Producer Compensation Disclosure—Be Alert
Several years ago, as a result of legislative and regulatory developments brought on by the investigation into insurance brokerage activities and subsequent legal action against a select number of companies and several of their top executives that then New York State Attorney General Eliot Spitzer spearheaded, the disclosure of a producer’s commission was considered as a possible answer to some marketplace abuses that were identified.
NAIC Response
In response to Spitzer’s investigations, the National Association of Insurance Commissioners formed a Task Force to develop a legislative response. On December 29, 2004, the NAIC adopted amendments to the Producer Licensing Model Act (PLMA) suggested by the Task Force.
NAIFA’s Response
Several months prior to the NAIC’s action, NAIFA and other life insurance industry trade associations (AALU,ACLI, & NAILBA) joined forces in a historic coalition of life industry organizations to collaborate on several coalition statements to the NAIC. This first-of-its-kind coalition resulted in the NAIC adopting an amendment to the PLMA which in large part had been devised by NAIFA and jointly drafted by the coalition. The amendment provides that when compensation is received by the producer from both the customer for the placement of insurance and an insurer, the producer must receive the customer’s documented acknowledgement that compensation will be received from the insurer and must disclose the amount of such compensation to the customer.
Such disclosures, however, will not be necessary if the producer does not receive a fee from the customer for the placement of insurance and discloses to the customer that he/she is acting on behalf of the insurer and may provide services to the customer on behalf of the insurer. NAIFA and its coalition partners fully support the NAIC’s amendments to the PLMA.
Recent State Legislative Activity
As of late 2007 only a handful of states have considered legislation dealing with commission disclosure since late 2004 when all the above NAIC and NAIFA activity took place. There recently has been activity in at least one state which deals with commission disclosure. The purpose of this article is to alert state associations that although there has been limited legislative activity on this issue over the last several years, this legislation could be considered in your state. If it does, please call Ron Panneton at the below contact information.
NAIFA Staff Contact: Roland L. Panneton, Sr. Counsel, Law & Government Relations, rpanneton@naifa.org or (703) 770-8187.
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