IIABA Adopts New

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Disclosure Policy On

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Producer Compensation

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By Mark E. Ruquet

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In the wake of the brokerage contingency fee scandal, a leadingindependent agent association adopted a new producer compensationdisclosure policy that it said encourages carrier consultation andseeks to avoid conflicting company requirements.

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"Insurance agents, brokers and companies all must makeindependent decisions about whether and how to disclose the waythey are compensated," IIABA CEO Robert A. Rusbuldt said in astatement.

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"We recognize this fact, and we acknowledge that everyone in theindustry must take all necessary steps to comply with their legalobligations," he added. "But we also recognize that a wide range ofdivergent company requirements could create inefficiencies thatwould disrupt the way insurance agencies and brokerage firms dobusiness, and that is what we hope to avoid."

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With respect to any insurers that choose to make their owndisclosures, the Alexandria, Va.-based IIABA encourages them tonotify buyers that:

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o The insurance policy was placed by an independent insuranceagent or broker, not an employee of the company.

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o The company believes it is efficient and effective todistribute its policies through independent insurance agents andbrokers.

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o The agent or broker placing the policy with the company mayreceive commission for that placement.

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o If applicable, the agent or broker may be eligible to receiveadditional incentives.

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o Any questions about the nature of the compensation should bedirected to the agent or broker.

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"We fully encourage all carriers to fulfill their obligationsunder the law and to the public, and to do so in a way thatrespects the business needs of the independent agent and brokerthat sell their products," said IIABA President William G. StiglitzIII.

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Carriers React

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Reacting to the announcement, Bob Zeman, a senior vice presidentfor the Property Casualty Insurers Association of America in DesPlaines, Ill., said, "We agree with their disclosure approach, thatit is best for consumers, but we dispute that the responsibilityrests with insurers. The requirement should be on the brokers."

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"We do strongly agree that insurers should have the right tomake their own disclosures, but it should be up to the individualcompanies to decide the terms and arrangements," he added. He saidhe was pleased the IIABA was not calling for mandatory disclosures,and that the controversy appears to be dying down.

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Rick Nelson, a representative for the National Association ofMutual Insurance Companies in Indianapolis, said his group "seesthis as a producer's issue as opposed to a company issue." He addedthat while understanding IIABA represents independent agents, thedisclosure overemphasizes the role of independent agents,neglecting the reality that there are other forms of distributionthrough exclusive agents and direct writers.

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A representative for the Council of Insurance Agents &Brokers said the Washington-based group does not comment on otherassociation's policies, but noted that CIAB has promoted its owndisclosure policy for some time now, emphasizing full transparencyby brokers on all compensation arrangements.

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