NAIFA Reaffirms Stance Against Disclosure Of Commissions
Life insurance agents should not be required to disclose to consumers the commission they receive when selling a life insurance product, the largest life insurance agents trade group has determined in deciding to stick with its existing policy on this issue.
An internal committee of the trade group, the National Association of Insurance and Financial Advisors, made the decision to stick with its current policy at a meeting earlier this month, according to David Woods, CEO of NAIFA.
NAIFA reaffirmed its policy as a Senate committee and a high-level National Association of Insurance Commissioners task force both were examining whether rules and laws dealing with an agents or brokers duty to their customers should be changed.
The NAIFA committee studying the issue decided to stick to existing policy as the fallout from the investigation by New York Attorney General Eliot Spitzer into whether insurance brokerages appropriately served their customers continued to grow.
While NAIFA decided to stick with existing policy, the American Council of Life Insurers is studying the issue. ACLI President and CEO Frank Keating said that because of the pressure from multiple investigations, a task force of member-company CEOs is studying the issue. “Our general position has been in favor of disclosure and transparency,” Keating said.
“We want to do the right thing for policyholders,” Keating said. “Because the investigation by Mr. Spitzer and others is broad and deep, we want to ensure we have all the facts before we make a proposal for reform.”
Keating said the task force will disclose the new policy “within a reasonable period of time.”
NAIFA and the ACLI were asked about their policies against the background of a hearing on the issue that will be held Nov. 16 by a panel of the Senate Governmental Affairs Committee, plans being discussed within the House Financial Services Committee to hold a “roundtable” on the issue in January, and a meeting held recently by an Executive NAIC Task Force on Broker Activities to discuss how regulators should deal with the issue.
NAIC President Diane Koken is heading the 12-member 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 forces duties, NAIC said, is to develop a model act for brokers disclosure of compensation.
The plan at press time was for the task force to craft a draft model law dealing with the issue so that the NAIC plans can be disclosed at the Senate hearing on Nov. 16. The commissioners will be represented at that hearing by New York Superintendent Greg Serio. One industry lobbyist said the task forces plan is for Serio to have in hand to present to the committee a proposed model law that would represent a “forceful policy that the commissioners intend to put in place in all 50 states.”
Regarding disclosure, NAIFAs policy states that:
–NAIFA is in favor of an appropriate disclosure during the sales process which explains to the customer the relationship between the agent/broker and the insurer(s) they represent.
–NAIFA is in favor of total cost disclosure but is opposed to any mandated disclosure of an agents life insurance commissions during the sales process.
–NAIFA is opposed to imposing on the agent/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 said. However, he added, “Disclosing to consumers the components of those would be harmful.”
He explained that, “Once you start disclosing all the components, the question is, how thin do you slice that?”
Woods said the internal committee didnt discuss the issue, but among the policies NAIFA will retain is support for “anti-rebating” laws, which are on the books in 48 states. These bar insurance agents from returning to consumers any portion of the commissions paid by underwriters to agents. The only states which dont have them are California and Florida. However, Woods said, other provisions in those 2 states that bar discrimination in rebating commissionsin other words, which require agents who have a policy of rebating parts of their commissions to customers to follow the same policy with all their customers effectively negate rebating commissions to any customers. This means the anti-rebating policy in practice is nationwide, Woods said.
The NAIFA committee decided after lengthy deliberation, Woods said, 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.”
Putting it another way, Woods said, “When you get into costs, there are so many involved that 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.
Asked what current ACLI policy is pending the CEO review, a spokesman said ACLI and its member companies “support full and fair competition in the pricing and sale of insurance products and condemn conduct that fails to uphold this principle.”
ACLI spokesman Jack Dolan added that any improper activities in the process of bidding for insurance contracts, or in commissions paid to insurance brokers, can and should be addressed under existing state statutes. “If new laws and regulations are needed, they should be appropriately tailored to address issues involved in the sales and bidding process,” Dolan said.
Reproduced from National Underwriter Edition, November 11, 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.