NCOIL Tackles Broker Fees; Blasts Federal Standards Bill
Key West, Fla.
The National Conference of Insurance Legislators has drafted model legislation to stop abuses in broker compensation uncovered by New York Attorney General Eliot Spitzer, but blasted a broader federal proposal to create overall national regulatory standards for states to follow.
The broker fee measure, unveiled at the groups meeting here last week, goes far beyond a comparable proposal put out by the National Association of Insurance Commissioners that focuses on disclosure (see page 6).
Incoming NCOIL President Rep. Craig Eiland, D-Texas, drafted the proposal for discussion purposes only and will meet with NAIC officials at the groups quarterly meeting this week in New Orleans, where the regulators model will be the topic of a public hearing. Rep. Eiland held out the possibility of NCOIL and NAIC putting out a joint measure to gain more clout in the states next year.
In addition to full disclosure, the NCOIL measure will require every broker to have a fiduciary relationship with a client. In addition, it calls for something akin to a suitability requirement that would require brokers to pick the best available insurance product for their client.
John Washburn, a former NAIC president who is now a representative of Aon, called the suitability portion "an impossible standard to meet"one that would "lead to endless litigation." Mr. Washburn, representing the Council of Insurance Agents and Brokers at the NCOIL meeting, said the fiduciary mandate also presents the possibility of many unforeseen consequences for a broker-client relationship, which at the present time is contractual, not fiduciary.
Other questions addressed in the NCOIL measure include differences between a broker (compensated by the insurance buyer) and an agent (compensated by the carrier). Many states lump the two together in law under the rubric of "producer."
Meanwhile, in September, NCOILs president, Sen. Steve Geller, D-Florida, sent a letter to key House lawmakers outlining opposition to legislation that would establish federal regulatory standards to be implemented by the states. The bill is known as the State Modernization and Regulatory Transparency (SMART) Act. Last week, NCOILs Executive Committee formally endorsed its presidents opposition.
The move puts NCOIL at odds with the NAIC, which continues to work with the House Financial Services Committee in drafting so-called federal tools legislation.
For the first half of the year, the two groups worked hand in hand to impress the federal lawmakers with their seriousness in creating uniform regulation, and were successful in jointly developing market conduct model legislation.
Sen. Geller said the initial efforts at cooperation were aimed at getting a "place at the so-called mythical table, but at some point you have to draw a line in the sand because as legislators we all know that if we continue to take part in the process, in the end we will have to support its outcome."
The initial draft of the SMART legislation infuriated state lawmakers, who felt that it stripped them of their powers in favor of federal and state regulators, and in particular the NAIC. Sen. Geller said NCOIL opposition stemmed from the measures rate and form deregulation, the presence of a federal regulator, and federalized agent licensing, which he predicted would end up as a "race to the bottom" in regulatory standards.
Rhode Island State Sen. Dave Bates, R.-Barrington., expressed qualms about NCOILs action, fearing that the alternative of optional federal charter legislation will be much worse than what is currently under discussion.
Reproduced from National Underwriter Edition, November 24, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.