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California: Department of Insurance Pushes Proposed Insurance Producer Disclosure Regulations Without Proof of Need

NAMIC's state advocacy partner, the Personal Insurance Federation of California (PIFC) participated in an insurance department hosted workshop on "revised" proposed regulations on broker fiduciary duties, May 9. Very little progress was made.

"The department maintained that it has the authority to proceed with the regulations and that a 'problem' exists in the marketplace when consumers are not fully informed regarding the forms of compensation that an agent or broker receives," according to PIFC's Michael Paiva.

"Unfortunately, the CDI has failed to offer any evidence to support that there is any 'problem' that needs to be fixed or any legal argument to support the conclusion that the current law on point does not adequately address the needs of the consumer," stated NAMIC State Affairs Manager, Christian J. Rataj. "Since October 2004, the CDI has been involved in a media campaign to publicize its proposed regulations and the alleged need for 'compensation transparency' in the insurance producer marketplace. However, during this seven month period, the CDI has not been able to demonstrate that consumers, who are now well informed about the CDI's purported concerns, are filing complaints that insurance producers are engaging in the kind of behavior alleged by the CDI. The CDI's lack of evidence, especially given all media attention, strongly suggests that the alleged problem is a 'fiction' not a reality."

CDI General Counsel Gary Cohen represented that he did not think that the current version of the proposed regulations present a problem to captive agents; he did not intend to include them. Captive agents would merely be required to disclose to the consumer that they "worked for the insurer and not for the consumer, and that they could only offer insurance of that one company."

As has been the case for the past seven months, the insurance industry repeated its contention that the department does not have the legal authority to implement the proposed revised regulations, and that the CDI has failed to demonstrate the existence of a "problem" that cannot be remedied with existing law.

"The insurance industry participants uniformly stated that any regulations in this area will likely only confuse consumers and make commission the 'lowest common denominator' when in reality, price and coverage is what most consumers are concerned about," stated Paiva.

PIFC provided the following summary of key points raised in the industry workshop:

• Cohen acknowledged that the revised regulations were not perfect; he welcomed industry suggestions to make the regulations more workable.
• Cohen announced that the CDI would like insurance industry representatives to form a smaller working group to craft disclosure language. CDI Senior Staff Counsel Jon Tomashoff indicated that meeting participants would soon receive an invitation.
• According to Cohen, the key parts of the new regulations would be a disclosure that would include:
• a statement informing the consumer regarding who the agent or broker represents, and
• if the agent or broker holds himself out as representing the consumer, "additional" disclosures would be required.
• Very little time was devoted during this meeting to an examination of the proposed regulations. Rather, the industry representatives spent most of the time challenging the department to demonstrate the "problem" that it seeks to remedy.
• IBA West General Counsel Steve Young suggested the following:
1. Every consumer already has the ability to ask his agent or broker to disclose the amount of commission that he will receive.
2. If the commissioner believes that a producer has failed to make appropriate disclosures, existing common law can be applied and that the commissioner should come forward with a real case. (Cohen suggested that the "test case" is "out there.").
3. If the commissioner believes he needs additional authority to implement regulations, he can seek that authority through legislation (Cohen responded that that was, in part, what was attempted in SB 938, which failed passage in Senate Insurance Committee).
4. Cohen announced that IBA West is developing "voluntary" disclosure statements that would make clear whom the producer represents. According to Young, this voluntary disclosure statement was scheduled to be finalized by Labor Day.

Read a proposed disclosure form disseminated by CDI.

NAMIC will continue to participate in the industry's attempt to secure data that supports CDI's claim that there is a disclosure problem in the insurance producer marketplace. NAMIC will actively support, through its state advocacy partner, PIFC, industry efforts to oppose the commissioner's attempt to legislate from a regulatory agency and impose regulations that are unreasonable, inappropriate and harmful to the consumer- producer professional relationship.

Direct questions to NAMIC State Affairs Manager Christian John Rataj.