of insurance information practices must also contain
information prescribed by Subtitle A. Other states have not amended their
notice content requirements but still require their insurance providers to
furnish their policyholders and applicants with notices containing the
information specified in both the 1982 Model Act and Subtitle A.

The 1982 Model Act contains some protections not found in Subtitle A. For
example, the 1982 Model Act contains a requirement that adverse underwriting
decisions be adequately explained and establishes the right of an individual
to access and correct personal information obtained by insurance providers.
Other differences between the 1982 Model Act and Subtitle A may also result
in greater protections being provided to insurance consumers.

As a general rule, the 1982 Model Act does not allow the disclosure of
personal information without the affirmative consent of the individual; that
is, the individual must opt in before protected information can be shared.
In contrast, Subtitle A requires financial institutions to provide an opt-
out opportunity before information can be shared. Opt- out provisions are
generally perceived as being less restrictive or protective than opt- in
States Made Modifications

to the 1982 Model Act to Ensure Compliance with Subtitle A

Some Provisions of the 1982 Model Act May Provide Greater Protections than
Subtitle A

Page 11 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

provisions, since under opt- out provisions, consumers must take action to
stop the sharing of their information with nonaffiliated third parties. A
number of state insurance officials we contacted referred to the opt- in
requirement in the 1982 Model Act as a reason for not adopting the 2000
Model Regulation.

The 1982 Model Act permits the disclosure of personal information to
nonaffiliates for the marketing of a product or service, but only if the
individual is given the opportunity to opt out of the disclosure. 15 The
1982 Model Act also restricts the type of information that can be disclosed
pursuant to this opt- out requirement. In comparison, Subtitle A
specifically allows financial institutions to disclose nonpublic personal
information to a nonaffiliated third party in connection with the marketing
of financial products or services without allowing consumers an opportunity
to opt out, subject to restrictions on subsequent disclosures by the
recipient.

The 1982 Model Act also limits the disclosure of personal information to
affiliates. Under the 1982 Model Act, disclosure to an affiliate whose only
use of the information will be in connection with an audit of the insurance
institution or the marketing of an insurance product or service is permitted
only if the affiliate does not redisclose the information it obtains for
another purpose or to unaffiliated persons. 16 Subtitle A does not restrict
the sharing of nonpublic personal information among affiliates.

The Model Act states? approaches to the stricter restrictions on marketing
disclosures and affiliate sharing of information are not uniform. As of
March 1, 2002, 3 Model Act states- North Carolina, Oregon, and Virginia-
have modified their requirements to permit information sharing for marketing
purposes without an opt- out requirement, similar to the joint marketing
exception in Subtitle A. Montana has an exception that may permit certain
types of marketing agreements, but not all. The remaining 10 Model Act
states have not modified their marketing restrictions. In

15 Certain types of information, such as medical record information or
personal information relating to an individual?s character, personal habits,
mode of living, or general reputation may not be disclosed under this
exception.

16 Under FCRA, affiliates may share personal information subject to an opt-
out requirement. This provision preempts state laws concerning the exchange
of information among affiliates until January 1, 2004. The preemption does
not apply to Vermont. See 15 U. S. C. sect. 1681t( b)( 2), (d) (2000). Some
Model Act States

Amended Their More Restrictive Marketing Disclosure Requirements

Page 12 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

addition, Arizona, Oregon, and Virginia have expanded the exception for
disclosures to affiliates for marketing purposes.

As of March 1, 2002, only one state- New York- has satisfied the Subtitle A
mandate that state insurance authorities establish standards for
safeguarding insurance customer records and information. An additional
state- California- has proposed regulations containing such standards. The
other states appear to have been waiting for NAIC to adopt the model
regulation, ?Standards for Safeguarding Customer Information? (NAIC Model
Safeguarding Regulation). In early April, NAIC adopted the Model
Safeguarding Regulation. In contrast, the federal regulators charged with
implementing Subtitle A, with the exception of FTC, issued final standards
much earlier. FTC has received comments on proposed standards and is
developing final rules. NAIC staff explained that the state insurance
authorities were slower in establishing the standards due to a number of
factors, such as the need to develop a flexible regulation to cover a wide
range in the types and sizes of organizations. Most state insurance
authorities still need to implement the NAIC Model Safeguarding Regulation,
either by legislative or regulatory action or both. During this period,
insurance customers in these states might have reduced assurances that they
will have a level of legal protection over the security and confidentiality
of their information consistent with that of the customers of other
financial institutions.

