By David M. Eppstein
Director, State Affairs
PIA National

In early March 2006, 12 state Attorneys General and departments of insurance announced the first set in a series of multi-state settlements involving alleged insurer actions connected to the 2004 broker compensation and competitive practice actions.

NAIC Announces Bid-Rigging Settlement

On March 20, 2006, the NAIC issued a press release touting their Broker Activities Task Force’s participation in a multi-state regulatory settlement with Zurich.  According to the release, the settlement contains monetary relief, corrective measures and business reforms based on Zurich’s alleged participation with various insurance brokers to create a false appearance of market competition “in violation of state insurance laws.”  The press release itself states that current state insurance laws were sufficient to address the alleged illegal behavior, yet it goes on to claim this settlement is an “excellent example of state insurance regulators’ collaborative leadership on an important regulatory issue.”

We cannot help but wonder why all this hysteria and market reform was necessary given that every insurance jurisdiction has laws prohibiting fraud and misrepresentations in insurance transactions, and these laws adequately address the concerns revealed in this latest investigation.

Settlement Exceeds NAIC Model Amendment

We at PIA were taken aback by the NAIC press release because, first of all, the negotiations were obviously happening secretly, behind closed doors.

We had heard about the possibility of further settlement negotiating activities conducted by the NAIC Special Broker Disclosure Task Force, but our repeated efforts to ask what, where, who Task Force members were and the like were rebuffed by the NAIC. Second, we were surprised and alarmed to see that the outcome of the settlement process lead to a “solution” that went far beyond what the NAIC failed to produce through an open deliberative process on their proposed broker disclosure amendment to the Producer Licensing Model Act.

So, in the wake of these events, PIA still has no clarifying answer from the NAIC to the question: what is the NAIC’s position on broker disclosure and how is the Special NAIC Task Force arriving at its policy decisions on this issue?  Clearly, it is not in the best interest of the states or consumers for the NAIC or several state DOIs to use this settlement process and mandates as the de facto vehicle to achieve presumed consumer protections that the insurance departments have not otherwise been able to implement through their formal regulation and/or legislation.

State Regulators Taking a Second Look at Settlement

Once PIA learned of the settlement results we sprang into action.  The first time the NAIC Broker Activities Task Force held an open meeting was at the summer meeting in Washington D.C. and PIA was there.  PIA’s Senior Vice President, Pat Borowski, engaged in a meaningful discussion with Task Force Chairman, Director Michael McRaith from Illinois.

We were able to dispel any notion that PIA has a blanket opposition to disclosure under any circumstances.  We made clear PIA’s longstanding policy for producer disclosure and consumer agreement when the insurance producer is receiving compensation from both sides of a single insurance transaction, evidenced by our PIA affiliates’ efforts in achieving such requirements in some 30 states. The settlement result, however, is a blanket attack on contingent commissions and includes a specific mandatory disclosure form for insurance producers that is misleading and illegal.

The attack on contingent commissions is particularly troubling, but we were encouraged somewhat at the Task Force meeting when the NAIC members in response to PIA's direct questions on this point acknowledged and confirmed that the NAIC does not support a per se prohibition of contingency compensation earnings from the marketplace.
 
Fortunately, state regulators are beginning to see our point of view.  Just recently, Georgia Commissioner John W. Oxendine said that he would not sign on to the settlement agreement stating it serves “no worthwhile purpose.”  We believe that through our diligent efforts, many other regulators will come to the same conclusion.

PIA condemns any illegal behavior and we applaud tough sanctions for those found to violate the well-established laws and regulations currently on the books to protect consumers.  We must vigorously oppose efforts by some law enforcement officials seeking notoriety in the press on the backs of innocent, hard working independent insurance agents by attacking contingent commissions and imposing an unworkable remedy to a problem that already has a solution.

PIA supports state laws as the primary source for ensuring proper disclosure and investigating any fraudulent activities.  The primary reason we support this approach is because IT WORKS!  We regularly work with states to clearly define what practices will be prohibited, permitted and the procedures our members must follow.

PIA is attacking this issue on several fronts.  In addition to our efforts at the NAIC, we are also working with NCOIL and have filed an amicus brief in the class action lawsuit in New Jersey addressing the settlement. By working together, we can combat this wrongful attempt to force an unfair burden on our segment of the industry because of the misdeeds of a few large brokerage firms.

David M. Eppstein davidep@pianet.org is Director of State Affairs for PIA National.

This article originally appeared in the October 2006 issue of PIA Connection.