State lawmakers and state insurance regulators could change accounting rules in a way that would cause headaches for some insurers that use outside companies to pay trail commissions to agents and brokers.
Some accounting specialists would like to see insurers record the trail commission liabilities when insurers first issue the affected policies. This is even if the agents and brokers have not yet locked in the right to get the trail commissions, according to documents posted on the websites of the National Council of Insurance Legislators (NCOIL) and the National Association of Insurance Commissioners (NAIC).
- A copy of the 30-day materials packet for NCOIL’s upcoming meeting in Tampa, Florida, is available here.
- Links to documents related to the work of the NAIC’s Statutory Accounting Principles Working Group on the SSAP 71 update are available here.
- An article about an NCOIL insurance company division model law project is available here.
The Statutory Accounting Principles Working Group, an arm of the NAIC, talked about accounting for commissions that are paid through an outside company, and contingent on insurance policy or annuity contract persistency, at a hearing earlier this month.
Members of the NCOIL-NAIC Dialogue Committee are preparing to talk about the topic Dec. 11, at a session at NCOLI’s upcoming in-person annual meeting. The four-day meeting is set to start Dec. 9 in Tampa, Florida.
NCOIL is a group for lawmakers who serve in legislative bodies at the state level, such as state senates and state assemblies, and who have an interest in insurance.
State insurance regulators set Statutory Accounting Principles (SAP) accounting rules for insurers.
The proposed commission accounting rule changes would affect Statement on Statutory Accounting Principles (SSAP) Number 71 — Policy Acquisition Costs and Commissions.
Officials who support the changes say letting an insurer wait to recognize persistency-based commissions paid through an outside company until the commissions are locked in could help an insurer bypass recognition of expenses that would normally be added to expenses in the first year of the contract.
Opponents of the proposed changes, including Mike Chaney, the Mississippi insurance commissioner, say the proposed changes would disrupt commission reporting arrangements that have been in place for decades.
“It appears these new revisions could have unintended consequences and potentially have a material impact on how the company accounts for these particular transactions,” Chaney wrote in a letter that was sent to the Statutory Accounting Principles Working Group Oct. 29 and included in a working group meeting packet.