PCI Says Revised NAIC Producer Licensing Model Makes Progress, But Still Flawed

One day after a lengthy hearing on its draft Producer Compensation Disclosure Amendment to the Producer Licensing Model Act, the National Association of Insurance Commissioners (NAIC) released a revised version of the proposal. The Property Casualty Insurers Association of America (PCI) stated that substantial revisions are still needed if the model is to accomplish its objectives without unintended consequences.

PCI is concerned that the revised model continues to attempt to address the producer compensation issue by requiring disclosure by both brokers and agents, instead of focusing on the fact that the current controversy has arisen solely in the context of broker relationships.

Section A of the revised model sets forth specific disclosure requirements for brokers. While the revised model does contain some improvement, PCI is concerned with the continued use of the “acts on behalf of the customer” language that is applied to all insurance producers.

“This is clearly the ‘bright line’ that distinguishes brokers from agents,” said Robert Zeman, senior vice president, insurance regulatory affairs, for PCI. “Brokers, whether they are compensated by the company, the consumer, or both, represent the client in the transaction. Agents, on the other hand, whether captive or independent, represent the insurer or insurers with whom they have contracts. We believe that the model should only address brokerage transactions because the allegations of impropriety have been confined to the brokerage arena.”

PCI also raised concerns about the model’s requirement that producers obtain a written consent document from consumers. “We urge the NAIC to eliminate this requirement and instead permit brokers to use reasonable means to notify consumers. Written consent forms will be difficult to obtain, will increase transaction costs, will delay policy issuance, and will require brokers to maintain reams of documentation forms that have little, if any, value to consumers,” Zeman said.

Section B of the revised model is designed to require disclosure by agents or others not covered by Section A. PCI continued to caution NAIC against extending such provisions to agents and during the debate over the revised model several commissioners argued for the elimination of this section or at least for a delay in implementing it until problems in the marketplace surfaced.

“As we stated in our testimony, the model act should focus on those areas where problems exist, rather than cast a wide net and mandate costly and unnecessary disclosure requirements of every insurance producer. When it is clear to consumers that they are purchasing their insurance through an agent then there is no conflict of interest, real or perceived. We are concerned that there could be unintended consequences from the broad application of the revised model,” Zeman said.

Regulators established a Thursday morning deadline for interested parties to comment on the revised regulations and indicated that they plan to have an updated draft of the proposal by Dec. 17. NAIC President Diane Koken stated that the NAIC hopes to schedule an Executive/Plenary Committee conference call to adopt the model by year-end.

“The NAIC needs to balance the need for care and caution with the need to have a model in place for consideration by state legislators early in the 2005 sessions,” said Zeman. “We believe that the most expeditious way to accomplish this would be to eliminate Section B from the proposal and adopt a model that focuses exclusively on broker relationships. The NAIC can amend the model in the future to address a broader spectrum of producers if that becomes necessary.”

On a related matter, PCI urged regulators to take a uniform approach when conducting inquiries of company producer compensation methodology and process. “To facilitate and streamline these inquiries, we urge NAIC to adopt the ‘domestics-only’ template and to work aggressively to encourage states to use this form without deviation. This is one of the most immediate and valuable ways for NAIC to assist state regulators to obtain the information they need to make sound decisions and for insurers to comply with requests for information on this vital issue,” Zeman said.