AIA To NAIC: Don't Set Broker Price Controls
By Arthur D. Postal,Washington Bureau Chief
NU Online News Service, 4:25 p.m. EST, Washington?An insurer trade group is calling on state regulators to reject price controls as a means of dealing with the insurance brokerage fee scandal.[@@]
In comments to the National Association of Insurance Commissioners, the American Insurance Association said it supports the position of the Independent Insurance Agents and Brokers of America that the scope of any proposed model legislation on broker fees should be limited to transaction-based disclosure.
The AIA in a comment letter voices concern that insurance commissioners, in the race to deal with the issue forcefully, might agree with some industry critics' demand for more price controls as a means of deterring wrongdoing.
"We are also aware that some are calling for increased rate regulation of the insurance transactions under investigation as a way of regulating the compensation involved in those transactions," the AIA said in a letter signed by Craig Berrington, a senior vice president and general counsel.
"AIA firmly believes that attempts to impose additional price controls on insurance transactions will exacerbate the problem, rather than help solve it," Mr. Berrington says.
He added that, "Disclosure-based regulation works best in a free market environment where consumers shop for products based on the information provided in the marketplace.
"Government control and approval of rates stifles the business flexibility that consumers demand for these insurance transactions," he said.
The correct path to follow is "transaction-based disclosure by insurance brokers," he said.
As a result, Mr. Berrington said, the AIA is urging the NAIC to investigate and address any existing regulatory barriers to brokered transactions (i.e., transactions where only the customer ultimately compensates the broker).
For example, he said, if a customer wants to pay the insurance broker a fee for the broker's services and does not want the broker to accept a commission from the insurer, then the regulatory structure should be sufficiently flexible to permit corresponding premium reductions without triggering a rate filing.
"State regulation should encourage business flexibility to the extent that it leads to greater competition and increased consumer choices," Mr. Berrington concluded.
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