FOR IMMEDIATE RELEASE
Contact: Matt Brisch, (816) 783-8016
NAIC Drafts New Model Legislation
Calling for Broker Disclosures
NAIC Executive Task Force on Broker Activities Moving Forward with Action Plan
KANSAS CITY, Mo. (November 16, 2004) – The NAIC’s newly formed Executive Task Force on Broker Activities released late yesterday draft model legislation 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.
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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.”
About the NAIC
Headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and U.S. territories. The association’s overriding objective is to protect consumers and help maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, it is the oldest association of state officials. For more information, visit the NAIC on the Web at www.naic.org/pressroom.
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