The Property Casualty Insurers Association of America (PCI) supports provisions of a model regulation that require insurance brokers to disclose that they are acting as a broker and to disclose all sources of compensation – including incentive commissions based on profitability or volume of business – to their clients and prospects. PCI also suggested refinements to the draft model and urged regulators to limit the disclosure of compensation provisions only to brokers.
PCI voiced its views in written testimony submitted to the National Association of Insurance Commissioners (NAIC). The insurance company trade group will testify on this issue before a hearing of the NAIC Task Force on Broker Activities scheduled for Saturday, Dec. 4 at the NAIC’s winter meeting in New Orleans.
“PCI supports open and competitive markets,” said Robert Zeman, the association’s senior vice president of insurance regulatory affairs. “Transparency in representation and disclosure of broker compensation can be an important component of open, fair, and reasonably regulated markets. With appropriate transparency and disclosure with respect to broker compensation, consumers should be able to make informed purchasing decisions.”
PCI says it agrees with the approach underlying the NAIC model in that it seeks to address the producer compensation issue by amending the Producer Licensing Model Act. However, the association suggested that several terms used in the model need to be more clearly defined and that the model focus on broker disclosure issues.
“The first section of the proposal represents a measured approach to address the issue of broker disclosure,” said Zeman. “The proposal utilizes an objective test based on compensation to determine when disclosure is necessary and the extent of that disclosure. However, we suggest that this provision apply only to those instances where a producer actually receives payment from both the consumer and the insurance company. This would further enhance a ‘bright line’ test of when disclosure of compensation is needed.”
PCI’s testimony pointed out that when it is clear to consumers that they are purchasing their insurance through an agent – who represents and is being compensated solely by the company – there is no conflict of interest, real or perceived. In these cases, PCI believes that agents should not be required to disclose compensation to consumers. As a result, PCI recommends that the entire second section of the model regulation addressing situations where compensation comes entirely from the company, be deleted.
PCI also offered several suggested clarifications of terms used in the model regulation to further define the rule’s scope and to eliminate potential legal challenges to existing common law or statutory provisions relating to agency law. PCI claims such regulations should only pertain to transactions between the consumer and the agent or broker, and not impose regulatory burdens on those outside the transaction, including managing general agents or wholesale brokers.
PCI also objected to the proposed requirement of a written consent that the consumer accepted the fact of dual representation. “Notice is what is important, not amassing reams of needless consent forms,” said Zeman.
“It is important that regulators keep their focus on the specific problem of disclosure to consumers where brokers receive payment from both the client and the company,” Zeman said. “Expanding the reach of this regulation to include all agents and every transaction would impose needless bureaucratic burdens on the industry without delivering any measurable improvements to the marketplace.”
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