Regulators Harm Buyers More Than Brokers: NAMIC

Regulators Harm Buyers More Than Brokers: NAMIC

NU Online News Service, April 15, 1:31 p.m. EDT?Instead of worrying that agent/broker fee improprieties are raising consumer insurance costs, policymakers should focus on regulatory action that hikes expenses and prices, a leading insurer trade group executive told an industry meeting.[@@]

Regulatory requirements have pushed up prices "for years," according to Roger H. Schmelzer, vice president of state and regulatory affairs with the Indianapolis-based National Association of Mutual Insurance Companies.

Speaking recently to the Insurance Society of Pennsylvania, he said rate regulation and government-imposed underwriting restrictions are "price-inflationary regulatory practices crying out for reform."

However, he added, such concerns are routinely dismissed by many of the same officials ready to take regulatory action now over producer compensation following revelations concerning conflict of interests by brokers.

While rooting out illegal behavior is an important objective, Mr. Schmelzer said the challenge is to focus
on doing the right thing in the wake of high-profile inquiries into broker insurer relationships.

His comments followed settlements recently by three major brokers accused by New York and Minnesota authorities of improprieties, including price-fixing and steering customers for kickbacks that took the guise of incentive fees and placement agreements. The firms have agreed to pay back more than $1 billion to commercial insurance customers.

In response regulators have been formulating regulations and licensing rules to guarantee more effort on behalf of clients by brokers and agents and requiring greater disclosure of fee arrangements .

"Regardless of how the producer licensing problem is resolved, the fact remains that burdensome
rate and form filings, uncoordinated market conduct exams and a lack of uniform administrative
requirements do not add value to the insurance transaction," said Mr. Schmelzer.

The NAMIC executive complained of
"mountainous compliance costs, all of which are ultimately borne by consumers through higher premiums. Very little outrage is ever expressed by those in a position to do something about it.
This is the great irony of the producer compensation controversy."

The two major impediments to reaching a conclusion on an appropriate public policy solution over agent/broker compensation regulations, according to Mr. Schmelzer, are disagreement on what constitutes a conflict of interest
and whether a fiduciary duty should be owed by a producer.

Mr. Schmelzer asserted that "an inherent and inescapable potential conflict of interest exists in every
professional relationship where compensation is based upon a professional relationship. Trying to codify it will be extremely difficult."

He also suggested that reaching a meaningful standard of fiduciary duty, as some have attempted, would be another step in the direction of undermining insurance as a risk-transfer mechanism. "Consumers have to bear some responsibility for assessing their needs and deciding what they will pay," Mr. Schmelzer said.

"Illegal behavior that distorts the marketplace is being punished. The very best thing that can be
done for consumers is to assure them a regulatory environment that is safe, efficient, competitive and affordable," Mr. Schmelzer concluded.

NAMIC counts as members more than 1,400 member companies that underwrite 43 percent of the $196 billion in property-casualty insurance premiums in the United States.