California Insurance Commissioner John Garamendi announced new regulations April 13 regarding agent/broker compensation disclosure.
The proposed regulations would:
Require the agent or broker to advise a client, prior to signing an agreement or receiving a fee, whether the producer will seek a quote from one insurer or more than one insurer.
Require the agent or broker to reveal if he or she is acting on behalf of the insurer or the client in connection with the placement of insurance. A producer who accepts a fee from a client is conclusively deemed to be acting on behalf of the client.
Require the agent or broker to reveal the amount of compensation he or she will receive if the client purchases insurance with any insurer recommended by the agent or broker. If the amount of compensation cannot reasonably be known at the time this disclosure is made, the producer may disclose the method by which any such compensation will or may be calculated.
A broker or agent acting on behalf of the client, or who accepts a fee from the client, may not accept any compensation from a third party for the transaction done on behalf of the client without first obtaining the consent of the client.
A broker or agent who has told a client that he or she will search for the best quote on a policy must reveal the number of quotes obtained, the name of the insurer, the premium amount, and other required information.
The commissioner also expressed support for SB 938 by Sen. Joseph Dunn, D-Santa Anna, to clarify existing rules on the obligations that brokers and agents have regarding clients. It would impose specified requirements on an agent or broker acting on behalf of a client with respect to how they make inquiries of insurers, obtain coverage, disclose information to the client, and charge fees to the client.
The Commissioner’s investigation of broker practices began in early 2004. Last November he filed suit against Universal Life Resources of San Diego and four major insurers, MetLife Inc., Cigna Corporation, Prudential Financial Inc., and UnumProvident Corporation.
The complaint charged that the defendants violated state law by withholding from clients information about the secret deals struck between the insurers and ULR. According to the complaint, ULR would steer clients to the four insurers in order to satisfy secret financial arrangements, regardless of whether the insurance products were the best available, or the best priced. ULR settled the case with the Department and agreed to end the practices.
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