Oldwick, N.J. — Several state initiatives will go into effect on January 1 that could affect the ways in which insurers and agents do business and, in each case, an insurance watchdog group was most likely waiting with bated breath for the new year to arrive.

Some of the new statutes strive to reduce claims for accidents or medical needs. Others push the current limits of employee benefits. And some are designed to refresh the staid regulatory rating environment.

The Council of Independent Agents and Brokers is watching new statutes in Kentucky and California that address the legality of producer actions, says Nicole Allen, VP of industry affairs for the organization.

Kentucky has eased restrictions on insurance producers concerning their classification as agents and/or consultants, she says. The Kentucky Department of Insurance had issued some opinions regarding what an agent can do versus what an industry consultant can do; it’s one of several states that have different categories of producer, with certain categories limited to certain practices by law, she says.

“Some of these opinion letters appeared to go beyond the statute that existed at the time, restricting what you could do as an agent or consultant, or if you’re licensed as both an agent and consultant simultaneously,” Allen says.

The new law should clear up some issues that had arisen over the past couple of years because of these opinions, she says.

“It provides some flexibility for those agents who do handle larger accounts,” Allen continues.

Larger clients normally want more consulting-type services, which is why they rely on agents and brokers. “This bill will permit producers to do those types of things without running afoul of the law,” she says.

The new law also will widen consumer insurance choices, she adds. The new law means customers will no longer have to go to one person for advice and to another to actually buy the policy.

In California, a “long and drawn-out process” has led to a new law that redefines the producer appointment process, and how that affects someone acting as an agent in one situation and as a broker in another, Allen says. Under the prior definition of “agent” in California, someone appointed by an insurance company to sell automobile insurance, for instance, would be considered to be acting as an agent for that company in all transactions.

“It assumed you are an agent for everything,” she says.

The law changes the definition of agent to “someone who transacts insurance business on behalf of a company.” It also requires brokers to have a written agreement signed by a consumer when they are transacting business on behalf of the consumer. And, if the broker is receiving any compensation from the issuer for that purchase of insurance, that has to be listed in the agreement as well, she says.

“That’s new under this bill,” Allen explains. “It also permits a rebuttal of the presumption that somebody is acting as a broker if the licensee is appointed for a particular type or kind of insurance. It solves the problem of role definition.”

The California statute really targets the responsibilities of brokers under the law, she says. “When you’re doing business in some cases as an agent and in some cases as a broker, it makes it different.”

New laws that just took effect in the states of New York and Georgia are significant in terms of regulatory modernization, and in their appeal to carriers—especially property/casualty companies, says Wes Bissett, senior counsel of government affairs for the Independent Insurance Agents and Brokers of America (Big I).

Last year, New York  passed a bill that restores flex-rating to auto insurance rates. Georgia’s bill went further, eliminating prior approval of rates and moving to a system that allows the competitive market to establish rates for the first time, Bissett says.

“The Georgia bill is sweeping in its scope,” he adds. The industry has long tried to stop government from arbitrarily intervening in the rate-making process, Bissett says, and “the Georgia bill does it completely.” It also “lets the dozens or hundreds of companies doing auto to compete.”

New York’s new rate-making law basically lets insurers raise or lower their auto rates by up to 5% without first getting approval from the state insurance department. Several states have embraced the approach in recent years, he says.

“What they’re saying is, ‘We don’t want to get government out of the business of regulating rates altogether. Let’s take this interim step of flex-rating,’” Bissett says. While Alaska and North Dakota have both recently gone down that road, “New York is the latest to embrace that approach, and the most significant to embrace that.”

The Big I plans to keep an eye on similar state legislative action throughout 2009, Bissett adds. The organization also is watching trends on credit scoring. The Florida legislature may move to regulate credit-based scoring practices in the state, he said, even though Congress failed to pass two bills in 2008 that would have banned the use of credit scoring nationwide.

State regulation on scoring is evolving, he says. Florida has done the most—for instance, being the first state to look at the use of other scoring criteria such as education and occupation.

Source: BestWire Services

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