The state Senate and House of Representatives have approved bills to require insurance brokers to get their customers’ “documented acknowledgment” that they know of any compensation the broker is getting from the carrier or a third party.
The legislation, backed by the state Department of Business Regulation, is based on a model law drafted by the National Association of Insurance Commissioners. But unlike the NAIC version, it specifically applies only to new policies, not to renewals.
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Consumer advocates across the United States pushed for broker disclosure laws after New York Atty. Gen. Eliot Spitzer’s probe of Marsh & McLennan and other brokerages uncovered a wide range of potential conflicts of interests and allegations of outright fraud.
Some pushed to go much farther, and ban broker incentives paid by carriers; Rhode Island Secretary of State Matt Brown initially spoke in those terms. But when NAIC took on the issue, the focus shifted to disclosure, and under pressure from the Independent Insurance Agents & Brokers of America (IIABA), the proposed requirements narrowed even more.
Consumer advocates had wanted the NAIC to also require brokers to disclose all quotes they receive, for example, and to recognize a fiduciary responsibility from brokers to their customers. But model bill didn’t include those items, and neither did the Rhode Island bills.
Given the relatively limited scope of the NAIC proposal, the IIAB and the local Independent Insurance Agents of Rhode Island supported the legislation, requesting only that some language be “clarified” to minimize the burden on their profession or the public.
The bills approved by the state House and Senate, which are identical as amended, require that brokers notify their customers of any “payments, commissions, fees, awards, overrides, bonuses, contingent commissions, loans, stock options, gifts, prizes or any other form of valuable consideration, whether or not payable pursuant to a written agreement.”
Customers must also be notified of the “method and factors utilized for calculating the compensation.” The requirement does not apply to business placed in “secondary” or residual insurance markets – which is where liability policies for bars and clubs, for example, are often placed – and it does not apply to agents whose sole compensation comes from the insurer. Salaried employees of an insurance company are also exempt.
The bills were approved May 10 in the Senate and May 12 in the House. Each still needs to be approved by the other chamber before it can go to Governor Donald L. Carcieri for his signature. The mandates would become effective Jan. 1.
The text of the House bill can be viewed here (in PDF form). Information about the NAIC model law and other broker compensation-related issues is available here.