Under a separate provision of Subtitle A, federal regulators and state
insurance authorities are to establish standards for the institutions under
their jurisdiction relating to safeguards for customer information and
records. Standards for safeguarding customer information and records must be
set forth as guidance to the extent practicable by the federal depository
institution regulators and the National Credit Union Administration; the
remaining federal regulators must establish the standards by rule. The state
insurance authorities also are to implement the standards by rule. In
establishing standards relating to administrative, technical, and physical
safeguards, the state insurance authorities must address (1) the security
and confidentiality of customer records and information, (2) protection
against any anticipated threats or hazards, and (3) protection against
unauthorized access to or use of records or information that could result in
substantial harm or inconvenience to a customer. Most States Have Not

Established Standards for Safeguarding Insurance Customer Information

Subtitle A Directs Federal and State Regulators to Establish Safeguarding
Standards

Page 13 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

NAIC developed and adopted a model regulation from which the various state
insurance authorities can draft their own safeguarding standards. The NAIC
Model Safeguarding Regulation requires licensees to implement a
comprehensive written information security program that includes
administrative, technical, and physical safeguards for the protection of
customer information. The NAIC Model Safeguarding Regulation also describes
three objectives that a licensee?s information security program shall be
designed to accomplish, along with examples of the methods that a licensee
should use in implementing an information security program. For example, the
NAIC Model Safeguarding Regulation requires that a licensee (1) identify
reasonably foreseeable internal or external threats that could result in
unauthorized disclosure, misuse, alteration, or destruction of customer
information or customer information systems and (2) assess the likelihood of
and potential damage from these threats.

The NAIC Model Safeguarding Regulation generally is based on the guidelines
of the federal depository institution regulators, but they differ from the
federal guidelines in some respects. For example, the federal depository
institution regulators have provided depository institutions with mandatory
standards for the assessment of risk, the management and control of risk,
and the oversight of service provider arrangements. The NAIC Model
Safeguarding Regulation enumerates the same standards but characterizes them
as examples of actions and procedures that a licensee may follow to achieve
adequate information security of customer information and records. We were
advised by NAIC staff that the NAIC Model Safeguarding Regulation was not as
detailed as the federal depository institution regulators? guidelines
because state insurance authorities oversee a much more diverse group of
institutions.

State insurance authorities have been slower to establish safeguarding
standards than most of the federal regulators. NAIC completed its initial
draft of the model standards in late spring 2001. In comparison, all but one
of the federal regulators charged with implementing Subtitle A have adopted
safeguarding standards. The federal depository institution regulators issued
their standards on safeguarding customer records and information on February
1, 2001. 17 The Securities and Exchange Commission and Commodities Futures
Trading Commission issued their

17 The National Credit Union Administration issued its guidelines for
safeguarding customer records and information on January 30, 2001. State
Insurance

Authorities Are Taking More Time to Establish Safeguarding Standards than
Most of the Federal Regulators

Page 14 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

rules to safeguard customer record information last year, but they
essentially restated the language used in Subtitle A. As of March 1, 2002,
FTC has not issued final standards on safeguarding customer records and
information but expects to issue its final rule in a couple of months.
According to an FTC attorney, extra time was needed to develop appropriate
standards because the range of financial institutions that FTC oversees
under Subtitle A is so broad. Specifically, FTC has jurisdiction over all
financial institutions that are not subject to the jurisdiction of another
agency or authority under Subtitle A, including such diverse entities as
nondepository lenders, individual tax preparers, automobile dealers, and
mortgage brokers. For many of the smaller organizations that are covered,
procedures for securing customer records and information may be new.
Therefore, it took FTC staff time to develop the appropriate safeguarding
standards.

According to NAIC, a number of factors affected the process it followed in
drafting and adopting the Model Safeguarding Regulation.

 NAIC waited for the federal agencies to take action on the matter so that
they could use the federal guidelines as a template. NAIC?s goal was to be
as uniform as possible so insurers would not be at a competitive
disadvantage in comparison to other financial services providers. Unlike the
2000 Model Privacy Regulation, NAIC was not able to follow the federal
guidelines in developing the model standards because it felt that the
guidelines would not have worked effectively for insurers. Specifically,
NAIC felt that the guidelines issued by the federal depository institution
regulators were too detailed and specific to depository institutions, and
that the standards contained in the Securities and Exchange Commission?s
regulations were too general.

