Are Producer Comp

Rules Dead On Arrival?

Agents unlikely to face any legal bans on contingency fees

Washington

Further rule changes on agent and broker compensation, includingan end to contingency commissions, appear unlikely, a key regulatorand insurance industry leaders agreed at a life insurerconference.

In remarks echoed by insurance representatives, North DakotaInsurance Commissioner Jim Poolman said last week he did notbelieve the movement to extend changes in producer compensationrules "has shelf life," adding later that "the issue will fadeaway."

William Anderson, vice president and associate general counselof the National Association of Insurance and Financial Advisers,made the same assessment. Their comments came during a paneldiscussion here at the annual conference of the American Council ofLife Insurers.

While the issues addressed by the panel dealt with the life andhealth industry, the discussion about producer compensation wasalso relevant to the property-casualty side of the business becauseMr. Poolman chairs the Producer Licensing Working Group of theNational Association of Insurance Commissioners.

Mr. Poolman noted that he did not support recent changes incompensation disclosure regulations in the Producer Licensing ModelAct approved by NAIC. One reason he didn't support the amendments,he said, was that some carriers and producer trade groups hadagreed that agents and brokers should voluntarily disclose detailsof their compensation.

He also said he did not support the changes because commercialinsurance bid-rigging by major brokers uncovered by New YorkAttorney General Eliot Spitzer is already illegal.

Mr. Poolman, a Republican, also appeared to suggest that Mr.Spitzer's activities were politically motivated. "AG also standsfor aspiring governor," he said–a reference to the fact that Mr.Spitzer is a Democratic gubernatorial candidate.

Comments from members of the panel indicated a belief that Mr.Spitzer's investigations, in which he has been joined by stateofficials in California and Connecticut, would not bring aboutmajor changes in compensation practices for average agents. (Mr.Spitzer did reach legal agreements calling for changes indisclosure and other practices by large brokers. His legal actionsprompted mega-brokers Marsh, Aon and the Willis Group to eliminatecontingent commissions.)

"The issue is fading away into the sunset," said one of thepanel members.

J. Bruce Ferguson, senior vice president of state relations atthe ACLI, conceded that changes to the NAIC model act were a resultof the Spitzer investigation, and were "designed to bringtransparency to the broker compensation process." However, he addedthat "some of the dire predictions" associated with the Spitzerprobe, including claims of "widespread corruption" by insuranceproducers, "have not come true."

Legal action prohibiting contingency commissions altogethercould do more harm than good, suggested Mr. Poolman. He said thatin his state, "if you start banning contingency commissions, someof the smaller rural agencies will go out of business, and theexisting producer distribution system will dry up."

These are ideas for art–Don to decide which to use

If Transparency Man:

Calls to limit producer compensation will likely "fade away,"said North Dakota Insurance Commissioner Jim Poolman.

Pullquote for Poolman, with mug:

North Dakota Insurance Commissioner Jim Poolman did not supportchanges in compensation disclosure regulations approved by theNAIC.

If Spitzer/Sunset:

Issues raised over broker compensation disclosure requirements,which emerged after Eliot Spitzer's finding of bid-riggingactivities at major brokerages, are fading into the sunset,according to some industry leaders.