| March 16, 2001 Federal Trade Commission
To Whom It May Concern: The American Insurance Association (AIA) welcomes the opportunity to comment on the consent provisions of the Electronic Signatures in Global and National Commerce Act, otherwise known as E-Sign. AIA is a national organization representing more than 370 property and casualty insurers that write insurance in every state and around the world. Their U.S. premiums exceed $60 billion each year. AIA member companies offer all types of property and casualty insurance including personal and commercial automobile insurance, commercial property and liability coverage, workers' compensation, homeowners' insurance, medical malpractice coverage, and product liability insurance. AIA believes that the Federal Trade Commission and the Department of Commerce should recommend that Congress amend the E-Sign consent provisions to reflect the practical, common sense approach to consumer consent that is contained in the Uniform Electronic Transactions Act (UETA). First, the E-Sign provisions are cumbersome and could have the unintended consequence of discouraging e-commerce. Second, the UETA approach to consumer consent is simpler, more practical, and preserves important consumer protections. Third, existing regulatory and market-based safeguards provide adequate consumer protection to purchasers of insurance products. Finally, the e-sign consent provisions may have the unintended effect of reducing insurers ability to use price to encourage the use of Internet sales. (1) The E-Sign Consent Requirements Present Numerous Difficulties. Under E-Sign, a seller can provide an electronic record to a consumer only if the seller: (1) obtains affirmative, electronic (but non-oral) consent from the consumer to receive electronic records; (2) provides the consumer with a statement of his rights to receive records on paper, including an indication of whether fees will be charged for receiving a paper copy; (3) provides the consumer with an indication of how he can withdraw consent, as well as the conditions and consequences of such withdrawal; and (4) provides the consumer with the hardware and software requirements for accessing and retaining electronic records. Unfortunately, we believe that the E-Sign consent provisions may thwart electronic commerce and hinder transactional efficiencies, despite its intent. Moreover, implementation and compliance is difficult, especially with respect to the hardware and software requirements discussed below. First, requiring sellers to give consumers information about hardware and software necessary to access and retain electronic records is onerous and confusing. The law's requirements demand a high degree of specificity that is impractical. Specific examples are as follows: The hardware and software information will be confusing to many consumers. Many on-line shoppers do not understand the intricacies and technical specifications of their own computer systems. Providing detailed hardware and software requirements, and requiring consumers to acknowledge these requirements as a prerequisite to dealing with them electronically, could confuse consumers so as to discourage them from engaging in electronic transactions. Sellers Are Required to Provide Confusing and Unnecessarily Excessive Information to Consumers. In terms of hardware, the statement must address the operating system, minimum memory requirements, hard-drive size and the speed of the computer needed to access and retain electronic records. In terms of software, sellers must inform customers both how to view and how to retain electronic records. This means that sellers must inform their customers about every possible Internet browser in existence, as well as to the necessary word processing and other software applications needed to review, download and save electronic records. In terms of Internet browsers, consider the fact that many people use neither Netscape's Navigator nor Microsoft's Internet Explorer. All of the possible alternatives and the versions of those alternatives that exist on home computers, regardless of the hardware or operating systems used, and regardless of their age, compound the difficulty of complying with this requirement, and significantly increase the amount of information that must be provided to customers. Finally, complying with the consent requirements will produce anomalous results, especially when the seller and customer have a preexisting relationship. For example, many families have personal relationships with their insurance agents. Under the E-Sign consent approach, a telephone request by a consumer to his insurance agent to email him a new insurance policy, binder, or endorsement would not be deemed valid consent. Instead, the consumer would need to electronically (but non-orally) authorize such consent according to the strict construct of the federal law. This would include a transaction as simple as an individual calling her neighborhood insurance agent (with whom she has a long-standing relationship) to add the policyholder's daughter (who just obtained her driver's license) to her personal automobile insurance policy. Consequently, this approach to consent could have a chilling effect on e-commerce and make it easier for the consumer to transact business over the telephone, by mail, or even in person. (2) UETA Reflects a Practical Approach to Obtaining Consent to Deal Electronically. In July, 1999 the National