Reassuring customers about insurance broker compensation “is all about trust.”[@@]
William Newton, executive director of the Florida Consumer Action Network, Tampa., Fla., delivered that message to regulators halfway through 2 hours of testimony on the broker comp issue.
Commissioners here for the winter meeting of the National Association of Insurance Commissioners, Kansas City, Mo., assured Newton and other speakers who appeared at the broker comp session that they took the speakers’ concerns seriously.
The NAIC is responding by rushing to complete a model that amends the current Producer Model Licensing Act, and it could have the work done before Christmas, commissioners said.
“There is a commitment to develop a model law and get it approved by year-end,” said NAIC President Diane Koken, the Pennsylvania insurance commissioner.
Once commissioners get responses to their requests for information from brokers and insurers, the NAIC may develop additional model laws, regulators said.
The NAIC also has started working with the National Conference of Insurance Legislators, Albany, N.Y., on coordinating efforts to deliver a model, according to NAIC Vice President Joel Ario, the Oregon insurance administrator.
Craig Eiland, newly elected NCOIL president, told regulators that any model should promote transparency and include a definition of the fiduciary responsibilities of a broker.
One panelist at the broker comp session talked about the time it would take for a broker to pull together an initial compensation disclosure.
“Someone is getting paid for service,” replied New Jersey Insurance Commissioner Holly Bakke. “Please don’t say it [disclosure] is too difficult to provide. You may need to rethink the system.”
Gary Cohen, general counsel at the California Department of Insurance, rejected the idea that regulators should focus on improving future compensation disclosure requirements.
“Disclosure is not enough to deal with the problems that are already taking place,” Cohen said. “A broker is supposed to represent the client, and, if it isn’t doing that, why is it entitled to charge a fee for a service?”
When a broker presents offers only from carriers for which it has a contingent fee arrangement, “it is committing fraud, pure and simple,” Cohen said.
Ron Panneton, a representative for the National Association of Insurance and Financial Advisors, Falls Church, Va., and other groups, said a model law or other regulation should apply only when there is more than nominal compensation. The model should require disclosure of the fact that there is compensation from an insurer but not the amount of the compensation.
The amount of a producer’s commission does not affect the value of the product being offered, Panneton said.
Overly detailed disclosure “focuses attention on how much the producer is receiving rather than on important matters such as how much insurance is needed and what kind of insurance is needed,” Panneton said.