Following up on a promise for completion by year-end of a model regulation to address broker compensation disclosure, regulators turned their attention to what it means to “act on behalf of the customer.”
The language was a key part of a discussion on Dec. 6 among state insurance commissioners, industry and consumer advocates during the winter meeting of the National Association of Insurance Commissioners here.
The work of forging a model continued after a NAIC public hearing on Dec. 4 during which William Newton of the Florida Consumer Action Network, who was one of over 30 speakers, said that the crux of the issue is “all about trust.”
NAIC President Diane Koken outlined a tight time frame for adoption of a compensation disclosure amendment to the Producer Licensing Model Act: comments on the new draft and Dec. 6 testimony received by NAIC on Dec. 9; a new draft issued by the NAIC shortly after; another comment period in the week following the issuance of the new draft; and, adoption by the end of the year so that it can be included in next years legislative calendar.
Adoption of these amendments does not preclude additional action, regulators said.
The draft language focuses on what it means to “act on behalf of the customer.” (For full text, visit www.NAIC.org.)
Regulators, in general, agreed that for the near term, they would focus their efforts on disclosure language in Section A of the draft rather than on what the producer must disclose as outlined in Section B of the draft.
Section A states that “where any insurance producer or any affiliate of such a producer receives any compensation from the customer or acts on behalf of the customer,” compensation including commissions cannot be received unless the producer, prior to the purchase of insurance, has: obtained the customers documented acknowledgement that such compensation will be received by a producer or affiliate; and disclosed the amount of compensation. If, according to the NAIC draft, the amount of compensation is not known, then a reasonable estimate and a method for calculating such compensation must be disclosed.
The NAIC also is working with the National Conference of Insurance Legislators, Albany, N.Y., on the development of a model.
Craig Eiland, a Texas legislator who is the newly elected NCOIL president, told regulators during testimony that any model should have transparency and a definition of the fiduciary responsibilities of a broker.
Regulators offered their assessment on the latest draft.
Disclosure language should address both brokers and independent agents, according to Audrey Samers, general counsel with the New York insurance department.
During the hearing, Holly Bakke, New Jersey insurance commissioner, replying to a panelists comment about the time it would take to pull together an initial disclosure, said, “Someone is getting paid for service. Please dont say it is too difficult to provide. You may need to rethink the system.” When the department reviewed information it had on compensation, she continued, “compensation structures were all over the place.” Going forward, she said, there will have to be more transparency of compensation arrangements.
Walter Bell, Alabama insurance commissioner, noted the different kinds of producers and compensation structures and raised the issue of whether there would be different kinds of disclosure. And, Maryland Insurance Commissioner Alfred Redmer noted that “it seems we are trying to legislate the intent of producers and that is a very difficult thing to do.”
“The broad public perception is that there are corrupt compensation arrangements. It is important to address the publics concerns but not sweep things that are not corrupt into the pile to be targeted,” said Montana Insurance Commissioner John Morrison. It is about the kinds of promises being made to the consumer, he continued, and therefore, language should reflect that any compensation from the customer in consideration for an agreement to act for the customer and in the best interests of the customer.