Conference of Commissioners on Uniform State Laws adopted the Uniform Electronic Transactions Act (UETA). Like E-Sign, UETA grants legal equivalence to electronic documents and signatures where another law requires something to be "signed" or "in writing." Unlike E-Sign, however, UETA takes a practical, common sense approach to obtaining consumer consent to deal electronically. The National Association of Insurance Commissioners (NAIC), a trade association of state insurance regulators, has endorsed UETA and recommended that states adopt it as drafted. In passing E-Sign, Congress preempted contradicting state law. Under E-Sign, however, if a state enacts UETA, that state's law will "reverse-preempt" E-Sign. The E-Sign Act, therefore, puts an interim standard in place until each state adopts a law consistent with the UETA. At least half of the states have enacted UETA to date, and we expect more to do so during their 2001 legislative sessions. Therefore, companies such as AIA members that do business in all 50 states, are currently grappling with reconciling the conflicting consent provisions in E-Sign and UETA. Because transactions conducted over the Internet transcend traditional geographic boundaries, it would be beneficial to have one uniform approach to obtaining consumer consent to deal electronically. AIA believes that the consent provisions of UETA are workable for individuals and companies because they allow for flexibility in obtaining consent as new technologies evolve. UETA essentially takes a "meeting of the minds" approach. It says that whether the parties have consented to engage in an electronic transaction is determined by their actions and the surrounding facts and circumstances. Rather than regulating the manner of receiving and accessing consent notices electronically, UETA §5 does not apply to electronic records where the parties to a transaction have not agreed to deal electronically. The finding of agreement is dependent on the context of the transaction. No consumer is forced to conduct business electronically. Rather, transactions may only be conducted electronically where the parties have agreed to do so. There is an To summarize, the consent provisions of the E-Sign do not provide consumers with greater protections than those provided under UETA. Differences between the UETA and E-Sign consent provisions are go beyond system implementation issues and affect very real human interaction matters. The example we presented regarding obtaining consent where there is a preexisting relationship would not exist under the UETA consent provisions. Moreover, UETA already contains adequate consumer protections, as demonstrated in sections 5 and 8. (3) Existing Safeguards Adequately Protect Insurance Consumers. First, the purpose of E-Sign is to grant legal recognition of electronic documents and signatures. Nothing in the E-Sign law is intended to lessen or eliminate any existing consumer protection laws. Moreover, nothing in E-Sign would prevent a consumer from challenging the validity of an electronic signature or document on grounds of, for example, fraud, mistake, or unconscionability. E-Sign provides consumer protections under sections 101(b)(2), 101(c)(2)(A) and 101(f). Section 101(b)(2) essentially ensures that no one can be forced to deal electronically. Consumer protections with respect to content or timing notice requirements are preserved under section 101(c)(2)(A), which states that no such requirements may be subverted by dealing electronically. Additionally, section 101(f) preserves consumer protections related to proximity or posting requirements that would affect warnings or notices. Revising the consumer consent provisions would not weaken any of these consumer protection provisions. Moreover, state insurance regulators regularly police the insurance industry in order to monitor against abuses. For example, insurance companies are subject to scrutiny during market conduct examinations. The function of a market conduct examination is to ensure that an insurance company is behaving in a prescribed manner in the marketplace. Also, the insurance regulator seriously considers unfair trade practices restrictions in light of consumer complaints. The purpose of unfair trade practices laws is to enumerate those practices that are unacceptable and to give insurance consumers a voice so that alleged abuses will be heard. Regulatory oversight is firmly part of the environment in which the insurance industry operates, and customers are well served by the existing safeguards. (4) The Consent Provisions Diminish Insurers' Ability to Use Price to Encourage Internet Sales. The E-Sign consent provisions may have the unintended effect of reducing the insurers ability to use price to encourage the use of Internet sales. For example, there are often operational efficiencies gained by dealing with purchasers electronically. Purchasers benefit from these efficiencies through discounted pricing. This means that insurers may be willing to offer a discount to individuals who are willing to conduct the transaction electronically, for example, by agreeing to receive an insurance policy in electronic format rather than on paper. The E-Sign consent provisions essentially allow an insurance consumer to unilaterally shift the terms of the agreement to encompass additional traditional paper aspects, thus making these efficiencies less certain and therefore, harder to price. Moreover, state