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California: Commissioner Proposes That Agent or Broker Reveal Compensation If Client Purchases Insurance

Insurance Commissioner John Garamendi unveiled a new version of his regulations on the professional duties of an agent or broker April 13.

"This is about making it clear that brokers, and agents working as brokers, put the interest of their client first - and not their own financial gain," stated Commissioner Garamendi in a news release.

"It is a shame that the commissioner has forgotten the importance of the logical construct that one should establish the existence of a problem before demanding a solution," said State Affairs Manager Christian J. Rataj. "To date, no evidence has been offered by the commissioner to support his conclusion that insurance producers are placing their desire for financial gain above the needs of their clients."

Since October 2004, NAMIC has been working with its state advocacy partner, the Personal Insurance Federation of California (PIFC), and the rest of the insurance industry to oppose any and all unreasonable regulations on insurance producers that would require them to, among other things, disclose their compensation to the consumer.

The original version of the regulations was released in October of 2004, and was greeted with strong opposition from NAMIC, PIFC and others in the insurance industry, who argued that the proposed regulations were unworkable and that the department did not have the legal authority to change existing state law. Although, the revised proposed regulations are less onerous than the original proposed regulations, the insurance industry continues to assert the fundamental position that the CDI should only adopt regulations that are specifically tailored to address an "actual documented" problem in the insurance industry.

The new 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; and
• A broker or agent who has told a client that he 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.

NAMIC, PIFC and other members of the insurance industry will file written comments in opposition to the proposed regulations and will participate in a May 9 workshop to express concerns about the legitimacy of imposing new regulations to resolve an "unproven" problem.

• Review the proposed regulations.

Direct questions to NAMIC State Affairs Manager Christian J. Rataj.