To: The Honorable Diane Koken, NAIC President and Pennsylvania Insurance Commissioner

From: Trei Wild, President, National Association of Health Underwriters

Fred R. Bean, CLU, President, Association of Health Insurance Advisors, National Association of Insurance and Financial Advisors

We appreciate this opportunity to provide written comments on the proposed Broker Disclosure Amendment to the NAIC Producer Licensing Model Act. Our Association members condemn the deceptive practices, price fixing and corruption of the bid process alleged by Attorney General Spitzer and others in recent headlines. And we support swift efforts to bring wrongdoers to justice. However, we wholeheartedly believe these are isolated examples that in no way can be considered representative of our entire industry.

Our Associations have strict codes of ethics for our members, including the pledges:

“To keep paramount the needs of those whom I serve”

“To respect my clients' trust in me, and to never do anything which would betray their trust or confidence”

“To adhere to professional standards of conduct in helping my clients to protect insurable obligations and attain their financial security objectives”

To present accurately and honestly all facts essential to my clients’ decisions”

As grassroots agents and brokers representing Main Street America we have built our businesses on a bond of trust with our customers and we continually strive to keep that trust intact.

There seems to be widespread confusion concerning the compensation arrangements provided to independent agencies in our members’ markets versus the individually negotiated placement service agreements in reinsurance and other markets, which have been the focus of the Spitzer investigation. Hopefully we can correct much of this confusion by working together with the NAIC. Our Association members have always been strong proponents of state-based regulation and want to continue our longstanding role of being a resource to regulators.

We support disclosure that provides clarity to the policyholder without sidetracking the sales process. The logistics of disclosure are difficult when it comes to special compensation agreements like bonus arrangements. Most commonly, a bonus arrangement is contingent on placement of a certain number of cases or a dollar volume of business with a given carrier. When an agent or broker completes a transaction with a consumer, he or she may have no idea at that time whether or not that case might determine eligibility for a bonus later in the year. Additionally, some bonuses are tied to sales contests, which may start mid-year but are retroactive back to business placed since the beginning of the year. Would the broker need to go to all clients for whom he or she wrote business prior to the commencement of the sales contest to let them know that there might be additional compensation on that case? Also, the formula for calculation of bonuses is often not available to the broker, and many bonuses are paid in a lump sum, without regard to any sort of allocation for a particular case. Finally, other techniques such trips or points towards prizes are also often used as sales tools. Disclosure of those items in monetary terms may be impossible.

Additionally, we would note that members of our organizations deal specifically with health insurance and related products; for example, dental insurance, long-term care insurance, and disability insurance. These products often have published rates, specifically in the small group market and may not differ whether or not an agent is used. Disclosure of commissions has no impact whatsoever on what the consumer pays in these cases. Even in larger markets, because rates are driven by claims experience, bid rigging would be difficult at best, even if an unscrupulous broker wanted to attempt it. We strongly believe that the allegations by Attorney General Spitzer would be hard to achieve in our members’ markets, even by those with clear fraudulent intent. Clearly someone with such criminal or fraudulent motivation wouldn’t be deterred by a requirement that commissions or other compensation be disclosed.

Although we strongly believe this is not a regular industry practice, we commend the NAIC for quickly acting to initiate draft model regulation on disclosure of broker compensation. We offer below specific recommendations relative to the amendment language that has been proposed, and are committed to working with you to craft a reasonable and sensible response to this issue. We would welcome further discussion to clarify how our members’ compensation differs from the wrongdoings and misconduct alleged.

Our recommendations for amending the proposed amendments follow:

Proposed

Broker Disclosure Amendment

To the Producer Licensing Model Act

Section __

Any insurance producer or any business entity related to controlled by such producer who is permitted by [statute] to receive will receive any compensation, including commissions, more than a nominal amount of compensation from the policyholder for the placement of insurance, from the insured shall not accept or receive any such compensation or commissions for that placement from an insurer unless the producer has, prior to insured’s purchase of insurance the placement, (1) obtained the insured’s policyholder’s written consent acknowledgement that compensation for the placement of insurance will be received by the producer or business entity related to controlled by the producer, from the insurer and (2) disclosed the amount of compensation from the insurer; and the method for calculating such the nature of any contingent compensation that may be received from the insurer compensation, including any contingent compensation . If the amount of contingent compensation is not known at the time of disclosure, the producer shall disclose a reasonable estimate of the amount and method for calculating such compensation.

Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAIC’s Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.

Drafting Note: The provisions of this section shall not apply to an insurance producer or any business entity related to such producer that accepts or receives only a nominal fee from the insured.

Section __*

An insurance producer must disclose the following, if applicable, to an insured policyholder or prospective insured applicant for an insurance policy, prior to the purchase of insurance:

1. That the producer will receive compensation from the insurer for the sale;

2. That the compensation received by the producer may differ depending upon the product and insurer; and

3. That the producer may receive additional compensation from the insurer in connection with the current sale based upon other factors, such as premium volume placed with a particular insurer and loss or claims experience.

Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAIC’s Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.

*Deletion in entirety is recommended. Text change recommendations are in the alternative.

PROPOSED PLMA AMENDMENT (CLEAN VERSION)

Section __

Any insurance producer or any business entity controlled by such producer who will receive more than a nominal amount of compensation from the policyholder for the placement of insurance, shall not accept or receive such compensation for that placement from an insurer unless the producer has, prior to the placement, (1) obtained the policyholder’s acknowledgement that compensation for the placement of insurance will be received by the producer, or business entity controlled by the producer, from the insurer and (2) disclosed the nature of any contingent compensation that may be received from the insurer.

Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAIC’s Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.

Section __*

An insurance producer must disclose the following, if applicable, to a policyholder or applicant for an insurance policy, prior to the purchase of insurance:

1. That the producer will receive compensation from the insurer for the sale;

2. That the compensation received by the producer may differ depending upon the product and insurer; and

3. That the producer may receive additional compensation from the insurer in connection with the current sale based upon other factors, such as premium volume placed with a particular insurer and loss or claims experience.

Drafting Note: States that are considering the licensing of business entities should reference subsection 6B of the NAIC’s Producer Licensing Model Act and the Uniform Application for Business Entity License/Registration, which address the licensing of a business entity acting as an insurance producer.

*Deletion in entirety is recommended. Text change recommendations are in the alternative.

We urge caution to those who may want to overreact and deem all agents and brokers corrupt. We will vigorously defend the value of the agent and broker to our customers and to the consumer. We will also defend the free market system that compensates us, including the bonus commissions that are commonplace and legal in our business.

All across America, goods and services are bought and sold every day. We do not ask whether the person selling us our refrigerator will receive a sales bonus if he sells a certain number of refrigerators, nor do we ask if he’ll get a bonus if he sells more Maytags than Whirlpools. We simply look at the comparative tools available to us and make a decision based on the information available. And most of us would also acknowledge that when we purchase other goods or services, the people who are paid on commission, frequently work harder to make us happy with our purchase, with the hope that we’ll come back again and refer our friends and neighbors to them for the same good service. Health insurance agents and brokers have the same incentives to provide outstanding service, and they do so countless times every day.

Thank you again for this opportunity to provide comments on the draft.