insurance law prohibits an insurer's ability to cancel a policy merely because paper was requested - typically, insurers can only cancel a policy under very limited circumstances, such as fraud, material misrepresentation, or non-payment of premium. Consequently, insurers cannot accurately calculate any projected administrative savings if policyholders can unilaterally withdraw their consent to deal electronically and instead request paper. The result is to the detriment of the purchaser, because he may no longer receive the benefit of discounted pricing. In conclusion, AIA believes that the Federal Trade Commission and the Department of Commerce should recommend that Congress amend the E-Sign law's consent provision to adopt an approach similar to the UETA's. Though the standards set forth in UETA are much less detailed than those in E-Sign, the approach is more pragmatic, the results are more consistent, and the consumer protections are preserved. UETA presents an overarching mechanism that should remain current to withstand future technological developments. We believe that this approach will benefit both consumers and businesses. Thank you for considering our comments on this critical issue. Please feel free to contact AIA staff attorneys Eric Goldberg at 202-828-7172 or Cate Paolino at 202-828-7159 if you have any questions or would like additional information. Sincerely, Craig A. Berrington Enclosures
EXHIBIT - AIA Responses to General Issue Questions Presented AIA is a trade association representing property and casualty insurers. As such, AIA has answered questions 1 through 5. Although our members' experiences with the new E-Sign law and its consent provisions are still very limited, we believe the remainder of the questions would be best addressed by individual insurers. Question 1 How does the requirement of section 101(c)(1)(C)(ii) of the ESIGN Act, that businesses allow consumers an opportunity to provide consumer consent or confirmation of consent electronically prior to providing consumers electronic versions of information, affect electronic commerce? How will electronic commerce be affected in the future by this requirement? Electronic commerce will most certainly be affected by this requirement, both now and in the future. Indeed, the E-Sign consumer consent provisions are likely to thwart electronic commerce. It seems intuitive that consumers turn to the Internet for their purchases for a number of reasons that include the following:
The E-Sign consent provisions add cumbersome and largely unnecessary steps to the on-line transaction. The consent requirements hinder all of the reasons why consumers are drawn to the electronic medium, with the exception of comparisons. As a result, the transaction will take longer and be more confusing. The confusion is introduced on several fronts.
Question 2 What statutory changes, if any, should be made to the ESIGN Act to assist businesses and consumers in domestic and/or international business markets in implementing and adapting to the consumer consent and consent confirmation provisions under section 101(c)(1)(C)(ii) of the Act? There are numerous areas where changes would be of assistance. They include the following:
It is AIA's position that the Federal Trade Commission and the Department of Commerce should recommend that Congress repeal the E-Sign consent provisions and enact a UETA-type approach in its place. Question 3 What, if any, are the benefits and burdens to consumers and electronic commerce resulting from the affirmative consent provisions in the statute? Do any such benefits outweigh any burdens? AIA believes that businesses should only deal electronically with those consumers who wish to do so, and that no one should be forced to transact business in an electronic environment. We believe, however, that businesses need the flexibility to be able to ascertain, as efficiently as possible, whether the customer in fact wishes to deal electronically. The goals of bolstering consumer protection and improving consumer confidence are laudable, but can be provided through a number of different means -- those means prescribed by E-Sign will not best serve the consumer . AIA believes that the burdens of the E-Sign affirmative consent provisions outweigh the benefits for a number of reasons:
The "meeting of the minds" approach contained in the UETA provisions better addresses these realities. Question 4 What, if any improvements or changes should Congress make to the statutory language of section 101(c)(1)(C)(ii)? AIA suggests that Congress repeal the E-Sign consent language and replace them with UETA-type consent provisions. There are compelling public policy arguments in favor of this revision.
Question 5 Are there any additional issues that should be considered during this study? Practical implications for the consumer of all of the E-Sign consent provisions should be evaluated. As discussed, in the case of transactions involving insurance products and services, anomalous consequences result, particularly where there is an existing relationship. The study should consider the degree of consumer confusion and frustration and the extent to which it will inhibit e-commerce. Regulatory oversight is firmly part of the environment in which the insurance industry operates. Current safeguards in the insurance industry which adequately protect consumers should be taken into account:
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