Before the Fall
Regulators spent the summer confusing
the issues as well as brokers.
Scott Sinder and John Fielding
Fall. Thoughts of falling leaves, football games and, of
course, the NAIC’s fall national meeting. But before we
move on to the new season in the endless state regulatory
cycle, let’s look at summer activity in three states that
will directly affect Council members: Nevada’s
non-resident countersignature requirements, California’s
broker engagement letters, and Iowa’s rebating.
Nevada countersignatures. The
Nevada countersignature law was the last remaining vestige of
the old-line state countersignature requirements after federal
court decisions in Florida, Puerto Rico, South Dakota and the
U.S. Virgin Islands. When the decision striking down the Nevada
countersignature requirement became final in July, the state
asked the court to revise its final judgment. Nevada believed
the judgment, as originally written, unnecessarily negated the
entirety of the state’s producer policy signature
requirements. On Aug. 15, the District Court issued an order
granting the motion and clarifying the earlier ruling so that
the signature requirement survives but only to the extent that
it does not discriminate against non-resident producers. A
licensed non-resident producer is not required to obtain a
resident producer’s signature.
There has been confusion since the ruling as to whether
Nevada requires producers to be appointed to sign a policy.
There has been no change to the law’s appointment
requirements (we double checked with the state attorney
general). Thus, if a producer was required to be appointed for
the placement of a policy before the decision, it is still
required. If an appointment was not required, it still
isn’t. In other words, for admitted products in Nevada,
an appointed and licensed agent must sign the policy. For
non-admitted products, a licensed broker may sign the policy to
satisfy this (anachronistic) requirement.
California broker engagement
letters. The California Legislature has passed a bill to
clarify when a producer may be deemed to be acting as a broker.
A broker may charge fees in addition to or in lieu of
commissions. Agents in California generally may not charge for
their property-casualty book. The legislation was awaiting Gov.
Arnold Schwarzenegger’s signature as of deadline.
The bill presumes an intermediary is acting as a broker if
he has an agreement in place equivalent to an engagement
letter. It must include:
· A statement that the producer is transacting
insurance on behalf of the consumer;
· A description of the basic services the producer will
perform as a broker;
· Total broker fees; and
· If applicable, a disclosure that the producer may
receive compensation from the insurer.
The bill also sets forth several specific situations where
the producer is not presumed to have the latitude of a broker.
This may be where the carrier has appointed the licensee as its
agent (and filed a notice of appointment with the insurance
department) or where the insurer has a written agreement that
gives the producer binding authority, authorizes him to appoint
other licensees as agents of the carrier, or confers the
authority to pay claims on behalf of the insurer. The producer
also may not collect additional fees if the “totality of
circumstances” establishes that he is acting on behalf of
the insurer rather than the client.
Iowa rebating. Nearly every
state prohibits producers from cutting premiums or providing
free services or another “valuable consideration”
as an inducement to purchase insurance, unless the
“rebate” is specified in the policy. Anti-rebating
laws are nearly identical across the country and are based on
language in the National Association of Insurance
Commissioners’ Model Unfair Trade Practices Act.
The model language does not define a rebate. Many states
regulate this on a case-by-case basis (in response to
complaints from other agents). So producers are left to wonder
if they can provide value-added services, discounts and
marketing materials to their clients.
The Iowa Insurance Division is attempting to identify
rebating under the state’s anti-rebating laws. Bulletin
08-13, issued in August, recognizes that some value-added
services, including risk management services, can be offered
without running afoul of the law. The division limits services
to those “appropriate in scope, related to the type of
insurance product involved and not excessive.” The
bulletin reiterates the prohibition against “offering
anything of value as inducement to purchase, change or renew an
The bulletin is not perfect. But The Council supports
Commissioner Susan Voss’ efforts to address the
confusion. Following on the statutory clarifications adopted by
New Hampshire a few years ago, and interest expressed by New
York Superintendent Eric Dinallo, the Iowa activity could point
to growing interest in reforming this archaic regulatory
Sinder, a partner at Steptoe & Johnson, is CIAB General
Fielding is of counsel at Steptoe & Johnson.