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PIA National Advises NAIC to Sharpen Definition of "Agent" and "Broker" in Model Disclosure Bill

New Orleans, LA, December 6, 2004 - Consumer choice is not a conflict and independent insurance agents provide choice. That message was conveyed...
December 6, 2004

Brevik Tells Commissioners Choice is Not a Conflict

New Orleans, LA, December 6, 2004  - Consumer choice is not a conflict and independent insurance agents provide choice. That message was conveyed during testimony by the National Association of Professional Insurance Agents (PIA), at a hearing held on Saturday December 4, 2004 before the National Association of Insurance Commissioners (NAIC).

Len Brevik, executive vice president and CEO of PIA National, told the 13 members of the NAIC's Broker Activities Executive Task Force during a public hearing in New Orleans that model legislation being developed in response to actions taken by New York Attorney General Eliot Spitzer should assure that insurance consumers will always benefit from free and open competition. 
 
"The actions taken by Mr. Spitzer have led to calls for increased action to assure that insurance consumers will always benefit from free and open competition," said Brevik. "But we must take care that the effort to encourage new safeguards does not hobble the marketplace with unnecessary regulations and paperwork." 

"We must guard against the unseen downside of any law or regulation - unintended consequences, the kind that stifle competition and actually end up giving consumers fewer choices," Brevik said. "As you deliberate what will ultimately be included in the NAIC model, we would ask you to remember that choice is not a conflict.  Choice is what drives competition, and independent insurance agents provide consumers with choices."

The hearing was held to solicit industry and consumer comments on the draft of model legislation that the NAIC wants to finalize by the end of December, so state legislatures can act on it beginning in January.

PIA National agreed with the NAIC that there should be broker disclosure whenever compensation is received on both sides of a transaction.

In written comments including a line-by-line analysis of the current draft model filed by PIA, the agents association suggested several revisions. PIA advised that the model needed to more clearly draw the distinction between "agents" and "brokers," pointing out that the differences between the two separate types of insurance producers must be addressed for the model to be workable.

PIA advised that broker disclosure requirements should be addressed under provisions of the Unfair Trade Practices Act (UTPA); and that the additional UTPA provision being considered respond specifically to the issues raised in the Spitzer investigations - the mega-insurance market sector, with Fortune 500 corporations and mega-insurance brokers. PIA also suggested the NAIC add a provision requiring each state insurance department to issue an advisory reminding all insurance persons of all existing fee disclosure requirements for all lines.

Responding to California Department of Insurance general counsel Gary Cohen during a follow-up question-and-answer session, Brevik pointed out that requiring the disclosure of contingent compensation by dollar amount, as required in the draft model, is not practical.

"When you talk about contingent compensation, the operative word is 'contingent,'" Brevik said. "That means compensation may either be paid or not. Agents don't have a crystal ball they can use to disclose something they don't know about yet. Requiring agents to predict the future is not a practical solution."

Brevik cautioned against overly-broad disclosure requirements, noting that insurance consumers make their decisions based on total cost. "When you go to a restaurant, you decide what to order based on the total cost of the meal, not the profit margin on the salad."

During his testimony, Brevik reiterated PIA National's continuing support for the principle of state regulation of insurance. "This has been PIA's position since 1931, and it remains unchanged," Brevik said. "Far from showing state regulation to be ineffective, Mr. Spitzer's investigation and actions prove that state regulation is working just the way that it was intended."

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. Visit PIA at www.PIANET.com

Text of Brevik Testimony to NAIC's Broker Activities Executive Task Force 12/4/04

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