NCOIL Okays Easier Broker Disclosure Model

By Steve Tuckey

NU Online New Service, March 7, 11:14 a.m.EST?Only brokers paid by both client and insurer arerequired to disclose their fees under a less restrictive model lawamendment adopted Friday by the National Conference of InsuranceLegislators.[@@]

Insurance industry representatives said the measure was softerin its latest version and less stringent than a comparable measureapproved by the National Association of InsuranceCommissioners.

NCOIL's action came at the group's annual spring meeting inHilton Head Island, S.C. Lawmakers there approved a measure that islimited to covering only those brokers compensated by both theinsured and the insurance carrier, who must obtain documentedacknowledgement from the insured that they are aware of the doublecompensation.

Last December the NAIC approved a measure covering not onlydouble-compensated brokers but all brokers "representing"customers.

Trade group representatives such as Wes Bissett, senior vicepresident of the Independent Insurance Agents and Brokers ofAmerica, said the "representing" provision presents enoughambiguity to extend the coverage to a great deal of theindustry.

"The NCOIL approach is a much more reasonable one," he said.

NCOIL president Texas Rep. Craig Eiland, D-Galveston, said itwas important for the group to be heard on the issue. "Manylegislators reasonably believe that no legislation is necessary atall, but some states are likely to examine and perhaps act on thisissue," he said.

He added, "NCOIL's adoption of the consensus approach wouldoffer helpful and meaningful guidance for states with a substantiveor political need to legislate in this area."

The current version of the NCOIL model represents a considerableabout-face from the one considered at its annual meeting lastNovember. That session came shortly after the watershedinvestigations by New York State, which uncovered evidence thatbrokers, rather than seeking the best deal for clients, engaged inprice-fixing, false bid submissions and steering of commercialcustomers to insurers paying undisclosed fees.

The earlier NCOIL model would have not only created a fiduciaryrole for the broker but also imposed a burden to act "in the bestinterest" of the client. Industry representatives asserted thatsuch mandates were ambiguous enough to invite litigation fromdisgruntled clients.

Nonetheless, the fact that Mr. Eiland represented his group'sposition at the December NAIC meeting as that reflected in thestricter model concerned one NCOIL member enough to propose ameasure limiting the ability of officers to act in such a mannerbetween meetings. But the measure died for lack of a second.

"This will be very embarrassing for us when we come back withthis new model," said Louisiana Rep. Shirley Bowler, R-Harahan, whosponsored the failed effort.

The proposed amendment would be tacked on to the NAIC ProducerLicensing Model Act. Its approval comes in the wake of recentsettlements between state authorities and Marsh and Aon over thecontingency fees and placement arrangement compensation problemsrevealed last October.

Mr. Eiland said the NCOIL measure would not conflict withprovisions of the two settlements that require the two brokeragesto make extensive disclosures to clients.

The NAIC will look at adding a separate provision that wouldextend coverage to virtually all producers. That proposal has beenvigorously fought by industry as a new burden that is no wayrelated to the scandal of the large brokers.

At Friday's meeting, state lawmakers deleted a provisionrequiring commercial brokers to disclose a "reasonable estimate, ifpossible," of contingency compensation from the carrier as soqualified as to be meaningless. But Mr. Eiland said such estimateswould be helpful in customers when they negotiate with theirbrokers. The final model simple requires the calculation used indetermining the figure.

NCOIL lawmakers turned down an industry request to delete adrafting note reminding states that they could consider a fiduciaryrequirement for brokers in relation to the common law precedents athome. Mr. Eiland noted that the Marsh and Aon settlements had suchprovisions.

Less than 10 states are said by insurance industryrepresentatives to be considering such legislation. Nevada hasapproved a temporary regulation while one proposal in Connecticutclosely tracks the NAIC model.