WIAA Fights Back Against Calif. Commissioner’s Proposed Regulations

“What we’re trying to do is rally the troops,” said Michael Hodge, chairman of the WIAA Legislative and Regulatory Committee. “We have established a legal defense fund because we believe that based on our experience with the [CDI] over these issues in the last year or so that they are intent upon increasing their regulatory authority and power, and if they do get some type of legislation through that we would have to fight the process and then we would have to fight the law that’s so passed. We’d much rather be pre-emptive, we’d much rather not have to go to court, but we need to be prepared for that eventuality. We’d like the department to know that there is not only a voice out there, but it is a strong voice, and enough is enough.”

The brochure further goes on to detail, in a section called “What Broker-Agents are Telling Us About the Garamendi Agenda,” a survey WIAA conducted, asking their member agents whether or not they agreed with IBA West’s alleged Board-adopted statement of policy regarding broker fees and compensation disclosure.

The statement reads: “A broker should disclose, in advance, the amount of the broker fee and the amount of all other material compensation; including commissions, bonuses, gifts and trips, and other things of value.”

According to the WIAA’s survey, only eight of their member agent respondents strongly agreed with the statement, while 233 strongly disagreed. Percentage wise, of WIAA member respondents, 96.6 percent strongly disagreed with the statement, and 93.3 percent of member-agent respondents of both WIAA and IBA West strongly disagreed with the statement.

“The tactics of the WIAA are very regrettable,” said Steve Young, general counsel for IBA West. “They have constantly misrepresented and distorted what IBA West stands for, what we are trying to accomplish. And they have done so frankly, in a transparent attempt to promote membership in their own organization.

“We have worked very hard,” he added. “We’ve spent an immense amount of money; we’ve spent an immense amount of time and effort building a coalition to present a unified front in opposition to Garamendi’s agenda. And I think it’s exceedingly unfortunate that the myopic leadership of the WIAA views this as nothing more than an opportunity to promote its own business interests while ignoring the best interests of our common membership.”

While Young defended the actions of the IBA West, not all producer trade associations were in agreement with IBA West’s Board-adopted statement.

“The LAAA does not agree with IBA West’s statement regarding broker fees as detailed on the brochure,” said Andre Urena, president of the Latin American Agents Association. “We at the LAAA believe that broker fees are necessary, especially in our market. To be able to afford doing business in the inner cities producers have higher expenses that simply would not be covered with the insurer’s commission. Without broker fees many brokers could not afford to be in business thereby affecting the availability of insurance in many areas in which high preferred rates and stringent underwriting prevent consumers from purchasing regular insurance. Our automobile uninsured rate is already sky high.

“Eliminating or restricting broker fees will be a detriment to the consumer, not a benefit,” Urena continued. “Additionally, the consumer is better off knowing he is being charged a fee for the service; in other states producers are forced to use ‘add ons’ as a substitution for fees. The current broker fee regulations are sufficient. It seems like just yesterday when these regulations and the broker fee agreements were introduced, and they are working. Everybody discloses fees now; it is not an issue.”

The brochure also alleges that the IBA West has been “working secretly with the CDI since April 2004, drafting new disclosure requirements.”

“If IBA West has been meeting secretly with the department, that’s news to me,” Young said. “Now it’s true that members of the departmental staff have approached us and other industry participants for reaction to various proposals. But there’s been nothing secret about those meetings, but we actually have insisted, and I have insisted personally that other producer organizations, including representatives of the WIAA, be included in those meetings.”

“There had been a number of industry-wide coalitions or working groups which involved agent and broker associations as well as insurance company associations, and to a large degree [there have been] a number of … issues over the years [that] we’ve all collectively been able to take a position on that’s fairly uniform,” Hodge said.

“In the case of the broker fee regulation and disclosure regulation, what would have been fiduciary responsibilities, there was a general consensus and the consensus was no,” he said. “There’s no need for these types of regulations, the department has yet to demonstrate that a need exists, and that they do not have powers under existing law to deal with a problem should it exist. But the department was ignoring all of that and wanted to impose these stringent rules and regulations, and collectively the industry said no, there’s no need for any of this.”

Hodge continued, “Apparently the IBA West did have the desire and intent as an organization to get some type of disclosure language codified and into law. And so while the rest of the industry was saying no to everything, IBA West was saying, ‘Well, we don’t like all of this other stuff you added, but we do want to keep working with you on disclosure.’ The coalitions and the working groups had become partially fragmented because of that, [so] the WIAA took the position to rally the troops. Let’s see if we can’t get uniform consensus behind what those of us that work in the industry feel is best and right and proper for the industry and how to best regulate it.”

“Unfortunately, insurance trade organizations have been fragmented for years,” Urena said. “While they profess unity, it seldom happens. After six years of the LAAA’s existence we have yet to see much progress; they all have their own agenda.”

“We are doing what we believe is essential to represent the best interests of California’s independent agents and insurance brokers,” Young said. “We’ve always done that. I think we have a track record over many years of being very effective at that job, and the suggestion that WIAA has made in some of its publications that IBA West has suddenly decided to embrace Commissioner Garamendi on his agenda is just spatially absurd.

“It’s very difficult to tell from the WIAA written material whom Alan Smith considers the real enemy–whether it’s IBA West or John Garamendi,” he added.

Editor’s note: IJ contacted all California-based agent/broker trade associations for comment.