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By Michael Ha, NU Online News
Service, Dec. 29, 2005 - Insurance regulators approved portions of a
proposed compensation disclosure amendment draft to the National
Association of Insurance Commissioners producer licensing model act.
The compensation disclosure amendment, designed to enhance the
transparency of producer-fee arrangements, was partly adopted during the
NAIC's Executive Committee/Plenary conference call today.
Regulators have been aiming to approve at least part of the measure
before 2005 so that it can be considered by state legislatures in the
new year.
The state regulators adopted Section A of the draft, which proposes that
a producer receiving any compensation from the customer for an insurance
placement or representing the customer with respect to that placement,
shouldn't accept any compensation from an insurer--or other third
party--for that placement of insurance unless the producer has, prior to
the customer's purchase of insurance:
• Obtained the customer's documented acknowledgment that such
compensation will be received by the producer or affiliate.
• Disclosed the amount of compensation from the insurer or other third
party for that placement. If the amount of compensation is not known at
the time of disclosure, the producer shall disclose the specific method
for calculating such compensation and, if possible, a reasonable
estimate of the amount.
This requirement, however, will not apply to a producer who meets all of
the following requirements:
• Does not receive compensation from the customer for the placement of
insurance.
• In connection with that placement of insurance, the producer
represents an insurer that has appointed the producer.
• Discloses to the customer prior to the purchase of insurance that the
insurance producer will receive compensation from an insurer in
connection with that placement; or that, in connection with that
placement of insurance, the insurance producer represents the insurer
and that the producer may provide services to the customer for the
insurer.
The regulators also approved other sections that specify how various
terms such as "customer" and "affiliate" should be defined and that
certain intermediaries, such as a managing general agent or a
reinsurance intermediary, could be excluded from the disclosure
requirement.
The regulators decided to defer Section B of the amendment during
today's conference call for the next 90 days.
The section expands on what specific compensation information should be
disclosed by producers. The regulators said they will look at, among
other issues, fiduciary liability issues, disclosure of all quotes, and
producer-owned reinsurance arrangements for possible inclusions in the
section.
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