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NCOIL Adopts Targeted Producer Compensation Model

NCOIL ADOPTS TARGETED PRODUCER COMPENSATION MODEL

Big “I” sees big improvement in the proposal of insurance legislators’ group

WASHINGTON, D.C., March 8—The Independent Insurance Agents & Brokers of America (the Big “I”), the nation’s largest agents and brokers group, is pleased with the much-improved producer compensation disclosure model approved Saturday by the National Conference of Insurance Legislators (NCOIL) at its spring meeting in Hilton Head, S.C.

The NCOIL model is a disclosure-oriented proposal that relies on and does not conflict with the regulatory framework endorsed by the National Association of Insurance Commissioners (NAIC), but significantly improves on the NAIC model by focusing the scope of the new disclosure and acknowledgement provisions on those producers and transactions where there is a potential conflict of interest. Specifically, it applies when a producer is compensated for an insurance placement by a client and an insurer in the same transaction and does not apply to producers whose sole compensation for a placement is derived from commissions, salaries and other remuneration from an insurer.

“The NCOIL proposal is a tailored and responsible legislative response to concerns that have been raised about the compensation of insurance brokers,” says C. Wesley Bissett, Big “I” senior vice president of government affairs and state relations. “NCOIL President Craig Eiland first raised the issue in November 2004, and the Big ‘I’ commends him for his leadership and willingness to support meaningful action in this area. The final proposal benefits greatly from NCOIL’s thoughtful consideration of this issue and the organization’s unwillingness to rush to judgment. This is a meaningful reform for insurance consumers. ”

The NCOIL model makes several important revisions to the NAIC proposal, which has not yet been adopted in any state. Some of the most notable elements of the NCOIL version include:

The NCOIL model only applies to transactions in which a producer or its affiliate receives compensation from a customer for the initial placement of insurance and compensation from an insurer or other party for the same placement.

The disclosure requirements of the NCOIL model apply to the initial placement of insurance and not to renewals.

The NCOIL model addresses the nature of the mandated disclosure and requires disclosure of a “description of the method and factors utilized for calculating the compensation to be received.”

Through a revision to the definition of “documented acknowledgement,” the NCOIL model also eliminates the need to obtain the customer’s written consent.

The NCOIL model includes two new exemptions. The first clarifies that the disclosure requirements do not apply to secondary or residual market business. The second further clarifies the scope of the model and exempts any “producer whose sole compensation for the placement is derived from commissions, salaries, and other remuneration from the insurer.”

Subsection (D) of the NCOIL model allows the disclosures to be made by the producer directly or by an affiliate.

The new NCOIL proposal satisfies the five principles outlined by the Big “I” for measuring producer compensation disclosure legislation. The model: (1) responds to areas where problems have arisen (and targets producers who are compensated by both a client and an insurer in the same transaction); (2) establishes clear, objective, bright-line guidelines; (3) relies on disclosure and transparency, and not on vague notions of suitability and statutorily imposed duties; (4) creates requirements whose benefits to consumers outweigh and justify the new costs imposed on the private sector; and (5) does not discriminate against certain producers or distribution channels.

“IIABA has long supported enhanced disclosure in broker transactions, and NCOIL has played an important role in ensuring that insurance buyers will be better informed,” Bissett says. “Although not perfect, these positive changes and significant modifications improve the work product developed in late December by the NAIC. This pragmatic proposal is of vital importance, because it marks the first time that a group of national lawmakers have weighed in on this debate, and it reflects the views of the nation’s state lawmakers, including many in leadership positions in legislatures and insurance committees.”

Founded in 1896, the Big “I” is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of more than 300,000 agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer property and casualty insurance, employee benefit plans and retirement products. Web address: www.independentagent.com.

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