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Oregon: Temporary Admin Rule Relating to Insurance Producers Compensation Disclosure Effective Aug. 1

In October of 2004, the Oregon Division of Insurance started looking into the issue of disclosure of insurance producer compensation. In December 2004, NAMIC filed written comments with the Insurance Administrator setting forth its concerns about the proposed regulations. On May 17, the Oregon Division of Insurance adopted OAR 836-071-0263 that will go into effect on Aug.1, 2005, and continue in effect until Jan.15, 2006.

OAR 836-071-0263 (hereafter "the Temporary Regulation") is modeled after the NAIC Dec. 27, 2004 Draft of the Proposed Compensation Disclosure Amendment to the Producer Licensing Model Act. The Temporary Regulation, generally speaking, establishes minimum terms of disclosure when an insurance consumer pays compensation to an insurance producer or pays compensation to an insurance consultant who also receives other compensation from an insurance company. According to the terms of the Temporary Regulation:

1. When an insurance consultant or an affiliate of an insurance consultant receives from a prospective insured any compensation authorized under the Insurance Code or rules adopted thereunder, neither the insurance consultant nor the affiliate may accept or receive any compensation from an insurer or other third party for services provided the prospective insured in addition to the compensation paid by the prospective insured unless the insurance consultant, prior to the transaction:
1. Has obtained the prospective insured's documented acknowledgment that the compensation will be received by the insurance consultant or affiliate; and
2. Disclosed the amount of compensation from the insurer or other third party. If the amount of compensation is not known at the time of disclosure, the insurance consultant shall disclose the specific method for calculating the compensation and, if possible, a reasonable estimate of the amount.
2. When an insurance producer or an affiliate of an insurance producer receives any compensation from a prospective insured under OAR 836-071-0269 to 836-071-0277 or as otherwise authorized under the Insurance Code, neither the insurance producer nor the affiliate may accept or receive any compensation from an insurer or other third party for placement of insurance for the prospective insured unless the insurance producer, prior to the prospective insured's purchase of insurance, has:
1. Obtained the prospective insured's documented acknowledgment that the compensation will be received by the insurance producer or affiliate; and
2. Disclosed the amount of compensation from the insurer or other third party for the placement. If the amount of compensation is not known at the time of disclosure, the insurance producer shall disclose the specific method for calculating the compensation and, if possible, a reasonable estimate of the amount.

According to the Division of Insurance's Statement of Need and Justification, "[t]he need for disclosure is primary when the producer is compensated in whole or part by the consumer. Although related issues may arise when an insurance producer receives compensation solely in the form of commission, this temporary rule deals with the situations in which the insurance producer is compensated directly by both the insurance consumer and insurer or by the insurance consumer alone." [emphasis added].

Although, NAMIC generally opposes any regulation that requires the disclosure of the specific amount of compensation earned as a result of professional services rendered by the insurance producer, NAMIC applauds the Division of Insurance from limiting the scope of this Temporary Regulation so that it does NOT apply to insurance producers who do not receive any compensation from a prospective insured, because they are compensated solely and exclusively from the insurance company or a third party other than the prospective insured.

The Division of Insurance has stated in its adoption of the Temporary Regulations that it "will allow a later opportunity for full public review and comment."

NAMIC will continue to work with the insurance industry in Oregon and throughout the nation to negotiate legislation and regulations that balances the need for disclosure of meaningful insurance information necessary to the consumer to make an informed decision on his insurance needs with the business reality that too much disclosure is counter-productive, likely to confuse the typical consumer and apt to re-direct consumer's attention away from the details of the insurance products being offered and onto the issue of the amount of compensation the insurance producer is going receive as a result of the professional relationship.

NAMIC will provide regular updates as to the status of the Temporary Regulation and the Division of Insurance's evaluation of the efficacy of the new disclosure regulations.

• Review a copy of the Division of Insurance's Statement of Need and Justification.
• Review a copy of OAR 836-071-0263.

Direct questions to NAMIC State Affairs Manager Christian Rataj.