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NCOIL Proposes Broker Comp Model Legislation

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NCOIL Proposes Broker Comp Model Legislation


The National Conference of Insurance Legislators has proposed model legislation aimed at curbing abuses in broker compensation that have been uncovered by New York Attorney General Eliot Spitzer.

The measure goes far beyond a comparable proposal put out by the National Association of Insurance Commissioners on Nov. 15 that focuses for the most part on disclosure.

Incoming NCOIL President Rep. Craig Eiland, D-Texas, drafted the proposal for discussion purposes only and will meet with NAIC officials at their meeting next month when the regulators proposal will be the topic of a public hearing.

In addition to full disclosure, the NCOIL measure will require any broker to have a fiduciary relationship with a client.

But the most controversial portion of the NCOIL measure calls for something akin to a suitability requirement that requires brokers to pick the best available insurance product for their client.

John Washburn, former NAIC president, called the suitability portion “an impossible standard to meet and also would lead to endless litigation.” He represented the Council of Insurance Agents and Brokers at the meeting.

Eiland said it was important that any model give regulators market conduct supervisory power over brokers to prevent future abuses. “Some states have this and some dont,” he said.

While Eiland conceded that the suitability measure will be stricken, it is not clear what will become of the fiduciary component.

Georgia Insurance Commissioner John Oxendine told the lawmakers that he did not see too many problems with the concept. But Washburn said it presents the possibility of many unforeseen consequences, especially in the case of a broker-client relationship, which at present is contractual.

“To our knowledge, the creation of fiduciary duties for anyone by statute is unprecedented, and determining the scope of the fiduciary duties purportedly created here would take many years of litigation to resolve,” he said.

Other questions raised by the measure include differences between a broker, compensated by the insurance buyer, and agent, compensated by the carrier. Many states lump them together in law under the rubric of “producer.”

Eiland also held out the possibility that NCOIL will join with NAIC in putting forth a joint measure, to gain greater clout in the states next year.

Reproduced from National Underwriter Edition, November 24, 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.