The Office of General Counsel issued the following opinion on January 13, 2003, representing the position of the New York State Insurance Department.
Re: Electronic Data Gathering and Records Retention of Insurance Applications and Related Documents
1) May an insurer utilize electronic means to complete and transmit applications and related documents in connection with the sale of life insurance policies and annuity contracts?
2) May an insurer retain applications for life insurance policies and annuity contracts and related documentation by electronic means for purposes of record retention?
1) Yes. There is nothing in the New York Insurance Law that prohibits an insurer from utilizing electronic means to sell life insurance policies and annuity contracts as long as in implementing the system the insurer complies with the applicable requirements of the N.Y. Insurance Law and regulations as to the forms used and the disclosures and illustrations provided to the applicant.
2) Yes. Under N.Y. Comp. Codes R. & Regs. tit. 11, Part 243 (1996) (Regulation 152) an insurer may, for purposes of records retention, maintain its records by electronic means, such as optical imaging technology, if it qualifies as a "durable medium" as defined in § 243.1(c) of the Regulation.
An inquirer informed the Department that XYZ Insurance Company and ABC Life and Annuity Company (hereinafter referred to collectively as "XYZ Life & Annuity") are in the process of evaluating alternative electronic data gathering capabilities. The inquirer described generally the broad steps that would be encompassed within the proposed electronic data system that XYZ Life & Annuity wishes to implement as follows:
(1) A producer completes an application for an XYZ Life & Annuity product. The application may include the related documentation:
(ii) HIV consent forms
(iii) Policy forms
(iv ) Applications; and
(v ) Related documents
(2) Upon completion, the application and related documentation would be transmitted to XYZ Life & Annuity.
(3) The image transmitted would be stored via electronic imaging.
(4) The producer would rely on its electronic imaging system to melt [sic] record keeping and retrieval requirements as specified under the laws of New York.
(5) Adequate safe guards [sic] would be put in place to protect the integrity of the data transmitted.
(6) Information stored on this system would be available immediately.
The steps described are very general and do not provide a detailed description either of the elements of the electronic data gathering process nor the electronic means by which the steps set forth would be implemented by XYZ Life & Annuity and integrated into the insurers or the producers marketing or servicing activities.
New York States Electronic Signatures and Records Act ("ESRA"), N.Y. State Tech. Law §§ 101-109 (McKinney Pamphlet 2003), provides the statutory structure which supports the use of electronic commerce in everyday public and business undertakings in New York State. Thus, insurance transactions may be conducted entirely through electronic means if the insurance applicant consents to the use of an electronic record or signature, as long as all applicable statutory requirements that are contained in the New York Insurance Law and applicable regulations are complied with. See Circular Letter No. 33 (1999).
The various disclosure and related requirements applicable to the policies and contracts in question must be complied with by XYZ Life & Annuity. In particular, the disclosure and related requirements contained in N.Y. Ins. Law § 3209 (McKinney 2000) applicable to the solicitation of life insurance and annuity contracts, and the regulations that implement those requirements, that must be complied with in all transactions, including electronic ones, involving the marketing of such insurance. The applicable requirements, depending upon what particular product is being marketed, may include those contained in N.Y. Comp. Codes R. & Regs. tit. 11, § 51 (1998) (Regulation 60) and N.Y. Comp. Codes R. & Regs. tit.11, § 53 (1999) (Regulation 74) which disclosure materials must be delivered to, or obtained from, the applicant at the time that the application is taken.
Therefore, if XYZ Life & Annuity implements the proposed electronic data storage system it must be able to demonstrate compliance with disclosure and any other applicable requirements, and that the required disclosure and related documents were provided to the applicant, and their signatures obtained, as required.
N.Y. Comp. Codes R. & Regs. tit. 11, § 243 (1996) (Regulation 152) establishes standards for records retention by insurance companies. The term "records" is defined in § 243.1(b) as " books, records, files, securities, data compilations and other documents." Among other things, insurers are permitted to maintain their records in a "durable medium," which is defined in § 243.1(c) as:
a medium for maintaining a record where the properties of such medium provide reasonable assurances against tampering with the information contained in the original and degradation of any reproduction generated, and where the reproduction is an exact copy of the original. The medium may include paper; facsimile; or photographic, micrographic, magnetic, optical, mechanical or electronic media. [Emphasis added]
The documents that were described that would be gathered and stored under the proposed process, which utilizes optical and/or electronic media, constitute records within the meaning of Regulation 152. XYZ Life & Annuity has stated that it agrees to put adequate safeguards in place to protect the integrity of the data that would be gathered and stored as part of the proposed process. The promised safeguards must result in the medium chosen meeting all of the requirements of Regulation 152, in order that the medium may qualify as a "durable medium."
Specifically, as to records retention, if the proposed process described is implemented by XYZ Life & Annuity, it must be prepared to be able to demonstrate that documents stored on the electronic system have not been tampered with, and that what is printed in paper version off of the system is an exact copy of what was prepared and transmitted to the insured.
Privacy and Safeguarding of Data
Insofar as the proposed process also appears to encompass the electronic transmission of the completed applications and related documents which may contain protected information concerning the applicant, it is reminded that XYZ Life & Annuity must take those steps necessary to comply with privacy and the related safeguarding obligations enunciated in N.Y. Comp. Codes R. & Regs. tit. 11, Part 421 (2002) (Regulation 173) to protect the security, confidentiality and integrity of a customers information.
If all of the applicable statutory and regulatory requirements are fulfilled by the proposed electronic data gathering process proposed by XYZ Life & Annuity, the New York Insurance Law is not an obstacle to its implementation.
For further information you may contact Associate Attorney Barbara Kluger at the New York City Office.