Any solution proposed by the NAIC in response to the broker compensation issue should be targeted to a well defined problem, according to testimony submitted by the National Association of Mutual Insurance Companies (NAMIC) last week.
In comments to the National Association of Insurance Commissioners (NAIC) Executive Task Force on Broker Activities on revised amendments to the Producer Licensing Model Act, NAMIC urged that disclosure be limited to instances where compensation is received from the insurer and the insured, creating the appearance of a potential conflict of interest.
“As this is the one clear problem that has been identified to date, we believe that the model should be tailored to require appropriate notice,” wrote Peter Bisbecos NAMIC director of legal and regulatory affairs.
The NAMIC comments expressed continued concern about the pace of the review of the model and suggested a more deliberate consideration of the entire issue of broker compensation. The model “requires further consideration, beginning with a clear definition of the problem that it is intended to resolve,” Bisbecos said.
Bisbecos further suggested that appropriate disclosure will not impede competitive markets. “The law must be clear and reliable. This concept is so fundamental that we rarely articulate it, assuming that it will be the case. Clear and reliable laws are necessary for open and competitive markets. When laws are unclear and unreliable, people must act defensively as they cannot predict how or when a violation will be alleged.”
Another NAMIC concern relates to informing the consumer of the amount of compensation.
“Most insurance markets are competitive and consumers may shop to compare prices. If one company provides a higher commission with a better product at a competitive price, the consumer is clearly not harmed by choosing that policy. Yet, knowing that the commission is higher might motivate the consumer to choose a more limited policy, or a policy with a company that is less financially sound,” wrote Bisbecos.
Because it is also widely recognized that it is frequently not possible to inform a consumer of the amount of a commission, the model requires a “reasonable estimate.” Unfortunately, brokers, agents and insurers are likely to find that the definition varies from state court to state court.
Lastly, consumers are free to ask what the commission will be. If the agent or broker chooses not to answer, the consumer is free to go to someone who will. “Requiring disclosure of specific commission amounts will provide little if any consumer protection but almost certainly impair access to competitive markets,” wrote Bisbecos.
The full text of NAMIC’s letter to can be read at:
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