When various state insurance commissions and attorneys general began investigating insurance company practices in the wake of Eliot Spitzer's high-profile New York investigations, one remedy put forward was the possibility of federal regulation. Once that was considered an unlikely alternative, but now many insurance companies, banks, and associations are calling on Congress to establish a federal regulator for the industry. Advocates maintain that a federal system would be more efficient and help insurance companies comply with regulations, including those pertaining to incentive travel and meetings, which are now governed at the state level.
In June, a coalition of 135 of these insurance industry players sent a letter to the Senate Banking Committee, complaining about the burden of complying with regulators in 50 states. The letter, endorsed by industry giants such as Prudential, State Farm, and New York Life, called for the establishment of an optional federal charter that would permit insurance companies to choose between operating under a state or a federal regulatory system.
The largest group representing agents and brokers, the Independent Insurance Agents & Brokers of America, quickly rejected the idea of federal oversight. According to Charles E. Symington Jr., IIABA senior vice president for government affairs and federal relations, an optional federal charter, despite claims to the contrary, would inevitably replace state regulation — to the detriment of both consumers and producers.
In the meantime, about 75 of 100 insurance executives surveyed at the annual Standard & Poor's Ratings Services insurance conference in New York in June said that the long-term impact of the Spitzer-led scrutiny of the insurance industry would be a better business environment. How-ever, 37 percent cited regulatory risk as the issue that most concerns them, compared to 18 percent last year.
New Rules for Oregon Agents
The scrutiny leveled on the insurance industry also resulted in action at the state level. In late May, the Oregon Department of Consumer and Business Services adopted new insurance compensation disclosure rules that will give consumers more information about the way agents are paid and rewarded for meeting sales goals.
Under the new rules, an agent or broker who receives a fee from a customer as well as cash or contingent compensation from an insurer for the same transaction must disclose, in advance, the entire amount. This includes rewards given for reaching sales goals such as “payments, commissions, fees, awards, overrides, bonuses, contingent commissions, loans, stock options, gifts, prizes, or any other form of valuable consideration [such as] vacation or other trips received for meeting sales or profitability goals.” Because agents with contingent compensation likely won't know the dollar amount of gifts and travel they will receive, they are required to provide the specific method of compensation, and, if possible, an estimate of the amount.