Posted on 26 Oct 2009
The possible end of bans on contingent commissions and New York's proposal of new rules on broker compensation could lead to national and state regulatory changes affecting insurance sales.
Four years ago, Aon, Arthur Gallagher & Co., Marsh & McLennan and Willis Group Holdings agreed to multi-million dollar settlements, ending their use of contingent commissions. With Gallagher recently reaching a deal with Illinois regulators to end that ban, published reports indicate the other three firms are also trying to get out of their deals, including those made with former New York Attorney General Eliot Spitzer.
“What’s really happening here is that the mega-brokers regret acquiescing to Spitzer and Company,” said Wesley Bissett, senior counsel for government relations for the Independent Agents & Brokers of America.
The possible end of those bans has lead the National Association of Insurance Commissioners to coordinate a new Broker Compensation Task Force, headed by Illinois Insurance Director Michael T. McRaith, to coordinate the impact for state regulators.
“This is a difficult issue, but not one that is cause for great alarm,” McRaith told IFAwebnews.com. “It reflects the factual reality at least one regulatory agreement has been amended and if the other three are amended, there are settlements that are affected.”
McRaith, the task force’s lone member, points out that Marsh has an agreement with 30 state regulators, so other states are likely to have representation as the body develops.
Guidance for producers
The Broker Compensation Task Force’s charge also called for promoting “best practices in related disclosure for state insurance departments and regulated entities to consider implementing,” according to the NAIC.
McRaith said he is unsure the group will address that second charge, as “I’m not certain it is appropriate for us, at this time, to address that concern.”
He added that if the group addressed the matter, it would not be in creating a model regulation or statute for states, but rather “as a service to producers ….so they have a sense of what are the guidelines and what are thoughtful ways to evaluate disclosure.
“We know the industry as a whole has moved toward increased transparency,” McRaith said.
McRaith said that providing guidance to “our regulated individuals and entities” is one of the important roles of the NAIC.
“The important message to agents and brokers is to understand that we, as regulators, have tremendous respect for their interaction with consumers, the service they provide and the value of that relationship,” he said.
One of the outcomes from the mega-broker deals four years ago was New York exploring the topic of broker compensation transparency, an issue its insurance department and attorney general’s office revisited in hearings last summer.
“Out of the blue, New York announces they will have hearings and what is happening now could reopen this otherwise dormant issue,”Bissett said at a recent industry event in Maryland.
In September, New York regulators submitted new rules on producer compensation transparency to the governor’s office for review, bringing it one step closer to becoming regulation.
The proposed rule requires oral or written disclosure of compensation prior to the submission of an application and, if requested, additional information including how compensation can vary.
Bissett said the Big I has “serious questions” about the department’s legislative authority on the matter.