Secretary of State Matt Brown, the most vocal advocate here for legal reforms to prevent the alleged insurance abuses uncovered by New York Attorney General Eliot Spitzer, is submitting a bill to the General Assembly that would implement some of the toughest industry reforms proposed so far across the nation.
Brown’s bill stops short of the ultimate crackdown, a ban on compensation for insurance brokers and agents for placing business with a particular carrier. Brown has referred to such pay as “kickbacks,” and said they increase the cost of insurance, hurt competition and steer consumers to insurance plans that are not in their best interest.
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But Brown is proposing changes that the National Association of Insurance Commissioners has considered, but not yet endorsed due to substantial opposition even among state insurance officials:
n Creating a fiduciary duty from insurance producers toward their clients – meaning brokers and agents must protect their clients’ financial interests, regardless of who’s paying them.
n Requiring insurance producers to “fully disclose” to the purchaser, in writing, “all offers, quotes or proposals of insurance” they receive for the client. The bill would also require producers to disclose “the nature and amount of all commissions or fees paid or potentially payable” for any policy, including renewals.
And if the agent or broker is getting any compensation from the customer – whether it’s a direct commission, or built into the premium – he couldn’t also get compensation from the carrier unless he’s gotten the customer’s written consent.
The rules would not apply to carriers who market the product of a single insurer (say, exclusive Nationwide agents), aren’t paid by the customers, and let the customers know they’re paid by the carrier and may provide services on the carrier’s behalf.
The bill also exempts intermediaries such as wholesale or reinsurance brokers.
The latter more closely reflects the NAIC members’ consensus so far. But while a NAIC model law approved last month seems to apply only to brokers (the language is unclear), Brown’s bill would also cover agents, who write most policies in Rhode Island, and are not paid directly by customers.
Agents stress that distinction, and say that while they do try to do what’s best for their customers, they’re not in the same position as brokers.
