Consumer Advocates Should Offer Full Disclosure

I think it's great that the National Association of Insurance Commissioners pays the expenses of some consumer advocates to attend their meetings, thereby assuring that the average buyer's perspective is taken into account when formulating regulatory policy. However, I also think such funded-reps should be required to fully disclose the sources of all their financing, with no exceptions, to reveal any potential conflicts of interest.

My suggestion is not original, but was prompted by a similar call made this week by the National Association of Mutual Insurance Companies in a letter to the NAIC. (Click here for the full story.)

NAMIC suggests that new disclosure requirements being considered by the regulator group be expanded to include any form of financial assistance received from any entity with an interest in insurance oversight.

The current proposal–coming before the NAICs Executive Committee this weekend–would require funded consumer reps to only disclose compensation from entities directly regulated by state insurance regulators.

That is not sufficient, as Robert Detlefsen, NAMIC's vice president of public policy, pointed out in his letter. There are many entities not regulated by insurance departments that nevertheless have a considerable financial interest in insurance regulation, he noted–citing trial attorneys, realtors, homebuilders, automakers, banks and lending facilities, rating agencies, and risk modeling firms.

NAMIC believes that the potential for a conflict of interest would be every bit as great if an NAIC consumer representative accepted funding from one of these entities as it would be if he or she received funds from a state-regulated insurance entity or insurance trade association, Mr. Detlefsen added.

Therefore, NAMIC suggests that funded consumer reps be required to disclose any form of financial assistance received from any entity that is known to have, or could reasonably be expected to have, a material interest in insurance regulation, including third-party nonprofit groups.

I heartily second the motion. If a consumer rep has nothing to hide or be shy about explaining, why not disclose all relevant funding sources?

Taking their logic a step further, NAMIC went on to urge that all funding disclosures be made public to enhance the transparency of the Consumer Participation Program.

Again, why not? I am in favor of full disclosure all around, whether in terms of producer compensation, incentive travel offered by carriers to top distributors, or consumer advocates getting a free ride to the NAIC meetings–essentially on the insurance industry's dime. (Where do you think the NAIC's budget comes from?)

Supposedly, NAMIC's letter was the only comment on this proposal that NAIC received, which is disappointing. I wish the entire industry had stood together on this.

Did some of the associations fear antagonizing an already ornery consumer advocate community? Or did they simply think it was a waste of time pushing for any further disclosure?

What do you folks make of all this?