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PIA Told You So

Far be it from PIA to say "I told you so," but on several major issues in recent years, PIA did. PIA took strong positions...
September 27, 2010

From State Regulation to Contingent Commissions, PIA's Positions Sustained

Far be it from PIA to say "I told you so," but on several major issues in recent years, PIA did. PIA took strong positions and actions - and subsequent
developments have proven that we were right all along.

PIA is a steadfast supporter of state regulation of insurance and has vigorously opposed all efforts to move toward federal insurance regulation. As late as 2007, the advocates of federal regulation were attempting to bolster their arguments by saying that the state-based system of insurance regulation was "broken."

Federalization advocates attempted to convince lawmakers that the state system was hopelessly out-of-date and that insurance should be regulated at the federal level, like banking and securities. This push reached its zenith with former Treasury Secretary Henry Paulson's Blueprint for a Modernized Financial Regulatory Structure. Its insurance proposals stated that our industry should be "prepared" for assimilation into a unified, federally-regulated, global financial services sector. In other words, we'd all end up working for the banks.

But something unexpected happened on the way to Mr. Paulson's "new world order": the financial services sector collapse. Big banks and major securities firms whose irresponsible risk-taking nearly destroyed the world's economic system either collapsed or were bailed out by the taxpayers. But the supposedly broken state-based insurance regulatory system worked well, with policyholders never losing protection.

PIA was right all along: it was federal regulation that was "broken." It was too lax, too liberal and very imprudent. State-based insurance regulation protected our industry and consumers because it is prudent, conservative and responsible.

Incredible as it may seem, the advocates of federal insurance regulation haven't been chastened one bit by this experience. In 2010, they attempted to get federal insurance regulation included in financial services reform legislation. As I told Treasury officials at an industry meeting at the White House, agents are opposed to such proposals including the so-called optional federal charter. In the end, federal regulation was not included in the bill.

Undeterred, federalization advocates succeeded in getting a Federal Insurance Office enacted. The good news is that PIA along with the NAIC fought back attempts to give this office broad authority. In the end, a prohibition on the office acting as a regulator was included. Unfortunately, the FIO was also charged with studying the "benefits of federal insurance regulation" and reporting to Congress in 18 months with recommendations. This, of course, is a set-up. What bureaucracy has ever recommended that it do less, not more? Or as President Ronald Reagan once said, "The closest thing to eternal life here on Earth is a government program." So in 18 months, we will have to fight the same fight again.

Contingents Affirmed

Another issue on which PIA was right all along is contingent commissions. Six years ago, former New York attorney general and governor Eliot Spitzer, along with several other attorneys general, got certain mega-brokers to sign what were described as "voluntary" agreements to settle ongoing investigations involving allegations of bid-rigging and account-steering. The firms did not admit to any wrongdoing, but did agree to stop accepting contingents.

While almost immediately these firms started getting their restrictions loosened, they also argued that the ban on contingents imposed on them should also apply to their competitors - retail Main Street agents, who did nothing wrong.

PIA went to court to fight against this inequity. In the end, PIA's position won. In 2006, PIA National was the first to file a "friend of the court" brief in opposition to certain aspects of one of the proposed settlements. From 2007 to 2009, courts declared there is nothing illegal about contingent commissions, as long as there is transparency. This year, all but one of the mega-brokers said they would accept contingents. The final chapter of this manufactured controversy is now being written, with our carriers' ability to offer contingent compensation protected and our right to receive such compensation affirmed.

Other threats to agents continue to materialize. Congress keeps allowing the National Flood Insurance Program to lapse. A bill has been introduced in the Senate to repeal the decades-long ban on the Federal Trade Commission initiating investigations of the insurance industry.

Our crop agents are facing commission cuts due to repeated reductions by the USDA/RMA. In 2011, Congress will again debate the so-called "optional" federal charter. On this, there can be no compromise. Agents are against an OFC, period.

PIA is an activist, aggressive, grassroots association that always stands up in defense of the interests of its members. We combine an unparalleled depth of insurance
knowledge with the courage to take a strong stand and fight when we know we are right. And when we win - which is more often than not - we don't spend a lot of time pointing out that we were right all along, because there is always another threat to counter and another battle to fight on behalf of all PIA members.