Insurance regulators have approved portions of a proposed compensation disclosure amendment draft to the National Association of Insurance Commissioners’ producer licensing model act.[@@]

The amendment provisions, designed to make producer fee arrangements more transparent to clients, was adopted during the NAIC’s executive committee plenary conference call late yesterday.

The regulators had been seeking to approve at least part of the measure before 2005 so that state legislatures can consider it in the new year.

The regulators adopted Section A of the draft, which proposes that a producer receiving any compensation from a customer for an insurance placement, or representing the customer in that placement, shouldn’t accept any compensation from an insurer or other third party for that placement unless the customer gives permission to do so.

Specifically, before the customer’s purchase of insurance, the producer must:

? Obtain the customer’s documented acknowledgment that such compensation will be received by the producer or affiliate.

? Disclose the amount of compensation from the insurer or other third party for that placement. If the amount of compensation is not known at the time of disclosure, the producer shall disclose how such compensation is calculated and, if possible, a reasonable estimate of the amount.

This requirement, however, will not apply to a producer who meets all of the following requirements:

? Does not receive compensation from the customer for the placement of insurance.

? In connection with that placement, represents an insurer that has appointed him.

? Discloses to the customer before the purchase that the producer will receive compensation from an insurer for that placement; or makes it clear that, in placing the insurance, the producer represents the insurer and may provide services to the customer for the insurer.

The regulators also approved other sections that specify how various terms such as “customer” and “affiliate” should be defined and that spelled out that certain parties, such as a managing general agent or a reinsurance intermediary, could be excluded from the disclosure requirement.

The regulators decided to defer Section B of the amendment for 90 days.

That section expands on what specific compensation information producers should disclose. Among other items, the regulators said they will look at fiduciary liability issues, disclosure of all quotes and producer-owned reinsurance arrangements for possible inclusions in the section.