Brokerage Industry Divided on Appropriate Disclosure





and

Section One requires producers to get their insureds prior written consent of compensation from insurers. The IIABA also calls on the NAIC to eliminate the second section of the proposal, which calls for all producers to disclose to customers in advance that they are compensated by the insurer and potentially eligible to receive contingent compensation from that insurer.

By contrast, the Council of Insurance Agents and Brokers said in its comment letter that it supports both sections of the proposed amendments to the Producer Model Act.

"The first provision of the proposed amendment appears to be intended to require specific disclosures regarding compensation when a producer receives compensation related to a transaction from both the purchaser of insurance and the insurance carrier," the CIAB says in its comments. "When coupled with the more generic disclosure required of all producers under the second section of the proposed amendment, we believe the language fully satisfies the overall intent to inform clients of the nature of a producers compensation arrangements."

Both trade groups were scheduled to testify on their views at a public hearing the NAIC scheduled on the proposed amendments for Saturday, Dec. 4, as part of its quarterly meeting in New Orleans. The proposed regulation was prompted by allegations of alleged bid-rigging by brokers uncovered by New York Attorney General Eliot Spitzer.

In its comment letter, the IIABA said the NAIC should not overreact and should take its time to develop a model "that is meaningful and effective but without unwarranted provisions or unintended consequences." It implies that NAIC does so through the second section of the amendments.

"The provision has the broadest possible scope, yet the current investigations of criminal misconduct and other wrongdoing have only revealed illegal behavior at the highest levels of the commercial marketplace," the IIABA said in a comment letter signed by Robert Rusbuldt, CEO, and Wesley Bissett, senior vice president, government affairs and state relations.

"This section extends well beyond the focus of the task force and imposes costly compliance obligations on every insurance agent and broker in the country with questionable benefit for consumers," the letter said.

"At a minimum, the section should be disconnected from the model law and made optional [so that] individual state policymakers can make their own determinations whether such a broad provision is needed in their jurisdictions."

Separately, the American Association of Managing General Agents is seeking an exemption in the disclosure rules for MGAs. The King of Prussia, Pa.-based association said that MGAs and wholesalers serve as intermediaries between retail brokers and carriers, and, as such, have no contact with the insured buyers. An MGA essentially operates as an extension of an insurance company office, the group said.

Reproduced from National Underwriter Edition, December 3, 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.