 NAIC stated that it developed its model standards through a very open
deliberative process that allowed them to be thoroughly reviewed and debated
by all interested parties. The first draft of the NAIC Model Safeguarding
Regulation was issued in June 2001. The initial public hearing on the model
was scheduled to take place at the NAIC Fall National Meeting in September;
however, that meeting was cancelled due to the September 11 terrorist
attacks. The hearing was subsequently held at the NAIC Winter National
Meeting in December 2001. The draft standards went through two public
written comment periods and oral comments were taken again at the NAIC
Spring National Meeting in March 2002.

Page 15 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

 NAIC noted that the state regulatory structure for the insurance industry
affects the time it will take for the states to implement Subtitle A?s
safeguarding provisions. Each state has its own procedures that must be
followed when a regulation is developed, and most- if not all- state
insurance authorities have no authority to promulgate regulation based on a
federal law. State insurance authorities obtained their authority from their
state laws.

 NAIC staff told us that the model standards were designed to establish a
flexible standard that all insurance entities can meet. They believe this
flexibility is important because state insurance departments regulate many
different types and sizes of organizations, all of which will be required to
comply with this rule. NAIC staff pointed out the challenge of developing a
regulation to cover a wide range of types and sizes of organizations was
similar to that faced by FTC.

New York has carried out the Subtitle A mandate to establish standards for
safeguarding insurance customer records and information. The New York
Department of Insurance adopted Regulation 173, ?Standards for Safeguarding
Customer Information,? on February 27, 2002. California issued a proposed
regulation that contains safeguarding standards for public comment on
December 4, 2001. Both New York?s Regulation 173 and California?s proposed
regulations are generally consistent with the current draft of NAIC Model
Safeguarding Regulation. Currently, the California Insurance Department is
reviewing the public comments it has received. A California Insurance
Department official could not provide us with the exact date that a final
regulation would likely be issued.

Although NAIC has developed model standards, it is likely that it will take
months for many of the remaining 48 states to adopt safeguarding standards.
As an illustration, according to an NAIC document, 8 states still had
regulations pending to implement Subtitle A?s notice and disclosure
requirements almost a year after NAIC had finalized its 2000 Model
Regulation. An NAIC official told us that after the 2000 Model Regulation
went to the states, some state insurance commissioners could not promulgate
the required regulations until their respective state legislatures provided
them with the statutory authority to issue regulations. Moreover, some state
insurance authorities may be required to comply with a specific
administrative procedure, such as providing a public comment period before a
final regulation can be issued. During the time it takes for the states to
issue safeguarding standards, insurance customers in these states New York
and California

Are Ahead of the Other States in Establishing Safeguarding Standards

The Remaining States Will Likely Need Some Time before Adopting Safeguarding
Standards

Page 16 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

might have reduced assurances that they will have a level of legal
protection over the security and confidentiality of their information
consistent with that of the customers of banking and securities companies.

All 50 states and the District of Columbia have generally followed one of
two approaches to ensuring insurance industry compliance with the disclosure
requirements of Subtitle A. Most of the states have adopted regulations or
legislation based on the 2000 Model Regulation, which generally is
comparable with the regulations issued by the federal depository institution
regulators and FTC. However, a number of states have decided to retain their
versions of the 1982 Model Act- which several states view as providing
greater privacy protections than Subtitle A- with some modifications to
ensure compliance with all of Subtitle A?s requirements. In addition, some
states have modified or retained certain provisions of their laws and
regulations to provide insurance consumers with greater protections than
required by Subtitle A. Such actions are consistent with Subtitle A, as
Congress specifically allowed states to enact statutes or issue regulations,
orders, and interpretations that provide greater financial privacy
protections than is contained in Subtitle A.

State insurance authorities are behind most of the federal regulators in
establishing standards for safeguarding the nonpublic personal information
of consumers as required by Subtitle A. NAIC?s adoption of a model for
states to use in developing the required standards is an important first
step. Although NAIC has approved the model standards, there is no guarantee
that all states will consistently implement the NAIC Model Safeguarding
Regulation. Each state must independently take action to implement the NAIC
Model Safeguarding Regulation. During this period, the security and the
confidentiality of insurance customer information and records may not be
subject to a consistent level of legal protections envisioned by Subtitle A.

We requested comments on a draft of this report from NAIC. On March 28,
2002, NAIC?s Senior Counsel for Financial Services provided us with the
following oral comments on the draft. Although NAIC felt that the statements
made in the draft report were generally technically accurate, it was
concerned about what it perceived as an overall negative tone of the draft.
NAIC wanted the report to reflect that since enactment of GLBA, the states
have worked hard and accomplished a great deal to meet the congressionally
mandated requirements of the law. According to NAIC, this activity has taken
place with respect to a very controversial and Conclusions

Agency Comments and Our Evaluation

Page 17 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

politically charged issue, and, unlike the federal agencies with direct
authority from Congress, the state regulators had to look for authority from
their individual state legislatures. NAIC emphasized that, nonetheless, to
date, every state except Alaska has privacy protections in place that meet
or exceed the standards established in GLBA.

