States Unveil Model Disclosure Act
An insurance broker would be required to obtain written approval from its insured before receiving any compensation from an insurer for the same transaction under a compensation disclosure act unveiled by the nation’s insurance regulators. Brokers would also have to provide the insured with an estimate of the amount of any contingent compensation. In addition, all producers, including agents, would be required to disclose any form of compensation from an insurer.
The newly formed Executive Task Force on Broker Activities of the National Association of Insurance Commissioners (NAIC) drafted a model legislation that would implement new disclosure requirements designed to ensure consumers understand how insurance brokers and agents are compensated.
As proposed, the legislation would amend the NAIC’s current Producer Licensing Model Act. The model would have to be passed by state legislatures.
The NAIC will hold a public hearing on Dec. 4 at its winter meeting in New Orleans to receive public comment and plans to adopt model disclosure language by year-end.
The draft model legislation would require brokers to first obtain the insured’s written consent before receiving compensation from the insurer for the same transaction. In addition, brokers would be required to disclose the amount of compensation from the insurer and the method for calculating, including any contingent compensation. In those cases where the contingent commission is not known, brokers would be required to provide a reasonable estimate of the amount and method for calculating compensation.
The draft model language would also require all insurance producers to disclose to customers: (1) that the producer will receive compensation from the insurer, (2) that the compensation received by the producer may differ depending upon the product and insurer and (3) that the producer may receive additional compensation from the insurer based upon other factors, such as premium volume placed with a particular insurer and loss or claims experience.