NAIC Puts Broker Comp Model On Fast Track

Gary Cohen, general counsel with the California department, said it will become clear the problem is not limited to companies that have come to light so far. At the end of the day, he continued, there will be reform. "We can lead or we can follow. I suggest that we lead.

"Disclosure is not enough to deal with the problems already taking place," Cohen said.

"A broker is supposed to represent the client and if it isnt doing that, why is it entitled to charge a fee for a service?" he asked. When a broker only presents offers of carriers with which it has a contingent fee arrangement, "it is committing fraud, pure and simple."

Consumer advocates and industry representatives also provided comments.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said regulators should focus their efforts on developing specific disclosure requirements rather than carving out exceptions to those requirements. Consumers, he noted, will pay the bill either directly or through increased premiums from the insurer.

Also, he said that by carving out exceptions, "you are encouraging game playing. You are not going to address the problem."

William Anderson, representing the National Association of Insurance and Financial Advisors, said "the life insurance sale is extremely difficult to do" and if a producer is required to disclose to a consumer that he is also a representative of the company, it would "kill the sale."

"The agent has to decide who his master is. You cant have two masters," responded John Oxendine, Georgia insurance commissioner. Life agents, he continued, would be "morally wrong to have it both ways unless they disclose [the arrangement.]"

During the hearing, representatives from organizations including the American Insurance Association, the American Council of Life Insurers, the Independent Insurance Agents and Brokers of America, NAIFA, the National Association of Independent Life Brokerage Agencies, the National Association of Professional Insurance Agents, the Association for Advanced Life Underwriting, Property Casualty Insurers Association of America, and the National Association of Mutual Insurance Companies provided testimony on the issue.

The main message these groups sent to regulators was to keep their response targeted to areas where they discover a problem.

Among the collective points that they also made were: keep it focused on transactions related to the placement of insurance and not financial planning or estate planning services; make it applicable to transactions where there is more than nominal compensation; do not make it applicable to agents who are tied to one company; and, note the differences between industry segments and types of producer distribution systems. Additionally, the confidentiality of information provided to regulators was raised.

Ron Panneton, a representative with NAIFA, spoke on behalf of NAIFA, NAILBA and AALU at one of the hearings.

He said that a model law or other regulation should apply only when there is more than nominal compensation; when the compensation represents placement of insurance and not financial planning or estate planning services; and should limit disclosure to the fact that there is compensation from a company but not the amount.

The amount of a producers commission does not affect the value of the product being offered, Panneton said. Additionally, he continued, "it 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."

Issues that are important, he told commissioners and those at the hearing, include whether there is enough coverage for a family or for a business.

Russ Childers, representing the National Association of Health Underwriters, Washington, said his organization condemns alleged bid-rigging and encourages ethical practices among members. Disclosure of commissions is appropriate as are agent commissions, he says. Childers explained that agents provide a service and act in a clients best interest because good service will encourage referrals.

Reproduced from National Underwriter Edition, December 10, 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.