NAIC task force releases draft model legislation

The US National Association of Insurance Commissioners's (NAIC) newly formed Executive Task Force on Broker Activities has released draft model legislation that would implement new disclosure requirements designed to ensure consumers are provided the information necessary to understand the manner by which brokers are compensated for the sale of insurance products.

As proposed, the draft model legislation would amend NAIC's current Producer Licensing Model Act. The draft is part of continuing efforts by state insurance regulators to address issues surrounding the use of compensation arrangements by insurance brokers.

Three-part plan

Formed by the NAIC in October, the task force developed a three-part action plan, which includes creating more transparency for insurance consumers through better disclosure of broker compensation arrangements; continuing to help state insurance regulators co-ordinate efforts to address improper conduct by brokers and insurers through investigation and collection of relevant information; and the implementation of a new online fraud-reporting system.

"One of the three components of our action plan is to achieve greater transparency through development of model legislation that will require brokers to disclose all compensation arrangements," said NAIC president and Pennsylvania insurance commissioner Diane Koken, who also chairs the task force. "With this draft language, we are addressing disclosure of compensation in a two-part framework: disclosures triggered when a broker receives compensation from the insured and insurer, and disclosures required by all insurance producers."

The NAIC executive task force on broker activities is made up of members from 13 states, including California, Connecticut, Georgia, Illinois, Maine, Missouri, Montana, New Jersey, New York, Oregon, Pennsylvania, South Carolina and Texas.

The task force was set up in the wake of the Spitzer investigation to look at a number of areas, including the possible development of a model act for brokers' disclosure of compensation, the creation of a uniform inquiry template for states to use to question insurers and brokers, and the launching of an online fraud-reporting mechanism.