Conn. Proud of Its ‘Common Sense’ Compensation Disclosure Law

States in search of a “common sense” approach to insurance producer compensation disclosure might consider talking to Connecticut officials, that state’s commissioner recently proposed.

“I’m pretty proud of Connecticut,” Insurance Commissioner Susan Cogswell told a gathering of the Independent Insurance Agents and Brokers of Connecticut recently in discussing that state’s new producer compensation law.

She explained that she is proud “because there are still states out there trying to put together a common sense approach. I suggest they talk with Connecticut.” Cogswell did not name any states but New York insurance department officials have recently indicated they are still putting together regulations for a “common sense” approach to compensation disclosure by agents and brokers.

Conn.’s model approach

Connecticut’s disclosure law was passed early this summer, signed into law in June by Gov. Jodi Rell, and became effective Oct. 1, 2005. It closely mirrors the model act approved by the National Association of Insurance Commissioners. Rell was one of 13 state insurance regulators who worked on the language for the NAIC model.

The act prohibits an insurance producer or broker who receives compensation directly from a customer from also receiving compensation from an insurer or other third party unless the producer first obtains the customer’s consent in writing. The producer must disclose the third party compensation amount if it is known or, if it is unknown, give a reasonable estimate and describe how the compensation is calculated.

Cogswell thinks the new law tackles the problem of brokers hiding certain compensation without putting an “undue burden” on insurance sales.

“It is a fair model. We’re certainly not seeking to eliminate the ability of brokers to receive appropriate compensation. The purpose is to enable consumers to make informed decisions and create transparency,” she commented.

Cogswell thinks the key part of her state’s new law is its provision making misrepresentation to induce the purchase of insurance an unfair and deceptive insurance practice. “This is very, very important,” she told agents and brokers. Violators can have their licenses suspended and be fined up to $1,000 per violation. If the person knowingly commits the violation, fines are up to $5,000 per violation.

More subpoenas ahead

Cogswell warned producers that state’s investigations into brokerage practices are not over.

“I would love to stand here today and tell you this blot on the industry is over but it’s not,” she advised, reporting that she recently learned that nine additional firms have been subpoenaed.

The scandals have apparently not shaken her faith in the business she regulates. “I have confidence in the industry as a whole,” she said.

She also reminded producers that starting in 2007 their licenses will renew on their birth month in order to stagger the process. Currently, some 80,000 licenses are renewed every year.

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