NCOIL Proposes Broker Disclosure Rule

Agent and insurer trade representatives said the model represented the targeted approach they have favored to remedy problems stemming from a small sector of the producer community.

"The NCOIL proposal is a tailored and responsible legislative response to concerns that have been raised about the compensation of insurance brokers," according to Wesley Bissett, senior vice president of the Independent Insurance Agents & Brokers of America.

Timothy K. Kovach, director of business and compliance affairs for the National Association of Professional Insurance Agents, said the NCOIL model is in line with remarks by New York Attorney General Eliot Spitzer, "in which he cautions against jumping to conclusions and overreacting to his highly publicized lawsuits and settlements."

Mr. Kovach said the NAIC model failed to draw a distinction between "mega-brokers, where alleged abuses detailed by Mr. Spitzer have occurred, and Main Street professional insurance agents, who have not been accused of such wrongdoing."

While the NAIC model also focuses on doubly-compensated producers, it includes a proviso that many industry representatives feel casts a much wider net by including producers who merely "represent the customer with respect to [a] placement."

Another area of concern to industry leaders is how the NAIC is formulating its proposed disclosure rules. In a letter earlier this month to NAIC President Diane Koken, signed by all the major p-c tradeswith the exception of the Property Casualty Insurers Association of Americathe process by which the model is being developed faced criticism for its alleged secrecy.

"On an issue of such public importance such as producer compensation, private meetings and actions by government officials are both unacceptable and violative of state open meeting laws," the letter stated.

NAIC officials are contemplating making the law apply to all producers as well as adding fiduciary duties, according to the "Frequently Asked Questions" recently posted on the organizations Web site.

"This is a position that is both alarming and contradicts the legislative reaction on this issue in almost every state," the joint industry letter stated.

NAIC officials could not be reached for comment as this story went to press.

The NCOIL model covers only initial insurance transactions, while the NAIC counterpart extends coverage to renewals.

Meanwhile, the NCOIL model exempts secondary and residual market transactions, while its NAIC counterpart does not. In addition, only the NAICs model bill requires written acknowledgement by the insured that they have been notified about their brokers compensation.

State lawmakers and regulators are facing increasing pressure to prove to Congress and advocates of federal regulation that they can act in harmony to achieve something approaching a nationalized but state-based insurance regulatory regime, according to NCOILs president, Texas Rep. Craig Eiland, D-Galveston.

He said that could entail working with the NAIC to endorse joint model acts, as was the case with the market conduct surveillance model act, or merely endorsing an NCOIL model that is in line with its NAIC counterpart.

As is the case with all such models, the broker disclosure initiatives success will ultimately depend on the number of states where it gains passage, regarless of whether it is proposed by the NAIC or NCOIL.

So far, only Connecticut has introduced a bill that tracks closely to the NAIC model, and that will face competition from one seen as more onerous to the industry backed by Attorney General Richard Blumenthal, who has been actively prosecuting alleged wrongdoing in the insurance industry, along with Mr. Spitzer.

Reproduced from National Underwriter Edition, March 10, 2005. Copyright 2005 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.