(source: ASA press release)
The U.S. Senate Subcommittee on Financial Management, Budget and International Security of the Governmental Affairs Committee held an oversight hearing on Insurance Brokerage Practices earlier this month. The hearing was presided over by Sen. Peter Fitzgerald, R-Ill., subcommittee chairman.
"Today we consider allegations that some insurance brokers have instead steered clients to the insurers who were paying so-called contingent commissions," said Fitzgerald. "My study of this insurance brokerage controversy convinces me that there is a federal role."
Fitzgerald noted that the McCarran-Ferguson Act of 1945 gave regulation of the insurance industry entirely to the states and he believed the U.S. Congress should reconsider the antitrust exemptions of the act.
Witnesses testifying before the subcommittee were Eliot Spitzer, New York attorney general; Richard Blumenthal, Connecticut attorney general; Gregory Serio, New York superintendent of insurance; John Garamendi, California insurance commissioner; Albert Counselman, Council Insurance Agents and Brokers; Alex Soto, Independent Insurance Agents and Brokers of America; Ernie Csiszar, Property Casualty Insurers Association of America; Janice Ochenkowski, Risk and Insurance Management Association; and Robert Hunter, Consumer Federation of America.
Spitzer said his office has been investigating the market practices of insurance brokers. "We were concerned that brokers were subject to conflicts of interest due to their receipt of contingent commissions and other hidden payments from certain insurance companies for steering client business to preferred insurers," said Spitzer.
Connecticut's Blumenthal said, "Federalizing this problem is unnecessary and unwise. Rather than rely on federal regulation, state insurance laws should be reinvigorated and reinvented."
Garamendi said California has issued proposed regulations that will require disclosure of all compensation from any party including any insurer in connection with placement of insurance on behalf of a client.
In addition, Hunter said, "The Spitzer investigation reveals how easily sophisticated buyers of insurance can be duped by brokers and insurers." Hunter added, "Imagine the potential for abuse and deceit when small businesses and individual consumers try to negotiate the insurance market."
Robert L. Redding, Jr., ASA's Washington, D.C., representative, said, "This hearing follows extensive hearings by the U.S. House Financial Services Committee and a hearing by the Senate Commerce Committee on the subject of state versus federal insurance regulation. Federal insurance regulation has not been seriously considered since the early 1990s. ASA will continue to encourage the Congress to review property and casualty regulatory policy along with other specific insurance areas."
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