Agents Protest New Calif. Regulations

By Matthew Brady

NU Online News Service, Jan. 19, 4:08 p.m. EST?California insurance agents and brokers are continuing to voice their opposition to the state's proposed agent and broker fee disclosure and "fiduciary duties" regulations, as ambiguous and too expansive.[@@]

At a public workshop held by the state Department of Insurance last Thursday, in addition to putting forward complaints they offered to draft a compromise.

Steve Young, general counsel for the Insurance Brokers and Agents of the West, an affiliate of the Independent Insurance Agents and Brokers of America said, "It will be exceedingly difficult to draft a single proposal that everyone would support."

However, he said the current situation "is not acceptable because brokers and agents are being subjected right now to unfair liability for allegedly failing to fully inform consumers regarding contingent commissions, and we face the prospect of legislative proposals that are even more draconian and unworkable than the regulation suggested by the commissioner."

Insurance agents and brokers have blasted the proposed regulations as being overly broad and a provision requiring agents to offer a vague "best available" coverage as impossible to follow.

Additionally, they have argued that California's administrative laws require the department and State Insurance Commissioner John Garamendi to provide a reason for establishing the rules.

Commissioner Garamendi as justification has cited a probe by his office and the investigation by New York State Attorney General Eliot Spitzer, which has pointed to evidence of brokers colluding with insurers against the best interests of clients.

Agents' and brokers' groups say that no evidence has been produced showing such improper industry conduct in the Golden State.

"Our request that the CDI offer concrete evidence of broker-agent misconduct, and not just hypothetical examples and references to other jurisdictions, has so far met with silence, said Ken Nigohosian, executive director of the American Agents Alliance.

His group represented a coalition of industry groups at the workshop. Mr. Nigohosian said his group has heard of some agents who believe they will not be affected by the regulations.

"This could not be farther from the truth. The regulations, if promulgated, will affect all insurance agents and brokers in all lines," he said.

Also appearing on behalf of the Alliance at the workshop was attorney Bob Hogeboom from the law offices of Barger & Wolen.

Mr. Hogeboom questioned the department's general counsel, Gary Cohen, regarding letters of inquiry sent to all domestic insurers in late December seeking information on compensation agreements between individual producers and the respective carriers.

Mr. Hogeboom argued that these letters have no legal foundation, and asked that they be withdrawn. In response, Mr. Cohen acknowledged that the letters are without authority, but added that California regulators would subpoena any information that was not voluntarily submitted.

The Alliance is concerned about the issue because it fears that the disclosure of this information could lead to a wave of litigation, investigations and disciplinary actions.

"Make no mistake: the CDI is taking full advantage of the national furor over the misdeeds of a few large brokerages to aim its regulatory guns at all of California's broker/agent community," said Mr. Nigohosian.

"The Alliance fully supports the CDI's effort to weed out any criminal activity, such as that uncovered by New York Attorney General Elliot Spitzer. Commissioner Garamendi already has the authority to do so, and these regulations are unnecessary, unrealistic, and unhealthy to California's insurance market," he said.

The Department has not decided whether to formally submit its proposed regulation for adoption, but it would need to file amendments with the state Office of Administrative Law unless it wished to withdraw the original proposal and start over.