Why Be Wary Of Fee Disclosure?

Independent agent groups, both local and national, are responding in public with restraint, but in private are no doubt upset and scared after hearing that the New York Insurance Department intends to require every retail broker to disclose to clients the value of all compensation deals with insurers. I think it's about time.

Yes, it's true that only a handful of mega-brokers spoiled the party for everyone by conspiring to rig bids and fix prices–behavior exposed and corrected by then attorney general (now governor) Eliot Spitzer.

It was really only a matter of time before Gov. Spitzer's insurance department got around to putting out a regulation to force all of the state's producers to play on a level playing field–at least when it comes to telling their customers how they are paid.

It will be awhile yet before the draft regulation is released for comment, and I trust Superintendent Eric Dinallo will give the agency community a fair hearing on the practical implications of his new rule's implementation.

But rest assured there is no turning back now. Once Marsh, Aon and others opened Pandora's Box with their misconduct, then settled with the state, who would reasonably expect the market to forever go on with one group of brokers subject to fee disclosure, while the rest are exempt?

I am not insensitive to the trouble or cost involved in meeting the standard likely to be set by the New York department. Indeed, the biggest trouble will come with contingencies dependent upon the profitability of an agency's entire book of business with a particular carrier.

When announcing the department's intentions at the annual meeting last Friday of the Professional Insurance Wholesalers Association of New York State, (click here for the full story and agent group reaction), Steven Nachman, deputy superintendent for frauds and consumer services, explained that If the amount of compensation cannot be determined up front, the broker would have to provide an estimate and then disclose the actual amount within a reasonable timesay, within 10 business days of knowing the figure.

Of course, PIWA members in attendance were relieved to hear that the proposed regulation would only apply to brokers dealing directly with the public, meaning it would effectively exempt wholesalers and managing general agents.

But on the retail end, why shouldn't consumers know what their agent or broker is paid and how? If agents have nothing to hide, they shouldn't have anything to be afraid of.

The question now is how many states will follow New York's lead and mandate disclosure.

What do you folks think?