Industry, Consumer Groups Hit Producer Fee Disclosure Model Act

Insurance industry associations are not demonstrating much enthusiasm for regulator efforts to produce a comprehensive set of producer compensation disclosure model laws, with concerns raised that splits among members of the National Association of Insurance Commissioners will produce an unwieldy patchwork of state legislation.

A Dec. 29 conference call by the NAIC was intended to move forward a model of legislative reforms growing out of the contingency fee abuses alleged by New York Attorney General Eliot Spitzer. However, instead of developing a uniform code of conduct emphasizing disclosure to buyers, the lack of consensus among regulators is prompting concerns within the industry.

The Independent Insurance Agents & Brokers of America in Alexandria, Va., was first to weigh in on the NAIC's actions (see NU, Jan. 3). IIABA said it appreciates the NAIC's efforts but noted that issues such as the distinction between brokers and agents still need work, that there needs to be more assurance that the disclosure rules are “sensible and reasonable,” and that there still needs to be clarification that the rules do not apply to renewal and residual market business.

While stating that overall it supports the Kansas City, Mo.-based NAICs efforts on disclosure, Joel Wood, senior vice president of government affairs for the Council of Insurance Agents & Brokers in Washington, noted that “the potential lack of uniformity is a worry.”

During the Dec. 29 meeting, some regulators expressed concern that the amendments to the Producer Model Licensing Act did not go far enough on disclosure. Others were concerned that aspects of the act were too cumbersome and that in trying to explain some forms of compensation to the buyer, confusion would result.

The disagreements led to a 31-15 vote in favor of one section of the amendment and the tabling of a second section for up to 90 days.

Emphasizing that CIAB supports disclosure and the work of the NAIC, Mr. Wood noted that the disagreements among regulators underscore concern that the end result might be “a fragmented system that imposes potentially conflicting and redundant requirements, some of which we believeon the side of broker duty and responsibilitycould be quite invasive.”

However, Mr. Wood added that CIAB plans to continue supporting the overall work of the NAIC, calling what disagreements members do have “quibbles with some of the details.”

The Alexandria, Va.-based National Association of Professional Insurance Agents outright rejected the amended model act, vowing to “continue working to secure changes to improve the deeply flawed model.” PIA said the model does not adequately define insurance placements, fails to draw a clear distinction between agents and brokers, and “poses considerable functional challenges” for insurance producers and insurers in transacting business.

“On such a serious matter deserving of serious attention, public policy should be based on common-sense solutions to real problems, not on unfounded suspicions,” said Len Brevik, PIAs executive vice president and chief executive officer.

The American Association of Managing General Agents in King of Prussia, Pa., said it has worked to see that language in the model act exempts wholesale brokers and general agents from disclosure requirements to the policyholder, which it said the NAIC has done.

However, AAMGA echoed the concerns of CIAB over individual commissioners taking action independent of the NAICperhaps going beyond the requirements listed in the model. AAMGA cautioned the insurance community to remain vigilant of the actions individual regulators and state legislators take as they draft disclosure laws and regulations to implement NAICs model.

As for insurer response, Brenda O'Connor, vice president of public affairs for the American Insurance Association in Washington, said the language approved by the NAIC is “workable,” but still needs “several clarifications and explanations.”

The National Association of Mutual Insurance Companies in Indianapolis called the amendments “overly broad” because the act goes beyond addressing the issue of the conflict that arises when a producer receives compensation from both customer and carrier. “Disclosure by producers who are only compensated by the insurer adds no value to the insurance buying process and should not be required,” said Peter Bisbecos, NAMIC's director of legal and regulatory affairs.

The Property Casualty Insurers Association of America in Des Plaines, Ill., said it has lingering concerns over what was passed but praised the NAIC for tabling Section B of the model. PCI called the disclosure requirements in Section B too broad, noting that it would cover independent agents, salaried employees and direct writers. The amendments, PCI added, should focus on targeted and relevant disclosures by brokers. “The requirements for written consent and disclosures of specific compensation amounts and methodologies, coupled with the potential for overly broad applications, fail to meet these goals,” PCI said.

Consumer groups were scathing in their comments on the NAIC's model. Birny Birnbaum, executive director of the Austin, Texas-based Center For Economic Justice, blasted the NAIC for failing to achieve its stated goal to bring transparency to insurance markets and better disclosure of compensation.

J. Robert Hunter, director of insurance for the Washington-based Consumer Federation of America, said the NAIC did not go far enough. “Its too little, too late,” he said. “They put off the hard part (Section B), which strikes me as very bad, because it will probably never be taken up. You pass the easy part, and the hard part is just allowed to die.”

“I'm not disappointed because I never expect much from the NAIC,” he continued. “You would hope that with the federal government looking at the regulatory scheme, [the NAIC] would try to do the right thing in terms of disclosure. If competition is going to work to control markets, then you have to have clarity, and it seems that they have taken only the smallest of baby steps.”

Reproduced from National Underwriter Edition, January 6, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Industry, Consumer Groups Hit Producer Fee Disclosure Model Act

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