Agents' Group Rejects Push To Disclose Commissions

The decision by the largest life agent trade group, the National Association of Insurance and Financial Advisers, to stick with its decade-old policy on commissions came after a NAIFA internal committee meeting Monday, according to David Woods, chief executive officer of the group.

Specifically, the internal committee decided that:

?NAIFA is in favor of an appropriate disclosure during the sales process which explains to the customer the relationship between the agent/broker and the insurer(s) they represent.

?NAIFA is in favor of total cost disclosure, but is opposed to any mandated disclosure of an agent's life insurance commissions during the sales process.

?NAIFA is opposed to any requirement that imposes on the agent/broker a requirement to submit to a customer only proposals from a "best available insurer."

"The consumer is entitled to know the total cost of the product he or she is buying," Mr. Woods said. However, Mr. Woods added, "disclosing to consumers the components of those would be harmful." He explained, "Once you start disclosing all the components, the question is, ?how thin do you slice that'?"

The NAIFA committee decided amongst the policies it will retain is support for "anti-rebating" laws, which are on the books in 48 states. These bar insurance agents from returning to consumers any portion of the commissions paid by underwriters to agents.

Only California and Florida have no anti-rebate laws. But, other provisions in those two states bar any discrimination in rebating commissions, which has the same effect as an anti-rebate law, according to Mr. Woods.

California and Florida agents who have a policy of rebating parts of their commissions to customers must follow the process equally with all their customers, Mr. Woods said.

Mr. Woods said the committee decided after lengthy deliberation that there are a number of costs associated with distributing life insurance products, citing home office costs and agent support costs. "Perhaps lumping them all together under ?distribution' costs would be appropriate, but to get beyond that, it gets too confusing, in our opinion."

Putting it another way, Mr. Wood said, "when you get into costs, there are so many involved, to focus on one or the other creates confusion. Total cost disclosure is the only cost disclosure of value to consumers." He also noted that the features of an insurance product are also an issue, making it difficult and confusing to compare the costs of different products to a consumer.

Mr. Woods confirmed that NAIFA reevaluated its stance on disclosure of commissions against the background of investigations by New York Attorney General Eliot Spitzer, Insurance Superintendent Gregory Serio and Insurance Commissioner John Garamendi of California, and interest in these issues by congressional committees and members, as well as the National Association of Insurance Commissioners.

"I don't think it's a secret to customers that salespeople are compensated, and there is nothing illegal about that," commented Mary Christiano, a spokesperson for the Professional Insurance Agents of New York."

She added that despite charges of broker bid-rigging and price-fixing brought by Mr. Spitzer, "I don't think the system is broken."

She noted that the national PIA is due to meet tomorrow for discussions with the National Association of Insurance Commissioners about "some standards."

"We are thinking about compensation disclosure practice and what should be required of producers," Ms. Christiano said, noting that the "NAIC is working on a model addressing these policy issues."

Ted Besesperis, representing the PIA in Washington, said the group will be coming out in a few days "with extended comment on these issues."

A hearing on the insurance broker fees issue will be held Nov. 16 by a panel of the Senate Governmental Affairs Committee. Plans are being discussed within the House Financial Services Committee to hold a "roundtable" on the issue in January, and a meeting to discuss how state regulators should deal with the issue is scheduled for Thursday.

NAIC President Diane Koken is heading the 13-state NAIC Task Force created to gather the facts, coordinate state activities and address alleged misconduct and violations of existing state laws suggested by the investigations launched in April into broker commissions by Mr. Spitzer.

One of the task force's duties, the NAIC said, is to develop a model act for Broker's Disclosure of Compensation.