Regulatory conflicts between big and
small firms mean transparency is the only option.
The unsatisfying thing about the countersignature cases is
that by the time the final resolution arrives with the denial
of a final appeal—or more accurately, the expiration of
the time to file the appeal—the victory seems
I have long moved on to the next problem du jour. But in
closing the book on the nation’s countersignature cases
in July, I would like to note the following:
As much as we lawyers want to take all of the credit for
these victories, there are two sets of folks who deserve all of
the kudos: The Council and its members for making the decision
to pursue the cases, and Rebecca Restrepo and Ted Joyce, who
agreed to take the time and to risk potential regulatory
exposure to participate as our individual plaintiffs in two of
the key cases—Nevada and South Dakota.
Although it may not seem that monumental for The Council to
pursue this legal battle, we were heavily criticized when we
filed the first two cases in Nevada and Florida. While it is
common to bring policy-oriented litigation in other industries,
this rarely had been done in the insurance industry. We were
condemned in some corners for going forward. The
very-soon-to-be-retired Nevada commissioner even appeared to be
evading service of the complaint, further fueling the concerns
regarding regulatory backlash.
Fortunately, I don’t believe there has been any
regulatory backlash to this point. In fact, in our West
Virginia case, the insurance commissioner stood at the head of
the line requesting the legislature repeal the requirement,
which it did (depriving us of the opportunity for another
litigation victory, although a victory nonetheless).
As a general matter, regulators have to enforce the statutes
of their legislatures. In many cases, the statutes were enacted
decades ago at a different time in our industry’s
history. On many issues, such as countersignature, I believe
regulators understand our grievances and—more often than
not—agree with our perspective.
Primary opposition to our position comes from within our own
intermediary ranks as smaller firms try to impose artificial
barriers to entry in their markets. They wished to artificially
constrain larger firms from offering services and freely
negotiating terms on which they would provide services.
This last point also colors the future and raises the
question: “Where do we go from here?”
On every core Council issue—from licensure reform,
compensation disclosure, surplus lines regulatory reform, and
compensation/service issues to the proper application of the
anti-rebating laws and offering products on a net of commission
basis—there is tension between the smaller agencies and
larger ones. Small agencies are very comfortable with the
status quo. Larger firms are desperate for harmonization of the
needlessly duplicative and sometimes conflicting state-by-state
requirements. Larger firms also want liberalization of
antiquated regulatory constraints that are imposed on the
relationship between intermediaries and business clients.
One interesting facet of this is that the line dividing
smaller agencies from larger ones varies on an issue-by-issue
basis, so many firms will—either actually or
effectively—describe themselves as small for certain
issues but large for others. The New York compensation hearings
in mid-July introduced a third category—the demonized
“mega-brokers” that the “small” firms
love to hate. Some of you reading this are probably nodding in
agreement with the “mega” category and its
demonization. But many of you who are nodding your heads sit in
firms that others consider mega class.
So what difference does it make? Maybe none. But on the
other hand, maybe a lot. Mega changes could be afoot. It
appears New York regulators are going to do something in the
compensation and disclosure areas. Also, serious consideration
of an optional federal chartering regime appears likely next
In confronting these potential baskets of threats and
opportunities, I think The Council will be
pure—supporting transparency and those proposals designed
to help remove regulatory intrusions into the relationship
between intermediary and business client, as well as efforts to
streamline compliance burdens.
The loudest backlash will come from those within the
agent/broker community. Smaller agencies fear the increased
level of competition that each of these types of reforms can
foster. Ken Crerar, The Council’s president, has promised
that the countersignature victories are not the end but the
beginning of The Council’s efforts to remove
anti-competitive barriers in the marketplace. Unfortunately,
the starting point of these redoubled efforts will be in the
same litigation arena: challenging already new countersignature
requirements, which recently have been imposed in North
Carolina for surplus lines business and by several
municipalities for bond-related work.
New challenges are now before us. We need to evaluate which
to pursue next. We need to know what matters most to you and
what most needs fixing. We need to know if you are ready to
engage in the fight.
The lawyers’ part is easy.
Sinder, a partner at Steptoe & Johnson, is CIAB general