Calif. Agents Opposing Disclosure Regulations

By Matt Brady

NU Online News Service, Jan. 7, 4:28 p.m.EST?Agents groups voiced strong opposition to proposeddisclosure regulations at a hearing of the California Department ofInsurance yesterday.[@@}

The proposed rules were introduced in the wake of investigationsby New York Attorney General Eliot Spitzer and California InsuranceCommissioner John Garamendi into irregularities surrounding insurerincentive fees paid to brokers.

Under the proposed new state rules insurance agents and brokerswould be required to disclose any third party income they wouldreceive from a sale.

It would also require the revelation of any agreements they mayhave worked out with an insurer.

The agent community has criticized this provision as beingunfairly broad and counter to current state administrativeprocedures. Agents have also argued that a provision requiringagents and brokers to offer the "best" available coverage issubjective to the point of being impossible to comply with.

"These proposed regulations are not necessary, areincomprehensibly vague and ambiguous, would subject insuranceagents and brokers to a set of duties that are factually andlegally impossible to meet, and plainly exceed the boundaries ofcurrent law," said Steve Young, general counsel for the InsuranceBrokers and Agents of the West, and affiliate of the IndependentInsurance Agents and Brokers of America.

"We are not opposed to disclosure of broker fees wherever therecould be a conflict of interest, such as when a broker takes a feefrom an insured and also receives payment from insurers, providedthe requirements are limited to brokers and reasonable in scope,"he said. "But these regulations go far beyond mere disclosure, farbeyond legal authority available to the commissioner, and farbeyond common sense."

Roger W. Hogeboom, a lawyer with the firm of Barger & Wolenwho testified on behalf of the American Agents Alliance and theWestern Insurance Agents Association, blasted the proposedregulations as an improper attempt to circumvent proceduresestablished in the California Insurance Code.

That process, he said, requires the state insurance commissionerto prosecute acts he believes are unfair and to seek a court orderenjoining them.

The law, Mr. Hogeboom said, defines unfair acts and requiresthat any acts not defined by the law be established by theadministrative hearing process and accompanied with a proceedinginitiated by the state attorney general in Superior Court.

Mr. Young, with the brokers group, also argued that thecommissioner has failed to meet these criteria and has not shownany need for these regulations as required by the law.

"The commissioner has failed to assert any legitimate necessityfor these regulations," he said. "The proposal purports to createaffirmative and radically new legal duties upon brokers and agents,and, ironically, would force brokers and agents to violate the verylaw?prohibiting unfair and deceptive practices?that thecommissioner has cited as his sole legal authority," Mr. Youngsaid.

In November of last year Mr. Garamendi sued a health benefitsbroker, Universal Life Resources of San Diego, charging the firmtook kickbacks in the form of fees to steer business to Metlife,Cigna, Prudential and Unum.