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.