… and as NAIC President in the Age of Spitzer

In addition to balancing the interests within Pennsylvania’s own insurance markets, Insurance Commissioner Diane Koken must balance that job with being president of the organization of all state insurance commissioners, the National Association of Insurance Commissioners.

She assumed the NAIC presidency shortly before the Spitzer charges over bid rigging, account steering and contingent fees were first aired and, since then, much of her own and NAIC’s efforts have been focused on that controversy.

The NAIC has developed a model act calling for disclosure of all contingent fee agreements, a model that many in the industry have criticized as too broad and sweeping in its requirements.

Does she believe disclosure of contingent arrangements is adequate or should they be prohibited?

“That’s the million dollar question,” she commented, although she hinted she needs to be convinced a ban on such agreements is necessary. “We understand why some companies have prohibited them but I’m not sure we are to the point of believing that contingent commissions are in and of themselves inherently bad.”

She is troubled by suggestions that the compensation disclosure requirements the NAIC has recommended for agents and brokers are too broad. “I have a bias toward disclosure and transparency,” Koken said, adding, “I’m puzzled why disclosure and transparency are considered harmful.”

At the same time, she is willing to acknowledge there are differences between so-called Main Street independent agencies and the large commercial Wall Street agencies. “I understand they are different and that Main Street agents are in much more competitive situations with consumers and must compete on a daily basis. But how do you define the difference between these agents and others in a meaningful way?” she asked.

Koken recently returned from an NAIC meeting in Arizona, where the NAIC unveiled an online fraud reporting system and committed itself to moving forward with its analysis of several issues that go beyond compensation disclosure, including whether states should impose a fiduciary responsibility upon producers. She would not speculate about where NAIC may finally come down on this controversial proposal.

In the meantime, states including Pennsylvania are continuing to collect and analyze information on compensation practices captured through surveys to see how big of a problem is out there.

How widespread is it? “Don’t know yet,” she said.

In addition to the compensation issues, the NAIC will also be working on the interstate compact, speed-to-market, solvency and other issues on its agenda, according to the president from the Keystone State.