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California: Industry Questions Commissioner's Legal Authority to Make Sweeping Changes to Code of Regulations, Producer Professional Duties Law

NAMIC's State Advocacy Partner, the Personal Insurance Federation of California (PIFC), filed written comments Monday on behalf of NAMIC and its other insurance company members opposing the California Department of Insurance (CDI) April 12 Proposed Changes to Broker Fiduciary Duties.

According to the CDI news release, 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;
• 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;
• 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, not to 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 or she will search for the best quote on a policy to reveal the number of quotes obtained, the name of the insurer, the premium amount, and other required information.

NAMIC, PIFC and the rest of the industry have been vigorously opposing the commissioner's attempt to totally rewrite California law as it relates to the legal definition of a broker and agent, and the professional duties owed by each to his/her client. The commissioner unveiled his initial regulations on this subject on Oct. 20, 2004. NAMIC, PIFC and the industry opposed the proposed regulations as being unnecessary, unreasonable and impractical. PIFC staff referred to the proposed regulations as a "solution in search of a problem."

PIFC, on behalf of NAMIC and its other insurance company members, filed written comments to the new version of the CDI's proposed regulations, arguing that the "proposed regulations lack consistency, are not necessary, and fail the test of clarity." PIFC further asserted the position that the "proposed regulations represent a complete re-write of the original regulations and should be subject to a new 45 day public comment period."

PIFC made the following arguments in its written comments in opposition to the proposed regulations:

• The commissioner lacks the authority pursuant to the government code to implement the proposed regulations;
• The proposed regulations are inconsistent with existing law, lack clarity, and are not necessary; and
• The department has not established the need for the regulations.

The industry is scheduled to meet with CDI today to discuss its concerns with the proposed regulations. PIFC will provide testimony in opposition to the regulations on behalf of NAMIC and its other members.

Review the CDI proposed regulations and PIFC's written comments

Direct questions to State Affairs Manager Christian Rataj.