NAIC: No Quick Action On Broker Fees
By Steve Tuckey
National Underwriter News
March 15, 2005
Salt Lake City Utah — State insurance regulators meeting here said they will not be tied to a timetable for developing any regulations for fee disclosures by brokers and agents.
"Throughout the process people have asked me what the endgame is. All I can say is I cannot speculate with any specificity," said Pennsylvania Insurance Commissioner Diane Koken who heads the National Association of Insurance Commissioners, which has its spring meeting underway.
Ms. Koken said she would not set a deadline for when the NAIC's Executive Task Force on Broker Compensation will complete its work.
NAIC members have been moving to improve broker fee disclosure since last October when an investigation by New York Attorney General Eliot Spitzer produced a lawsuit and allegation that brokers selling commercial insurance rigged bids and fixed prices with insurers and took undisclosed payoffs--listed as fees and placement agreements--to steer customers to various carriers.
The association has already apparently put aside brokers and agents regulation language that would give them fiduciary responsibilities and require them to find the most suitable coverage for clients, but they are being pressed by insurance trade groups to eliminate various disclosure requirements.
"It seems that it all comes down to disclosure now," said NAIC Vice President and Oregon Insurance Administrator Joel Ario.
Mr. Ario made his remarks yesterday at an NAIC hearing seeking insurance industry and consumer input on what further actions the regulators should take in regard to fee disclosure.
Agent and company representatives urged the regulators not to expand the scope of the broker fee disclosure model the NAIC approved last December that essentially limits coverage to producers who are compensated by both the insured and the insurer, along with those brokers who hold themselves out as representatives of the insured even if they receive no compensation.
Regulators are currently considering requiring fee disclosure for all producers. They also have the option of paring back the amendment to cover only those doubly compensated brokers to keep the measure in line with a model approved earlier this month by the National Conference of Insurance Legislators.
Mr. Ario said the regulators were reluctant to eliminate those producers, who while they may not receive compensation from the insured, act as brokers in every other sense. "These were some of the brokers who were involved in some of the illegal activities in New York," he said.
One possible area of compromise could limit disclosure requirements to those transactions above a given figure, with $250,000 in premium serving as the initial starting point.
Representatives of both the Independent Insurance Agents and Brokers of America and the National Association of Professional Insurance Agents, who oppose the current NAIC model, said that such an approach might win their backing.
One of the six questions posed by NAIC for comment was the interested was one concerning the potential ramifications of banning contingent commissions. For all intents and purposes, those contingent commissions at the heart of Mr. Spitzer's investigation have been banned in settlement agreements reached by state regulators with New York-based Marsh and Chicago –based Aon. The firms represent more than half of the commercial brokerage market.
But company and agent representatives urged that such ban not be incorporated into the model since most so-called "Main Street" personal lines agents have different forms of contingency agreements that they claim do not create the kind of conflicts inherent in the Marsh and Aon deals.
"Contingent commissions can result in the buyer being able to enjoy products and more favorable pricing, terms and conditions than otherwise might be available," said Robert Zeman, senior vice president of the Property Casualty Insurers Association of America (PCI).
He added that, "Banning incentive compensation could take from the consumer those products marketed by insurers wishing to have their producer force, act to one degree or another, as field underwriter."
Funded consumer representative Birny Birnbaum, the executive director of the Center for Economic Justice in Austin, Texas, urged that regulators require disclosure of all compensation in order to create disincentives for carriers and producers to "game the system" by switching methods.
"Producers and insurers are rabid in their defense of the status quo," he said.
He also claimed personal lines compensation schemes also presented ripe opportunity for agents to act in their own rather than the client's interest.
But some regulators expressed frustration at this attempt to expand the scope of the legislation beyond the large commercial brokers.
"This aspect of disclosure represents a mere tempest in a teapot," said Montana Commissioner John Morrison speaking of purported personal lines conflicts.
So far, the NAIC disclosure model has been introduced in only Connecticut and Pennsylvania.
Wes Bissett, senior vice president of the Alexandria, Va.-based Independent Insurance Agents and Brokers of America (IIABA), said any further expansion of the model would doom its chances of passage in more states.
Mr. Ario countered that many states are reluctant to take legislative action while both criminal and regulatory investigations are underway.