The National Association of Insurance Commissioners (NAIC) formed an Executive Task Force on Broker Activities, following legal action launched by New York Attorney General Eliot Spitzer and others into allegations of kickbacks and bid-rigging involving leading insurance broker Marsh & McLennan and multiple insurance companies.
On November 15, NAIC's Task Force released draft model legislation that would implement new disclosure requirements. The requirements are designed to ensure consumers are provided the information necessary to understand the manner in which brokers are compensated for the sale of insurance products. According to an NAIC Press Release , "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."
Connecticut Attorney General Richard Blumenthal called it "a shadow of what it should be," according to an article by Dan Haar, "Model Broker Rules Drafted," Hartford Courant, Business Section, page 1 (November 17, 2004). Blumenthal, Spitzer and others testified on November 16 before a U.S. Senate panel, and also said that "This model simply fails to address the key defects in the current system," according to the Courant. Id.
The full text of the draft model legislation follows.
Read more
For Public Review and Comment
November 15, 2004
Proposed
Broker Disclosure Amendment
To The Producer Licensing Model Act
Section __
Any insurance producer or any business entity related to such producer who is permitted by [statute] to receive any compensation, including commissions, from the insured, shall not accept or receive any compensation, including commissions, from an insurer unless the producer has, prior to insured’s purchase of insurance, (1) obtained the insured’s written consent that such compensation will be received by the producer or business entity related to the producer and (2) disclosed the amount of compensation from the insurer; and the method for calculating such compensation, including any contingent compensation. If the amount of contingent compensation is not known at the time of disclosure, the producer shall disclose a reasonable estimate of the amount and method for calculating such compensation.
Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAIC’s Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.
Drafting Note: The provisions of this section shall not apply to an insurance producer or any business entity related to such producer that accepts or receives only a nominal fee from the insured.
Section __
An insurance producer must disclose the following, if applicable, to an insured or prospective insured, prior to the purchase of insurance:
1. That the producer will receive compensation from the insurer for the sale;
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.
Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAIC’s Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.
Source: NAIC Press Office
Posted by dougsimpson at November 17, 2004 05:40 PM | TrackBack