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Producer Compensation 'Fix' Should Focus on Defined Problem, NAMIC To Tell NAIC

INDIANAPOLIS (Dec. 22, 2004)-- Regulator efforts to address broker compensation concerns in time for consideration by state legislatures next year should focus on transactions where the producer receives compensation both from the insurer and the customer, according to the National Association of Mutual Insurance Companies.

In a letter to NAIC President Diane Koken, NAMIC's Director of Legal and Regulatory Affairs Peter Bisbecos said that the NAIC's most recent revisions to the Producer Licensing Model Act, dated Dec. 16, 2004, "take an important step in that direction," but that their latest proposal remains overly broad and several elements are unclear.

The potential for conflict when a producer receives compensation from both the insurer and the consumer is the most clearly identified problem that has emerged from the ongoing inquiry into industry compensation practices, according to NAMIC. Allegations of other problems "cannot be adequately addressed until they are specific and their underlying facts are made public" said Bisbecos.

NAMIC will recommend that:

1. The NAIC strike a proposed disclosure requirement on producers who only receive compensation from insurers because it does not address the potential for conflict of interest and, as such, adds no value to the insurance buying process. Section B, which contains disclosure requirements inconsistent with Section A, should also be stricken.
2. The terms "disclosure" and "documented acknowledgement" contained in section A should be clearly defined. Further, a safe harbor should be created to minimize confusion and to avoid unnecessary litigation.
3. The requirement that a producer inform the customer of the amount of compensation should be stricken. Customers who know that a producer is receiving compensation from both parties are in a position to pursue more information if needed.

While acknowledging the tremendous time pressure faced by state insurance regulators, Bisbecos concluded, "With little time to fashion a solution, precision, clarity and specificity are critically important to success. Insurers and producers will also face major challenges as they struggle to comply with new and significant requirements. Absent clear definitions and safe harbor provisions, well-intentioned people will find themselves operating in a vacuum that will lead to confusion and liability. The Dec. 16 amendments represent a step in the right direction, yet more focus and clarity is required."

To read all of Bisbecos's testimony, visit NAMIC Online.

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For further information contact:
Robert Detlefsen at rdetlefsen@namic.org
or (317) 875-5250