DCBS Media Release
May 23, 2005
New rules clarify how insurance agents are paid
New rules adopted by the Oregon Department of Consumer & Business Services will provide consumers with better information about how insurance agents are paid.
Under the new rules, an insurance agent, broker, or consultant who receives both a fee from a customer and pay from an insurer for the same transaction must disclose in advance the entire amount, including any "contingent compensation," such as rewards for meeting sales or profitability goals.
"A customer has the right to know when his or her insurance agent is being paid by both insurers and customers for the same transaction," said DCBS Director Cory Streisinger.
Insurance compensation practices have been under intense scrutiny since October 2004 when New York Attorney General Eliot Spitzer charged that Marsh & McLennan Companies and other major brokers cheated insurance purchasers, primarily corporate clients, by rigging bids and collecting large fees from insurers for sending business their way. Marsh and several other large brokers later agreed to pay restitution and no longer accept contingent commissions.
Most agents aren't paid by customers, but receive only commissions or other forms of compensation from insurance companies, so the disclosure requirements won't apply to them. Oregon law allows collection of both fees from customers and compensation from insurers in limited circumstances, primarily by those selling commercial insurance to businesses, and by consultants, who advise customers about commercial or personal coverage.
"Our new rules address the area with the most potential for conflicts of interest to occur-when an agent or broker is getting compensation from both sides of the deal," said DCBS Insurance Division Administrator Joel Ario. "We still have some concerns about situations in which brokers acting on behalf of customers agree to waive fees and accept only commissions from insurers. However, we've received few complaints about this practice and legislation would be needed to address it."
The new rules take into account that agents may not know the exact amount of contingent compensation they will receive. In these cases, agents must disclose the specific method of compensation and, if possible, provide an estimate of the amount.
The new rules, which also cover a variety of other matters relating to insurance agents, are available on the Insurance Division's Web site: insurance.oregon.gov. Click on What's New.
The Insurance Division is also reviewing information it requested from 26 large insurers and 11 large insurance brokers to determine if improper solicitation or compensation activities have occurred or are occurring in Oregon. Fifteen large commercial insurance buyers also have asked the Insurance Division to review their insurance transactions to see if they were appropriately handled.
The Insurance Division is collaborating with other state insurance departments and the Oregon Department of Justice on the investigation.