NCOIL Broker Fee Model Goes Beyond NAIC Measure

Incoming NCOIL president Rep. Craig Eiland, D-Texas, drafted the proposal for discussion purposes only and will meet with NAIC officials at the group's winter meeting next month when the regulators' proposal will be the topic of a public hearing on the first day.

In addition to full disclosure, the NCOIL measure will require for any broker to have a fiduciary relationship with a client.

But the most controversial portion of the NCOIL measure calls for something akin to a suitability requirement that requires brokers to pick the best available insurance product for their client.

John Washburn, former NAIC president and current representative of Chicago-based broker AON, called the suitability portion "an impossible standard to meet and also would lead to endless litigation."

Mr. Washburn represented the Council of Insurance Agents and Brokers at the meeting.

Mr. Eiland said it was important that any model give regulators market conduct supervisory power over brokers to prevent future abuses.

"Some states have this and some don't," Mr. Eiland said.

While Mr. Eiland conceded that the suitability measure will be stricken, it is not clear what will become of the fiduciary component.

Georgia Insurance Commissioner John Oxendine told the lawmakers that he did not see too many problems with the concept.

But Mr. Washburn said it presents the possibility of many unforeseen consequences, especially in the case of a broker-client relationship, which at the present time is contractual.

"To our knowledge, the creation of fiduciary duties for anyone by statute is unprecedented, and determining the scope of the fiduciary duties purportedly created here would take many years of litigation to resolve," he said.

Other questions raised by the measure include differences between a broker, compensated by the insurance buyer, and agent, compensated by the carrier. Many states lump them together in law under the rubric of "producer."

Mr. Eiland also held out the possibility that NCOIL will join with NAIC in putting forth a joint measure, to gain greater clout in the states next year.

As for the NAIC proposal, the main industry objection focuses not on the disclosure of the broker fee but the notice requirements in connection with them.

Neil Alldredge, of the National Association of Mutual Insurance Companies, said this is one instance when the lawmakers and regulators are following the marketplace in that buyers are taking special pains now to quiz their brokers on the nature of their carrier compensation.

"This NAIC-proposed notice is certainly one that will not be revealing to the buyers," he said.

In October Mr. Spitzer announced an investigation had resulted in a civil suit against the parent of the nation's top broker, New York-based Marsh McLennan, in connection with bid-rigging charges by Marsh Inc. brokerage.