The National Association of Insurance Commissioners’ Executive Task Force on Broker Activities heard a consensus from industry and producers that while remedies were needed, the initiatives suggested so far were overly broad and do not reflect the way business is actually conducted.
Testifying before the task force, NAMIC’s Director of Legal and Regulatory Affairs Peter Bisbecos said that any resolution should be narrowly drawn and ultimately guarantee access to vibrant and competitive markets. He noted that since the whole of the problem is not clearly defined, arriving at a solution at this point is premature and further deliberation is required.
Bisbecos offered two points as evidence of the need for a more deliberative pace. First, he noted that there was no clear standard by which to prove the fraud that has been alleged.
Some have suggested that absent disclosure, it could be fraudulent for a broker to provide multiple quotes to a consumer if all quotes are from insurers who pay the broker commissions, and none are from companies that do not. Bisbecos noted that it is unknown if producers would have to check with 10, 20 or 30 companies aside from those that normally pay them commissions and that this lack of clarity would lead to extensive civil litigation. Additionally, not clarifying what constitutes a criminal offense might well be constitutionally vague, according to Bisbecos in response to allegations of criminal activity.
Bisbecos also noted that companies receiving interrogatories from the states don’t yet know the authority under which these demands for information are issued, or the degree of confidentiality attached to the information that companies will be sending in response. This fundamental issue must be resolved at the outset, Bisbecos said. He concluded by noting these two concerns, along with NAMIC’s previously filed testimony and the testimony of producers and insurers prove the need to slow the process down so that proper deliberation could occur.
The NAIC hearing was initially scheduled to take comment on proposed amendments to the Producer Licensing Model Act, amendments that would require disclosure of broker and agent compensation. The scope of the hearing was subsequently broadened to include any comments on their entire response – including the questions that are being sent to insurers by the insurance departments.
The hearing began with a presentation by Gary Cohen, the General Counsel for the California Department, who discussed his department’s concerns and how the model addressed those concerns. Cohen asserted that the problem is much broader than that revealed by the New York lawsuits and that it is not yet fully defined. For instance, Cohen argued that even captive agents should be required to disclose because they might be required to sell other products to certain customers and consumers should know about various commission levels so that they could make a fully informed decision.
Following this presentation, three panels were called to testify. The first panel consisted of NAIC funded consumer representatives. The second panel consisted of agents and brokers. While perspective varied widely, and various corrective proposals were suggested, there was general agreement on several points:
· Reasonable and appropriate disclosure is desirable.
· The proposed amendments to the model are too broad.
· It is unclear how notice to policyholders would be accomplished.
· The proposed amendments do not reflect the way in which business is done by producers.
The insurer panel on which Bisbecos participated followed. General points of agreement were that:
· Agreement with the general points, above, raised by producers.
· That the states should do a better job of coordinating their interrogatory process as it does not appear to be uniform.
· That more deliberate consideration of this problem is required.
The NAIC has said that it wants to have a final decision on the amendments to the Producer Licensing model by the end of the year. Future action beyond that point remains unclear.