2005
Insurance Reference Manual
Personal Insurance Federation of California Insurance Reference Book
PIFC FACT SHEET
CDI Proposed Regulation: Insurance Broker Fiduciary Duties
January 5, 2005
The Proposed Regulation creates and defines new unfair and deceptive acts under the purported authority of the California Insurance Code. It appears to be based on Commissioner Garamendi's reaction to actions taken by New York Attorney General Elliot Spitzer against the nation's largest insurance broker alleging it improperly steered business to certain insurers and arranged phony bids in order to dupe customers into selecting a "chosen" insurer.
PIFC supports the existing provision of California 's Insurance Code, but opposes the proposed regulation because it will harm and confuse insurance consumers by placing unreasonable restrictions on insurance agents and brokers.
Specifically the Proposed Regulation defines:
1. a "misrepresentation" to be a violation of the Insurance Code when "a broker who fails to disclose to a client all material facts surrounding the broker's receipt or potential receipt of income from a third party, which income derives in whole or in part from a transaction on behalf of a client."
-
The proposed regulation blurs the definition of insurance agent and insurance broker thus causing confusion among insurance consumers. What consumer in California doesn't know that when he/she purchases an auto or home insurance policy from an agent representing one company (captive agent) or independent agent (representing several companies) that the agent receives a commission?
-
When a consumer buys a car or refrigerator is there any doubt that a commission will be paid to the salesperson?
-
A broker is different, and existing law already states that when consumers purchase auto or homeowners' insurance from a broker, they are given a disclosure that specifically tells them that they, the consumer, will pay a fee for the service of the broker.
-
California law already gives the Insurance Commissioner and the Attorney General prosecutorial power to pursue insurance brokers who fail to disclose material facts surrounding an insurance transaction. PIFC vigorously supports these laws.
California Department of Insurance (CDI) Proposed Regulation:
Insurance Broker Fiduciary Duties
The proposed regulation:
2. creates new unfair practices under the Insurance Code when a broker fails to provide the client with the proposal of a "best available insurer" or obtain a quote from an insurer that might be a "best available insurer".
-
Since the proposed regulation blurs the definition of agent and broker it would be impossible for either to meet this regulation. No single broker or agent represents every insurer that does business in California , thus couldn't get a quote from every insurer.
-
Every agent and broker reviews the needs of his/her client and makes the best recommendation to the customer after evaluating various proposals. Under the proposed regulation, the agent or broker couldn't provide this service. The agent or broker would present insurance proposals to the customer for consideration but would not make a recommendation for fear of violating this regulation. This eliminates the experience and expertise the agent or broker could offer during the selection process.
PIFC believes that all insurance brokers should put their clients' interests first and believes that existing law already provides for disclosure of information to help insurance consumers make an informed decision. Further, PIFC believes existing California insurance law also provides for legal remedies to punish those who do not abide by current regulations.
If the California Department of Insurance has proof that existing law is not doing the job and that there is a real problem, PIFC will cooperate to find ways to address the issue. Thus far a real problem in California has not been identified and PIFC remains opposed to CDI's proposed regulation.
Back to Table of Contents
