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Agent Group Rejects Mandatory Commission Disclosure

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Life insurance agents should not be required to disclose to consumers the commissions they receive, the largest life insurance agents’ trade group has determined.[@@]

An internal committee of the trade group, the National Association of Insurance and Financial Advisors, Falls Church, Va., made the decision to stick with its decade-old policy on this controversial issue in a meeting Monday, according to David Woods, chief executive officer of the group.

Specifically, the internal committee decided that:

- NAIFA is in favor of an appropriate disclosure during a sales process that explains to the customer the relationship between the agents or brokers and the insurers they represent.

- NAIFA is in favor of total cost disclosure but is opposed to any mandated disclosure of an agent’s life insurance commissions during the sales process.

- NAIFA is opposed to any requirement that imposes on the agent or broker a requirement to submit to a customer only proposals from a “best available insurer.”

“The consumer is entitled to know the total cost of the product he or she is buying,” Woods says. However, he adds, “disclosing to consumers the components of those would be harmful.” He says, “Once you start disclosing all the components, the question is, ?How thin do you slice that’?”

Although the NAIFA committee did not discuss anti-rebating laws at its meeting, the association’s stance in support of such laws would continue, Woods says. Anti-rebating laws, which are on the books in 48 states, bar insurance agents from returning to consumers any portion of the commissions paid by underwriters to agents.

The only states that don’t have such laws are California and Florida. But other provisions in those 2 states bar discrimination in rebating commissions. This means that agents who have a policy of rebating parts of their commissions to any customers to follow the same policy with all their customers. This effectively cancels out rebating commissions to any customers, Woods says, meaning the anti-rebating policy is nationwide in practice.

Woods says the committee decided after lengthy deliberation that there are a number of costs associated with distributing life insurance products, citing home office costs and agent support costs.

“Perhaps lumping them all together under ?distribution’ costs would be appropriate, but to get beyond that, it gets too confusing, in our opinion,” he says. “When you get into costs, there are so many involved, to focus on one or the other creates confusion. Total cost disclosure is the only cost disclosure of value to consumers.”

He also noted that the features of an insurance product are also an issue, making it difficult and confusing to compare the costs of different products to a consumer.

Woods confirmed that NAIFA reevaluated its stance on disclosure of commissions against the background of investigations by Attorney General Eliot Spitzer of New York and Insurance Commissioner John Garamendi of California and interest in these issues by congressional committees and the National Association of Insurance Commissioners, Kansas City, Mo.

A hearing on the issue will be held Nov. 16 by a panel of the Senate Governmental Affairs Committee, and plans are being discussed within the House Financial Services Committee to hold a round table on the issue in January. In addition, there will be a meeting of state regulators on Thursday to discuss how they should deal with the issue.

NAIC president Diane Koken is heading the 13-state NAIC task force created to gather the facts, coordinate state activities and address alleged misconduct and violations of existing state laws suggested by the investigations launched in April into broker commissions by Spitzer.

One of the task force’s duties is to develop a model act for Broker’s Disclosure of Compensation, the NAIC says.


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