INDIANAPOLIS (Aug. 11, 2008) – Policymakers considering changes to insurance producer compensation rules and laws should be cognizant of the distinction between agents and brokers, as well as the appropriate role of contingent commissions in the insurance marketplace, the National Association of Mutual Insurance Companies (NAMIC) advised New York authorities. NAMIC submitted written testimony to the state’s insurance department and attorney general’s office as they contemplate the need for new laws and regulations.

New York officials are gathering information to determine whether to propose new requirements regarding insurance producers making disclosures to or obtaining the consent of insureds when they receive compensation from an insurer or other entity relating to the issuance, renewal or servicing of an insured’s insurance policy or annuity contract.

While recognizing that revelations about certain illegitimate and illegal business practices have prompted increased scrutiny of producer compensation methods, Paul Tetrault, NAMIC’s Northeast state affairs manager, urged state officials in his testimony “not to adopt regulations, statutes or other measures that would unduly hamper our members’ ability to use appropriate and useful compensation methods to distribute products in a competitive environment.”

Tetrault pointed out the important distinction between insurance agents, who ultimately represent insurers even as they provide services to consumers, and brokers, who are retained by insurance buyers to provide professional advice and services. “When a consumer interacts with an agent and the only payment made is a premium to the insurer, the consumer naturally understands that the agent is being compensated by the insurer. Disclosure of this fact would serve no purpose,” he said. “On the other hand, if an insurance buyer enlists the services of a broker and agrees to pay that broker a fee for service, the buyer’s expectation regarding compensation would be quite different.”

State officials also need to be mindful of the important and appropriate role of contingent commissions in the property/casualty marketplace, Tetrault pointed out in his testimony. “NAMIC believes that payment of contingent commissions by insurers to the agents that represent them is a business practice that is not only traditional but also appropriate and ultimately beneficial for all involved in the insurance transaction.”

Above all, Tetrault said, the insurance department and attorney general review of the issue should not result in the adoption or recommendation of any statute, regulation, or other measure “that would impair the utilization of compensation methods that are useful and appropriate and which serve the interests of producers, insurers and ultimately insurance buyers.”

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© Copyright 2007, National Association of Mutual Insurance Companies (NAMIC).