NCOIL March 5 General Session to Address Broker Compensation, Disclosure

February 28, 2005

Legislators will examine options to address broker compensation and disclosure concerns during a National Conference of Insurance Legislators’ general session scheduled March 5 in Hilton Head, N.C.. The discussion, entitled “Broker Compensation: Impact on the Insurance Market” will be followed by a special meeting of the NCOIL Executive and State-Federal Relations committees. At that time, state lawmakers will consider proposals for future NCOIL action. NCOIL meetings are scheduled throughout the March 3 through 6 conference.

The panel discussion will approach the issue in two parts. The first group of speakers will be led by an academic, who will present an overview of the various ways insurance producers are compensated. Subsequent panelists will speak to proposals aimed at addressing the broker antitrust and fraud violations exposed when NYS Attorney General Eliot Spitzer began investigating broker compensation practices last year.

The second panel will focus on interested-party responses to proposals for reform, particularly in light of the dynamics of producer compensation systems. Representatives of the agent, broker, property-casualty, life and health insurance industries will participate.

Legislators convened during the special NCOIL Executive/State-Federal Relations Committee meeting will consider whether to pursue a draft NCOIL Insurance Broker Fiduciary Duty and Conflict of Interest Model Act that was first vetted during the November 2004 NCOIL annual meeting. Alternatively, the committees may choose to support an amendment that the National Association of Insurance Commissioners adopted in December 2004 to its Producer Licensing Model Act. In general, that amendment would require brokers to disclose information regarding any compensation they receive from insurers prior to placing insurance.

Rep. Craig Eiland, NCOIL president, will propose adopting the NAIC amendment and perhaps adding a drafting note. Issues that NCOIL may address could include items that the NAIC deferred in December to allow for additional discussion. Those issues include establishment of a fiduciary duty between a broker and his or her client; disclosure of all quotes a broker receives; and disclosure of agent-owned reinsurance arrangements.

NAIC also deferred language, proposed last year, that would mandate various other disclosures regarding broker compensation, including the fact that additional income received from an insurer may be based on the claims/loss experience of the policies in force, as well as on the premium volume placed with a carrier.

NCOIL delayed action on its November 2004 proposed model act to monitor NAIC activity in hopes of addressing the issue uniformly. A steering committee, comprised of NCOIL officers and committee chairs, has said that the adopted NAIC amendments represent a good start, but that more is needed.

Confirmed panelists for the March 5 general session include: Laureen Regan, Temple University; Deidre Manna, acting director of the Illinois Insurance Department; Wes Bissett, Independent Insurance Agents & Brokers of America; Scott Sinder, Council of Insurance Agents & Brokers; Stef Zielezienski, American Insurance Association; Robert Zeman, Property Casualty Insurance Association of America; Bruce Ferguson, American Council of Life Insurers; Bill Anderson, National Association of Insurance & Financial Advisors; and Russ Childers, National Association of Health Underwriters.

NCOIL is an organization of state legislators interested in insurance legislation and regulation. Many legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country. A copy of the proposed NCOIL Insurance Broker Fiduciary Duty and Conflict of Interest Model Act is available on the NCOIL Web site at www.ncoil.org.

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