California Proposes Regulations

On Oct. 20, California Insurance Commissioner John Garamendi proposed regulations to prevent brokerage compensation abuses, which could be in place at the start of 2005. Civil action against brokers and/or insurers is being considered by the department and probably will be filed soon, according to a department spokesman.

The proposed regulations define brokers to include agents. Failure to comply with the proposed regulations could result in fines of up to $10,000 per incident, issuance of a cease and desist order by the commissioner, and/or revocation or suspension of a company or brokers license.

The regulations would find agents and brokers who fail to disclose to a client all material facts surrounding the brokers receipt or potential receipt of income from a third party, which derives in whole or part from a transaction on behalf of a client, in violation of the states insurance code.

Any broker who places the brokers interest above that of a client would violate the California insurance code. A broker would be required to provide the client with a proposal of a best available insurer.

That broker would violate the insurance code if a client was advised to select an insurer other than the best available insurer; advised not to select a best available insurer from among multiple insurers suggested to a client; or failed to take reasonable measures to obtain a quote from an insurer that might be a best available insurer.

–Jim Connolly


Reproduced from National Underwriter Edition, October 21, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.