California Insurance Commissioner John Garamendi has announced that he will suspend his efforts to adopt new regulations imposing fiduciary duties and mandatory disclosure obligations on insurance agents and brokers.
“We have been working with IBA West and others in the insurance industry to encourage changes in the practices of agents and brokers that will prevent steering and bid rigging,” Garamendi said. “We have also stressed the obligation that all insurance professionals have to fully disclose any manner in which their compensation might influence the recommendations they provide to their customers.”
Meanwhile, IBA West is developing the “Guide to Compensation Disclosure,” which if adopted by its members, will help customers receive much-needed information about the services they can expect to receive from their agent or broker, and about the compensation their agent or broker will receive for providing those services. The guide provides information and voluntary disclosure options for broker-agent consideration, but does not recommend any particular disclosure statement.
Last November, the California Department of Insurance proposed broker fiduciary duties regulations that, if adopted, would have required brokers and agents to secure the “best available” insurance coverage from the “best available” insurance company. Then earlier this year, CDI proposed revised regulations that would have imposed mandatory disclosure obligations on almost all brokers and agents.
Industry associations opposed the proposed regulations, and IBA West has been drafting the voluntary guide. According to IBA West, it recognized that agents and brokers face potentially significant liability arising out of the problems Commissioner Garamendi identified and attempted to solve, said IBA West General Counsel Steve Young.
“The Commissioner deserves credit for calling attention to these issues and for attempting to educate licensees on the present and future dangers they may be facing,” Young said. “And we applaud his willingness to let the industry attempt to regulate itself.”
“Members of IBA West have repeatedly asked for assistance in determining whether they should voluntarily provide more information to their customers, and if so, for help in drafting sample disclosure clauses for their evaluation,” IBA West President Stan Simpson said in announcing the Guide.
“Its suggestions are not intended as a statement of recommended or best practices. But it does identify considerations for members to evaluate should they decide, in light of their own professional circumstances, to provide more information to their customers,” he said.
The IBA West Guide includes the following:
*Discussion of possible components of compensation disclosure;
*Sample introductory clauses;
*Sample commission disclosure clauses;
*Sample contingent commission clauses;
*Sample fee disclosure clauses;
*Discussion of statements concerning client or insurer representation;
*Sample clauses limiting the scope of services provided;
*Sample clauses where one quote may provide greater income;
*Sample clauses inviting customers to ask questions or request additional information; and
*Sample concluding clauses.
“These guidelines are completely voluntary,” Simpson said. “Individual brokerages and agencies are free to ignore or modify these guidelines to fit their own circumstances.” The Guide provides a cafeteria line of options, and every agent and broker retains the right to pick and choose as many, or few, or none, of the options as they deem appropriate.
Commissioner Garamendi noted that the Department will hold off on issuing its Agent-Broker Compensation Disclosure Regulations in order to give the various initiatives coming from the industry an opportunity to take root. “If the industry is able to correct this problem on its own, we do not need regulations,” the Commissioner said. “We will monitor the industry closely to determine whether further regulatory action is needed to fully protect consumers.”
“The Department of Insurance will watch carefully to see whether the various efforts to deal with this problem, including the suggestions contained in IBA West’s Guide, are widely adopted by agents and brokers and what benefits they are providing to consumers,” Garamendi said. “In addition, we are continuing with our investigation and will bring enforcement actions against any agents, brokers or insurers we find to have violated the law by bid-rigging, steering or failing to disclose material information to consumers.”
IBA West officers and top staff have been discussing the Guide in Town Hall meetings throughout the state this week, and member reaction has been overwhelmingly positive.
Insurance Skills Center, the education arm of IBA West, also is developing and will unveil new continuing education classes on legal duties of insurance agents and brokers and compensation disclosure options in early 2006.
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