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PIA National Welcomes NAIC Suggestion to Modify Model

Salt Lake City, UT, March 16, 2005 - The National Association of Professional Insurance Agents (PIA National) has accepted a suggestion made by...
March 16, 2005

Ario Suggests Tiered Approach with NAIC, NCOIL Models

Salt Lake City, UT, March 16, 2005  - The National Association of Professional Insurance Agents (PIA National) has accepted a suggestion made by National Association of Insurance Commissioner Joel Ario during a recent public hearing to take the current NAIC and NCOIL models and develop a possible tiered approach to fee and compensation disclosures between the mega-commercial lines sectors and the balance of the marketplace.

Kenneth Auerbach, Esq., Chairman of the PIA National Business Issues Committee, testified on behalf of PIA during the March 14 hearing in Salt Lake City, Utah. The hearing was held to solicit input on the NAIC's Model Compensation Disclosure Amendment to the Producer Licensing Model Act.

The model was passed hastily on December 29, 2004, gaining approval by a 30-15 vote with 3 abstentions. Since that time, there have been suggestions that the model -- designed to address alleged abuses by insurance mega-brokerage Marsh McLennan uncovered by New York Attorney General Eliot Spitzer -- should be expanded in scope.

Speaking for PIA, Auerbach disagreed. "Retail independent insurance agents are not Marsh," he said.  Auerbach said that in addition to the fact that retail agents are not offered and do not use the kind of placement service agreements that were at the heart of the abuses uncovered by Spitzer, retail agents are also regulated by market competition.

"I don't have the market position to leverage insurers," Auerbach said. "I don't need additional regulation to remind me to comply with the law. There are obligations and requirements clearly expressed in current insurance regulation and common law, as well as the constant threat of tort liability action. All of this, together with actions by my competitors, provides all the incentive needed for compliance."

Auerbach's testimony focused on the functional challenges presented by the current version of the NAIC broker disclosure model. Auerbach advised the NAIC members not to go any further with their model. "Further expansion of the broker disclosure model increases inconvenience on the part of the consumer, increases the burden on the point of distribution, does not make the industry any healthier and causes many more problems than it attempts to solve," he said.

Commissioners asked if the broker disclosure model adopted on March 5 by the National Conference of Insurance Legislators (NCOIL) might be a better vehicle to address the retail marketplace as a whole, while the current NAIC draft might better focus on large commercial placements. Oregon Insurance Administrator Joel Ario suggested NAIC and NCOIL could work together to develop more minimal language covering disclosure when agents act as brokers out of need and suggested PIA's involvement in that process.

When asked directly by NAIC members, Auerbach made clear that in its current form, PIA National is opposed to the NAIC model and believes that the NCOIL model better addresses the balance needed for the middle tier retail marketplace insurance producers.  Picking up on a suggestion made earlier by Commissioner Ario, Auerbach advised that a threshold for determining where a division in the C/L might reasonably lie for PIA National would be at the $250,000 insurance premium per-policy level.

In addition to Auerbach, the delegation from PIA National attending the NAIC sessions in Salt Lake City included PIA National Senior Vice President Patricia A. Borowski and Director of Business and Compliance Affairs Timothy K. Kovac.

"We are pleased with the way this hearing went and we are optimistic," said Borowski. "It is heartening to note that many of the questions asked by the commissioners tracked with the written comments PIA has filed with the NAIC throughout this process. A fundamental grasp of the complexities related to this issue seem, at last, to be beginning to take hold."

The NAIC commissioners also discussed technical issues related to the model. NAIC President Diane Koken asked that supplementary comments from producer groups be submitted by the latter part of March. After that, NAIC commissioners will deliberate, then hold a telephone conference to come up with a plan of action.

NAIC President Diane Koken indicated that supplemental comments will be accepted from producer groups until the last week in March, after which there will be an NAIC conference call to determine a course of action on whether or not to further amend the NAIC's Model Compensation Disclosure Amendment to the Producer Licensing Model Act. During the NAIC Industry Liaison meeting, Kovac requested that the NAIC provide more time for open extended dialogue and discussion between regulators and interested parties about the issues that most concern the NAIC.

"This will go a long way in helping to clear up the large amount of confusion that has beset this process," said Kovac.

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.

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