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The NAIC’s
newly formed Executive Task Force on Broker Activities released draft
model legislation on November 15 that would implement new disclosure
requirements designed to ensure consumers are provided the information
necessary to understand the manner in which brokers are compensated for
the sale of insurance products. As proposed, the draft model legislation
would amend the NAIC’s current Producer Licensing Model Act. The draft
is part of ongoing efforts by state insurance regulators to address
issues surrounding the use of compensation arrangements by insurance
brokers.
Formed by the NAIC less than a month ago, the Task Force moved quickly
to develop a three-part action plan, which includes creating more
transparency for insurance consumers through better disclosure of broker
compensation arrangements; continuing to help state insurance regulators
coordinate efforts to address improper conduct by brokers and insurers
through investigation and collection of relevant information; and the
implementation of a new on-line fraud reporting system.
“One of the three components of our action plan is to achieve greater
transparency through development of model legislation that will require
brokers to disclose all compensation arrangements,” said NAIC
President/Pennsylvania Insurance Commissioner Diane Koken, who also
chairs the task force. “With this draft language, we are addressing
disclosure of compensation in a two-part framework: disclosures
triggered when a broker receives compensation from the insured and
insurer, and disclosures required by all insurance producers.”
Among the requirements contained in the draft model legislation, brokers
would be required to first obtain the insured’s written consent before
receiving compensation from the insurer for the same transaction. In
addition, brokers would be required to disclose the amount of
compensation from the insurer and the method for calculating the
compensation, including any contingent compensation. In those cases
where the contingent commission is not known, brokers would be required
to provide a reasonable estimate of the amount and method for
calculating such compensation.
The draft model language would also require all insurance producers to
disclose to customers: (1) that the producer will receive compensation
from the insurer, (2) that the compensation received by the producer may
differ depending upon the product and insurer and (3) that the producer
may receive additional compensation from the insurer based upon other
factors, such as premium volume placed with a particular insurer and
loss or claims experience.
The NAIC will hold a public hearing on December 4 at its Winter National
Meeting in New Orleans to receive public comment on the proposed
language. State insurance regulators are planning to adopt model
disclosure language by the end of the year.
State insurance regulators continue to pursue efforts to identify
improper conduct in the marketplace. Commissioner Koken added, “State
insurance regulators, working in many cases with the state attorneys
general, have been leading the effort to identify problems in the area
of broker activities. We clearly have the resources and expertise to
handle this matter aggressively and effectively.” |