Policymakers concerned that producer compensation practices might result in higher prices for insurance consumers should “pay attention to regulatory requirements that have had that effect for years,” according to a senior official of the National Association of Mutual Insurance Companies.
Speaking to the Insurance Society of Pennsylvania on Monday, NAMIC Senior Vice President of State and Regulatory Affairs Roger H. Schmelzer said that rate regulation and government-imposed underwriting restrictions are “price-inflationary regulatory practices crying out for reform,” but that they are routinely dismissed by many of the same officials ready to take action on producer compensation.
While rooting out illegal behavior is an important objective, Schmelzer said the challenge is to focus on doing the right thing in the wake of high-profile inquiries.
“Regardless of how the producer licensing problem is resolved, the fact remains that burdensome rate and form filings, uncoordinated market conduct exams and a lack of uniform administrative requirements do not add value to the insurance transaction,” said Schmelzer who pointed to
“mountainous compliance costs, all of which are ultimately borne by consumers through higher premiums. Very little outrage is ever expressed by those in a position to do something about it. This is the great irony of the producer compensation controversy.”
The two major impediments to reaching a conclusion on an appropriate public policy solution on compensation according to Schmelzer are disagreement on what constitutes a conflict of interest and whether a fiduciary duty should be owed by a producer.
Schmelzer asserted that “an inherent and inescapable potential conflict of interest exists in every professional relationship where compensation is based upon a professional relationship. Trying to codify it will be extremely difficult.”
He also suggested that reaching a meaningful standard of fiduciary duty as some have attempted would be another step in the direction of undermining insurance as a risk transfer mechanism.
“Consumers have to bear some responsibility for assessing their needs and deciding what they will pay,” Schmelzer said.
“Illegal behavior that distorts the marketplace is being punished. The very best thing that can be done for consumers is to assure them a regulatory environment that is safe, efficient, competitive and affordable,” Schmelzer concluded.
Founded in 1895, NAMIC is a full-service national trade association with more than 1,400 member
companies that underwrite 43 percent ($196 billion) of the property/casualty insurance premium
in the United States. NAMIC members account for 44 percent of the homeowners market,
38 percent of the automobile market, 39 percent of the workers’ compensation market, and
31 percent of the commercial property and liability market. NAMIC benefits member companies
through advocacy, public policy and member services. Information about the association, its
member companies and the property/casualty insurance industry can be found at NAMIC
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