Honorable Robert Bunda

President of the Senate

Twenty-First State Legislature

Regular Session of 2001

State of Hawaii

Sir:

Your Committee on Commerce, Consumer Protection and Housing, to which was referred S.B. No. 1550 entitled:

begs leave to report as follows:

The purpose of this measure is to enact a new insurance article governing the treatment of nonpublic personal financial information about individuals by all health insurance companies, mutual benefit societies, and health maintenance organizations (licensees).

Your Committee received testimony in support of this measure from the Insurance Division, Mutual Benefit Association of Hawaii, Royal State National Insurance Co., Ltd., Voluntary Employees' Benefit Association of Hawaii, State Farm Insurance Company, McCorriston Miller Mukai Mackinnon LLP, American Council of Life Insurers, National Association of Insurance and Financial Advisors Hawaii, and Hawaii Insurers Council. Testimony in opposition was received from the Office of Information Practices, Hawaii Medical Service Association, and Kaiser Permanente.

This measure requires licensees to provide a clear and conspicuous notice that accurately reflects its privacy policies and practices to a customer before the licensee discloses any nonpublic personal financial information about the customer to any nonaffiliated third party, unless authorized by this measure. Nonpublic personal financial information is personally identifiable financial information, as well as any list, description, or other grouping of consumers and publicly available information pertaining to them that is derived using any personally identifiable financial information that is not publicly available. Personally identifiable financial information is any information that is (1) provided by a consumer to a licensee to obtain insurance, (2) about a consumer resulting from a transaction involving insurance, or (3) obtained by a licensee in connection with providing a service to that consumer.

This measure, among other things, also:

According to testimony of the Insurance Commissioner, this measure tracks with the federal Gramm Leach Biley Act and the federal regulations issued by federal banking agencies that protect personal financial information provided by consumers to insurers in the normal course of business.

Your Committee is aware of the concerns expressed about this measure, which needs more work. At this time, your Committee passes this measure for further discussion. Your Committee is particularly concerned about comportment with federal law and regulations. Your Committee notes the dilemma with Act 87, Session Laws of Hawaii 1999, relating to privacy of health care information, which is again before the legislature in this session for possible repeal or drastic revision. It appears that Act 87 may be substantially incongruent with the final federal regulations issued just before the change of administration in Washington.

Your Committee cautions that this measure raises a disturbing issue of the possibility of imposing inordinate and unnecessary burdens in compliance upon insurers and other entities. A more fundamental issue is whether it is reasonable to require insurers and other entities to comply with a state law that could have different compliance procedures than the federal law, even though they may not technically be in conflict. Finally, the complexity of this measure, like Act 87, could require a battery of high paid lawyers to navigate the labyrinth of requirements, deadlines, and prohibitions, which is not the intent of your Committee. However, your Committee remains dedicated to the principles of protecting nonpublic personal financial information and health information.

With these comments, your Committee urges caution and patience in the passage of this measure, with a view that more work will probably be needed by the Insurance Division, health insurers, and financial institutions to come to a consensus on the language of this measure before possible passage this legislative session.

Your Committee has amended this measure by changing the effective date to July 1, 2050, and making technical, nonsubstantive amendments for proper drafting.

As affirmed by the record of votes of the members of your Committee on Commerce, Consumer Protection and Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 1550, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 1550, S.D. 1, and be referred to the Committee on Judiciary.