| Facts, not hype,
should prevail in wake of insurance investigation
by Robert A. Rusbuldt
For Virginia Business
December 2004
A
recent lawsuit against Marsh & McLennan Cos. and
a flurry of subpoenas to several carriers have sent
shock waves through the insurance industry and garnered
widespread attention from the media. But in all the
information published about the investigation, there
has been little perspective on the value and service
that independent agents and brokers provide to consumers.
I feel compelled to set the record straight.
First, the Independent Insurance Agents & Brokers
of America (IIABA), the nation’s oldest and largest
insurance association, fully supports Attorney General
Spitzer’s actions to investigate and bring to
justice anyone engaged in illegal practices in connection
with the sale of insurance. Before Spitzer’s filing
of the lawsuit against Marsh, IIABA’s National
Board of State Directors adopted a policy urging brokers
to disclose to customers the existence of placement
service agreements, describe the nature of such compensation
agreements and advise clients that they can discuss
the matter further and request additional information.
The association believes that disclosure and transparency
of such agreements is the best way to ensure that the
laws are followed and that the public’s confidence
is earned and maintained.
Some reports and analyses about the issues underlying
the lawsuit unfortunately have mischaracterized the
role of agents and brokers as mere “middlemen.”
To the contrary, in the insurance industry, a salesperson
must invest substantial time to identify the client’s
needs, understand the complex terms of policies, present
choices to the client about coverage, price, service
and financial strength of carriers and remain available
to assist with questions and changes as needed.
Independent insurance agencies can maintain relationships
with multiple insurance companies. In fact, on average
nationally, they offer policies from eight personal-lines
and seven commercial-lines carriers per agency. They
are not locked into one company’s policies or
products and can seek coverage that is tailored to the
needs and desires of their customers. They understand
that just as one size does not fit all, one policy does
not fit all either.
Some interest groups have used the recent events to
push for federal regulation of insurance. IIABA is a
leading supporter of the State Modernization and Regulatory
Transparency Act discussion draft unveiled in the U.S.
House of Representatives before the fall recess. The
SMART Act calls for targeted federal tools with uniform
standards to reform the regulatory system under the
continued jurisdiction of state regulators — without
creating a new invasive, expensive federal bureaucracy.
The fact that the ongoing investigation was launched
and conducted at the state level, not the federal level,
proves the case that the states are capable of handling
this kind of oversight.
Federal regulation is no panacea for alleged abuses
of the system. Scandals involving investment banks,
mutual funds and the savings and loan industry all occurred
within industries that already were federally regulated.
There also are proposals for optional federal regulation,
but that would provide weaker oversight than currently
exists because it would allow companies to choose their
own regulators and pit one regulator against the other.
This would weaken oversight of the industry, hurting
consumers.
Independent agents and brokers provide substantial and
valuable services to consumers. Care needs to be taken
to not paint the entire insurance distribution system
with a broad brush because of the few who may have engaged
in illegal and improper activities.
Robert A. Rusbuldt is CEO of the Independent Insurance
Agents & Brokers of America, a national trade group
of more than 300,000 members.
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