Insurance regulators are preparing for a public hearing on broker compensation.[@@]

The National Association of Insurance Commissioners, Kansas City, Mo., expects to take up the topic Saturday, at the NAIC’s winter meeting in New Orleans.

The hearing will cover a plan that a group of commissioners developed in response to broker comp investigations conducted by the attorneys general in New York, Connecticut and other states.

The attorneys general began their investigations by looking at allegations of bid-rigging and other problems in the commercial property-casualty insurance market, but the investigations have expanded to include the employee benefits market.

Commissioners are asking carriers for information about commissions and bidding practices.

The commissioners also want to amend guidelines in the NAIC Producer Licensing Model Act and to establish a consumer outreach program that would take complaints about potential abuses.

Hearing organizers are expecting speakers to include representatives of the American Council of Life Insurers, Washington; the National Association of Independent Financial Advisors, Falls Church, Va.; the National Association of Mutual Insurance Companies, Indianapolis; and, the Property Casualty Insurers Association of America, Des Plaines, Ill.

Reactions to the hearing and the broker comp issue:

- Bruce Ferguson, ACLI senior vice president-state relations: Ferguson talks about the scope of the NAIC’s reform plan, which covers all lines and types of insurance. A one-size-fits-all approach can be very complicated because of the different ways that insurance is sold in the property-casualty and life insurance markets and the different types of producers who sell the products, Ferguson says.

The ACLI is encouraging the NAIC to focus on the “fact pattern” in the investigations conducted by California Insurance Commissioner John Garamendi and New York Attorney General Eliot Spitzer, Ferguson says.

If states send out inquiries to companies and producers, they should follow a uniform template, to reduce the burden on the companies and producers, Ferguson adds.

Today, some states, such as Delaware and Iowa, are using the NAIC template, but other states, such as Illinois, Ohio and North Carolina, have some deviations from the NAIC template, Ferguson says.

- Jim Edwards, NAIFA spokesman: NAIFA is still preparing the comments that it will present at the hearing. “We don’t support the [NAIC task force] proposal in its current form and will make suggestions” at the hearing, Edwards says.

- Peter Bisbecos, NAMIC’s legal and regulatory affairs director: Bisbecos wants states to interpret any model amendments that are adopted in a uniform way, and he raises questions about treatment of the information collected. If regulators pass information on to an attorney general’s office, that could create a situation involving forced self-incrimination, and forced self-incrimination could hurt the attorney general’s case against the party that reported the information, Bisbecos says.

- Mike Koziol, PCI’s counsel: A client has the right to know if his broker is accepting compensation from a carrier, but it is more important that the consumer knows that there is compensation from the carrier than that the consumer know the specific compensation formula, Koziol says. He adds that requirements for written disclosure can create an administrative nightmare.

- Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas: “The NAIC is not addressing the systemic problems with state regulation,” Birnbaum says. “It is more like damage control.”

Birnbaum is recommending that an independent analyst come in to assess the situation.

Birnbaum complains about what he sees as the “dominance of the insurance industry over state regulators.” The presumption is that state regulators are going to go and work in the insurance industry, and there is something “fundamentally wrong” about that premise, Birnbaum says.

“Who cares whether or not federal regulators could have done a better job,” Birnbaum said. “We want state regulators to do a better job.”