In addition, NAIC was concerned about some of the specific wording used in
the draft regarding the progress states were making in promulgating
regulations requiring insurance licensees to meet the confidentiality and
security requirements set forth in Subtitle A?s safeguarding provisions.
NAIC staff said that the states have been responsive on this issue and have
continued to work to satisfy the congressional mandate. NAIC also provided
greater details on the factors that affected the process it followed in
drafting and adopting the Model Safeguarding Regulation. In response to
NAIC?s comments, we expanded our discussion in this report on the factors
affecting the adoption of the Model Safeguarding Regulation and included the
additional details provided by NAIC. In addition, NAIC staff provided
technical comments, which we have incorporated where appropriate. We also
obtained technical comments from FTC staff, which we also incorporated where
appropriate.

To understand the legislative requirements for states relating to the
protection of insurance information of consumers, we reviewed Subtitle A,
Title V of GLBA. To determine the specific legislative and regulatory
actions taken by the states to carry out the provisions of Subtitle A
relating to the insurance industry, we used publicly available data from
NAIC. We did not attempt to independently verify NAIC data. In addition, we
reviewed the 2000 Model Regulation and the 1982 Model Act. To obtain
information on insurance privacy laws that are based on the 1982 Model Act,
we sent a list of questions to the 14 state insurance authorities that
continue to rely on such laws, and we requested written responses to the
questions. All 14 state insurance authorities provided us with written
responses to our questions.

To ascertain the progress states have made to implement the Subtitle A
mandate that they establish standards for safeguarding insurance customer
records and information, we reviewed NAIC?s model standards for safeguarding
customer information and New York and California?s draft regulations
relating to the standards for safeguarding customer information. In
addition, we interviewed two representatives of the NAIC Privacy Working
Group, which developed the model standards. Scope and

Methodology

Page 18 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

We performed our work between July 2001 and March 2002 in Washington, D. C.,
in accordance with generally accepted government auditing standards.

As agreed with your office, unless you publicly release its contents
earlier, we plan no further distribution of this report until 30 days from
its date. At that time, we will send copies of this report to the chairman
of the House Committee on Energy and Commerce as well as to the chairmen and
ranking minority members of the Senate Committee on Banking, Housing, and
Urban Affairs and the House Committee on Financial Services. We will also
send copies of this report to the president of NAIC and to the chairman of
the Federal Trade Commission and make copies available to other interested
parties upon request.

If you or your staff have any questions on this report, please contact me at
(202) 512- 8678 or Harry Medina at (415) 904- 2000. Key contributors to this
report were Nancy Eibeck, Janet Fong, Barbara Roesmann, and Paul Thompson.

Sincerely yours, Richard J. Hillman Director, Financial Markets and

Community Investment

Appendix I: State Actions to Implement Title V, Subtitle A of the Gramm-
Leach- Bliley Act

Page 19 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

State 2000 Model Regulation

1982 Model Act

Alabama X Alaska a Arizona X Arkansas X California X Colorado X Connecticut
X Delaware X District of Columbia X Florida X Georgia X Hawaii X Idaho X
Illinois X Indiana X Iowa X Kansas X Kentucky X Louisiana X Maine X Maryland
X Massachusetts X Michigan X Minnesota X Mississippi X Missouri X Montana X
Nebraska X Nevada X New Hampshire X New Jersey X New Mexico X New York X
North Carolina X North Dakota X Ohio X Oklahoma X Oregon X Pennsylvania X
Rhode Island X South Carolina X South Dakota X

Appendix I: State Actions to Implement Title V, Subtitle A of the Gramm-
Leach- Bliley Act

Appendix I: State Actions to Implement Title V, Subtitle A of the Gramm-
Leach- Bliley Act

Page 20 GAO- 02- 361 Status of State Actions on GLBA?s Privacy Provisions

State 2000 Model Regulation

1982 Model Act

Tennessee X Texas X Utah X Vermont X Virginia X Washington X West Virginia X
Wisconsin X Wyoming X

a As of March 1, 2002, privacy regulations are pending. Source: National
Association of Insurance Commissioners.

(250039)

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