A top insurance regulator appeared on Capitol Hill today to call for full reporting of all insurer payments to agents and brokers.[@@]

California Insurance Commissioner John Garamendi argued during a Senate hearing that the new compensation disclosure rules he is proposing for producers in his state would merely clarify what the law already requires.

The obligation for full disclosure “should be absolutely uncontroversial and should not be opposed by anyone interested in a fair, competitive, open market for insurance,” Garamendi testified during the hearing, which was convened by the financial management subcommittee of the Senate Governmental Affairs Committee.

“With respect to disclosure of the amount of commissions, brokers and agents will ask, ?Why should we have to disclose the amount of our commissions?’” Garamendi said. “Most salesmen sell on commission, yet they are not required to disclose the source and amount of the compensation they receive.”

The answer, Garamendi said, “is that buying insurance is not like buying groceries. Securities brokers and real estate brokers are required to disclose the source and amount of their commissions, and so should insurance brokers and agents.”

Garamendi said he proposed new disclosure rules in California in response to the results of New York Attorney General Eliot Spitzer’s investigations of insurance agents and brokers.

Producers probably will ask whether the compensation disclosure obligations apply only to brokers or to brokers and agents, Garamendi said.

“In California, we have one license that permits a person to act as a broker or an agent,” Garamendi said. “There are different requirements in different states. Our definition of who these obligations apply to is simple: Anyone who represents more than one insurer, or anyone who holds him or herself out as acting on behalf of the prospective insured, must abide by these requirements.”

The objective, Garamendi said, is to prohibit producers from putting their own financial interests ahead of their clients’ interests.

Tactics Garamendi criticized include:

- Failing to obtain quotes for insurance from a reasonable number of insurers able to meet the client’s needs because the broker has an agreement to receive compensation from some insurers but not from others.

- Failing to present an offer from an insurer able to meet a client’s needs because the broker has an agreement to receive compensation from some other insurer.

- Recommending that a client accept an offer from an insurer because the broker has an agreement to receive compensation from that insurer when another insurer has made a superior offer that better meets a client’s needs.

Garamendi acknowledged that producers will say that many factors other than price go into determining what is best for the client.

“We are not holding the broker to an obligation to find the best available insurance,” Garamendi said. “The broker’s duty is to take reasonable steps to determine the client’s needs; to use its expertise to find options in the marketplace that meet those needs; to present those options to the client; and to make a recommendation, based on its expertise, of the best available option.”

A major agent trade group, the National Association of Insurance and Financial Advisers, Falls Church, Va., last week announced that it is sticking with a policy that appears to clash with Garamendi’s approach.

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

NAIFA staff officials were attending the hearing and not available for comment at press time.