Personal Privacy in an Information Society. The Insurance Relationship


The activities of the nation's 4,700 insurance companies touch the lives of all Americans in a variety of ways. Two out of three Americans have life insurance protection;1 90 percent of the civilian population under age 65 is covered by individual or group health insurance policies;2 and 15 million are covered by the pension plans that life insurers offer.3 It is estimated that almost 90 percent of the registered automobiles in the country are insured,4 and few homes are without insurance coverage. In 1975, the premiums Americans paid for life, health, and pension coverage amounted to $58.6 billions 5 and property and liability insurance premiums amounted to another $50 billion.6 The companies, for their part, paid out an estimated $75 billion in claims and policyholder benefits.7

The central function of insurance is to spread the economic burden of unforeseen financial losses by using the premiums paid by many insureds to pay for the losses sustained by a few. Some forms of insurance protection are mandated by law or business practice. For example, a number of States require car owners to carry auto insurance. Mortgage lenders require borrowers to carry fire insurance. Contractors are required to provide surety bonds to protect their clients against failures to perform and some fields of employment require fidelity bonds. Other forms of insurance, such as life, health, malpractice, and product and other liability coverages, are virtually mandatory in the minds of many people. Indeed, the cost and availability of insurance influence the character of society as well as the economy. It affects personal lives, life-styles, and even living standards.

Because the chief functions of an insurer-underwriting and rating risks and paying claims-are decision-making processes that involve evaluations of people and their property, the insurance industry is among society's largest gatherers and users of information about individuals. This chapter reports the results of the Commission's inquiry into the personal-data record-keeping 'practices of insurance companies and the support organizations that provide them with various services, including record keeping.

The chapter begins with a short description of the industry, its sources of information about individuals, and the role that support organizations play in gathering and disseminating such information. This is followed by an examination of the way records about an individual affect his place in the insurance relationship today, and of the problems industry record-keeping practices pose from a privacy protection viewpoint. Finally, after summarizing current legal restraints on the record-keeping practices of insurance institutions and support organizations, the Commission, in the last section, presents and explains its specific recommendations for change. As in other chapters of this report the Commission's recommendations are arranged in terms of its three recommended public-policy objectives: (1) to minimize intrusiveness; (2) to maximize fairness; and (3) to create a legitimate, enforceable expectation of confidentiality.