How Consumer Reps Feel About Internet Sales, State Regulation

Insurance Journal spoke with some of the National Association of Insurance Commissioners (NAIC) consumer liaisons and found that in addition to credit scoring, their issue lists include Internet sales of insurance; the effectiveness of current insurance regulation; insurance fraud and agent compensation and disclosure.

Consumer advisors see pros and cons to Internet shopping for insurance.

“The Internet is a great option for many consumers in the purchase of many products. It has the potential to vastly increase the transparency of the insurance marketplace,” said Brenda Cude, professor of consumer economics at the University of Georgia in Athens.

Yet there is also a downside.

“Unfortunately, many consumers probably use it simply to find the lowest price — which does not always mean they have found the best insurance product to meet their needs.”

Cude wants consumers to be able to check payments, file claims and make other changes online. Web sites that are simply lead generators don’t serve consumers well, she said.

Cude hopes to work with state regulators to improve the information consumers get about insurance products. “I will do this through revisions to NAIC buyer’s guides as well as other opportunities that may arise to communicate with consumers, including through state insurance department Web sites,” Cude said.

Some of the consumer liaisons believe that independent insurance agents play an important role in insurance. Because they sell products representing multiple insurers, “consumers can benefit from having more choice in their insurance protection, that is several policies to review for their insurance needs,” Kitt said.

“A trustworthy, ethical and truly independent agent who offers unbiased advice and guidance is an invaluable tool for consumers in our increasingly complex insurance marketplace,” Bolton said.

Agent Commissions

But Daniel Schwarcz, associate professor of law at the University of Minnesota Law School, is concerned that contingent commissions can compromise the value of independent agents. “When it comes to contingent commissions and any sort of differential compensation paid to an agent I think is independent, I think there needs to be closer regulatory scrutiny to that,” he said.

Schwarcz thinks the problem is deeper than many recognize and that simple disclosure is not a solution.

He said he has found that a “lot of problems on the regulatory side, whether there’s less robust competition in insurance markets or claims handling, contingent commissions are at the root of a lot of problems. And I think it’s a joke to think that disclosure solves that..”

Regulation

Birny Birnbaum, executive director for the Center for Economic Justice, said his group is interested in the debate over state versus federal regulation with an eye to seeing where consumers can get the best regulatory treatment. “Right now, the federal proposals are very anti-consumer,” he said.

While state-based regulation has its problems, Birnbaum said “consumers still have better protection [with state-based regulation] than with any hypothetical federal approach that we’ve seen.”

There is a way to design a national regulatory scheme that is better than what consumers get now with the state-based treatment, according to Birnbuam. “But that doesn’t seem to be on the table just yet.”

He believes the debate will be an ongoing one. Part of the problem, Birnbaum said, is that the states and the industry don’t seem to know what they really want. “On the one hand, the states say we don’t want the feds to regulate insurance and yet there’s a flood insurance program, there’s a terror insurance program, they want a natural catastrophe insurance program, there’s a crop insurance program.”

The industry doesn’t want the government to control its business, but it wants the government to step in when it comes to risks the private market has no interest in, such as flood or terror insurance. “I know insurance companies want a handout whenever they can get it. But regulators don’t seem to have a good idea about what role they want the market to play and what role regulation should play,” Birnbaum said.

“There’s no reason for private market not to be offering flood insurance or terror insurance or catastrophe insurance,” he continued. “It’s done in other countries, and the governments in those other countries provide a backup in the event of a mega catastrophe.”

Amy Bach, executive director for United Policyholders, is not afraid to take a side on the state versus federal question. “At NAIC, we’ll lend our support to commissioners that want to preserve the state regulations system,” she said. “We think the optional federal charter will be a huge mess.”

Bach suggested that disaster programs show where a state or regional perspective has advantages over a national perspective. Her organization works closely with the California Earthquake Authority and she hopes to share some of the best practices learned in California with the NAIC. “We want to help export our success to other states as best we can, and brainstorm how to resolve failures,” Bach said.

Howard Goldblatt, director of government affairs for the Coalition Against Insurance Fraud, is in a unique position among the NAIC representatives since his group is industry-supported. But anti-fraud efforts benefit consumers as well as insurers since everyone pays for fraud.

“Having someone on the liaison committee with a background that understands insurance fraud issues and how it impacts consumers is a benefit when [the NAIC] discusses issues,” Goldblatt said.

Insurance Journal editors Stephanie Jones and Andrew Simpson contributed to this story.