U.S. regulators release draft broker compensation rules

Insurers are generally reacting positively to proposed model regulations around broker compensation.The Property-Casualty Insurers Association of America (PCI) says the National Association of Insurance Commissioners’ (NAIC) model regulation of broker compensation makes sense in principle. The new regulations would require brokers to disclose all sources of compensation, including contingent commissions to clients and prospects, and sets the standards for when such disclosure would be required. The new regulations would amend the NAIC’s existing Producer Licensing Model Act. “The first section of the proposal represents a measured approach to address the issue of broker disclosure,” says Robert Zeman, PCI’s senior vice president of insurance regulatory affairs. “The proposal utilizes an objective test based on compensation to determine when disclosure is necessary and the extent of that disclosure.” PCI says, however, that the same regulations should not apply to agents since they are clearly working for only one insurer and receiving compensation based on this, so no conflict of interest exists. “We suggest that this provision apply only to those instances where a producer actually receives payment from both the consumer and the insurance company. This would further enhance a ‘bright line’ test of when disclosure of compensation is needed,” Zeman explains.”Expanding the reach of this regulation to include all agents and every transaction would impose needless bureaucratic burdens on the industry without delivering any measurable improvements to the marketplace,” he adds.Insurers want to be clear that written consent of the client is not required under the model, and in written testimony to the NAIC, states, “in an era of streamlined business transactions, imposing a requirement of a signature on a document and retention of that document is archaic, inefficient and expensive.” At the same time, PCI wants to see clarification that insurers will not have to disclosure their proprietary formulae for determining compensation.PCI favors the NAIC model over that proposed earlier by the National Conference of Insurance Legislators (NCOIL). That model would have required brokers to recommend the “best available” insurance product to clients. NCOIL has since removed that language from its draft, and remains in discussions with stakeholders on the final wordings.PCI will also appear before the NAIC task force on broker activities on December 4 and the NAIC winter meeting in New Orleans to reiterate its position.