Posted on 09 Feb 05
The following editorial commentary was submitted by Wayne H. Carter III, CPCU, ARM, President & CEO of Storefront Owner: Target Capital Partners/TARGET INSURANCE SERVICES http://www.programbusiness.com/tracking/sftracker.asp?Sfid=254.
Agent? Or Broker? Consumer Choice Dictates Disclosure
There should be no misunderstanding that what Elliot Spitzer has done within the insurance industry should be entered on the positive side of the ledger. While much of the follow up has done little more than drive up expenses and slow down the inner workings of many insurance carriers, the net benefit of rooting out illegal business practices, incompetent leadership and strong-armed hubris on the brokerage side of the house has done immeasurable good.
Unfortunately, the fallout of his direct hit has been a continued search for weapons of mass destruction within the industry. This has given rise to a plethora of bandwagon jumpers across Attorneys General and Commissioners of Insurance. If McCarthy were alive he would find a significant leadership role in coordinating a new movement. While Spitzer deserves respect for his astute initial investigation, his followers elicit more a feeling of pity. Hastily arranged investigations, steeped in subpoenas, imply inherent incompetence, lack of original thought, position justification and a masking of ineptitude.
In an attempt to remedy a situation, which by all analysis of existing factual information is confined to a very small area within a very large industry, the National Association of Insurance Commissioners has created model legislation with very broad implications for practitioners and very narrow impact for customers. Typical of hastily drawn measures, it addresses the symptoms rather than the problem.
The timing for the NAIC and for State regulation in general could not be worse. With pressure building for evidence that state regulation works within the insurance industry, the NAIC has been working diligently to prove that it can approach the monumental task of regulating a very complex industry in a logical, efficient and unified manner. So far they have not been successful. There is no central authority to foster cohesiveness and there is a wide disparity in competence, resource and philosophy within the group. Many states are so inadequately staffed that they are six or more months behind in form, rate and rules filings.
By and large, state regulators are parochial entities. They tend to focus on the wrong issues while solvency, bad actors and fraud continue to haunt the industry. Resources are spent on detailed and drawn-out analysis of new product filings instead of the actuarial analysis of existing business where the real problems lie. It is quite evident that the prior analysis of new products and pricing has failed as a model for securing solvency. It has proven quite effective at creating inefficiency, interminable time lines for new products and an industry that innovates at a snail’s pace.
As the NAIC continues to fine-tune its symptom solution, one might consider a solution that obviates the need for elaborate and complicated disclosure and transparency rules. If the regulators wanted to effect meaningful change, a new approach is needed. Let’s start with the basics. From a legal perspective, there is a distinct difference between the terms “agent” and “broker”. From a business standpoint, we have allowed that distinction to fade. As with most problems, a return to the basics usually provides effective guidance.
As a foundation, an insurance regulatory body should establish clear definitions of brokers and agents and structure licensing around those definitions. Licensing should be required at two levels, one at the entity level and one at the individual l