Industry Will Back Modified Broker Disclosure

The proposed measure was developed after New York Attorney General Eliot Spitzer revealed evidence in a civil suit that he said showed Marsh Inc. brokerage fixed and inflated prices and steered business to major insurers in exchange for payoffs disguised as fees and commissions.

The NAIC measure is expected to draw a strong reaction from the agent and brokerage community over the next several weeks. Comments are due by Dec. 1 and interested parties are being invited to speak at a public hearing that will be held Dec. 4 as part of the NAIC's quarterly meeting

Robert Rusbuldt, the chief executive officer of the Independent Insurance Agents and Brokers of America, for example, said his group would write a comment letter on the proposal and will also ask to testify at the public hearing.

"The intentions are good," Mr. Rusbuldt said. "We support more disclosure for brokers and those engaged in brokerage activities. However, we have some technical concerns about the language that we will be talking to the NAIC about. Sometimes, things make sense conceptually, but don't actually translate well to real-world application."

Ernst Csiszar, president and CEO of the Property Casualty Insurers Association of America, said the proposal "makes progress toward addressing the need for more transparency and disclosure in insurance transactions."

Mr. Csiszar added that while certain provisions in the draft "require clarification and refinement," PCI supports the NAIC's efforts to take a coordinated and consistent approach emphasizing transparency and disclosure. "The proposal attacks the issues that are at the heart of the controversy without attempting to impose blanket prohibitions on the use of valid and valuable incentive compensation arrangements," said Mr. Csiszar.

The proposal would also have major effects on the life and health benefits insurance sector. Jack Dolan, a staff official at the American Council of Life Insurers, said the proposal represents "sweeping changes in agent/broker compensation arrangements," and that the ACLI will "review them carefully" before commenting on them at the quarterly meeting early next month.

Under the proposed amendments, "any insurance producer," whether broker or agent, would not be allowed to receive any payments from a carrier unless it is disclosed in advance to the insured and the insured has agreed?in writing?to the payment.

The proposal law was unveiled Tuesday by New York Superintendent Greg Serio as part of his testimony at a hearing on insurance brokerage practices before a subcommittee of the Senate Governmental Affairs Committee.

The language was drafted last Thursday by a 12-member NAIC Executive Task Force on Brokerage Commissions headed by NAIC President and Pennsylvania Commissioner Diane Koken.

Regarding the Big I's concerns, Mr. Rusbuldt said, for example, that under the proposal, agents and brokers that are engaged in brokerage activities would have to supply to a prospective client the amount of contingency compensation they will receive as a result of writing that policy.

"It is actually impossible in most instances to provide that kind of number," Mr. Rusbuldt said.