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Q. What is the
effective date of the producer compensation disclosure law? A. August 12,
2005 Q. What is the purpose of Arkansas’s 2005
Producer Compensation Disclosure Law? A. Section
9 of Act 1697 of 2005 amends the current Producer Licensing Model Act (PLMA)
in The
Act requires greater disclosure for those insurance producers who act as
brokers (who represent insureds), OR who receive compensation from the
customer; this producer must disclose whether he will receive additional
compensation from the insurer or other third party and provide the customer
an estimate of the amount of such compensation if the customer requests such
additional information. These
PLMA amendments will ensure consumers are provided the necessary information
to understand any potential conflicts of interest a producer may have because
of the manner in which the insurance producer is compensated. Q. Are licensed, salaried producers
required to disclose compensation? A. No. Salaried insurance carrier employees
licensed as insurance producers who are not compensated for insurance
placements and sell insurance only for their employer shall not be subject to
the disclosure requirements of Section 9 of Act 1697 of 2005. These producers are not receiving “compensation
for the placement” within the intention of this law. Q. Does the
certificate holder/employee need to receive the disclosure on a group
insurance policy? A. No. The producer should make the disclosures to
the entity named on the policy as the group policyholder. The disclosure should be made to the person
actually applying for the insurance or that person’s authorized
representative. The producer is not
required to provide the disclosures to each individual certificate holder
under a group insurance policy. Q. Does this license apply to insurance
placements of credit life or credit disability? A. No. Placement of credit life or credit
disability insurance is not subject to the requirements of Act 1697 of 2005,
Section 9, codified at Ark. Code Ann. § 23-64-520(d)(5). Q. Does this Bulletin
and law apply to surplus line brokers or to producers for surplus lines
policy sales? A. No. Q. Does this law apply
to agents acting directly for the insurer and licensed only as a sole
proprietor for sales of burial expense life policies or annuity contracts? A. Yes, as the producer is not exempt under Act 1697 of 2005,
and must disclose the insurer commission as the source of his/her
compensation, and any from other third parties to the customer at point of
sale. Q. While I understand
the disclosure may be made verbally, I’m thinking it might be wise to put it
in writing and was wondering if the Arkansas Insurance Department is going to
mandate or promulgate a disclosure form or otherwise pre-approve any written
disclosures? A. No. Q. What is a “broker” as defined by
Arkansas law? A. A
broker is one who is required to be licensed as an insurance producer and who
represents insureds or prospective insureds (perhaps receiving compensation
from the insurance consumer for such representation under a contract between
the two) and does not represent or act on behalf of an insurer. A broker is deemed under Q. Does this Bulletin apply to commercial
lines policies? A. Yes. Q. Does this
disclosure requirement apply to producers receiving compensation under six
percent (6%)? A. It applies
to all compensation. There is no
compensation cap. Q. Does this
disclosure requirement apply to life and accident and property and casualty
insurance? A. Yes. Q. What is the penalty for
non-compliance? A. Non-compliance is a violation of Ark. Code Ann. §§
23-64-216 and 23-64-512. Penalties
under Ark. Code Ann. §§ 23-64-216 and 23-64-512 include probation, fines up
to $1,000 (or up to $5,000 for willful violations), license non-renewals,
license suspension or revocations, all depending upon the severity of the
offenses. Also included in these laws
are the Commissioner’s ability to order forfeiture of the
agent/broker/producer profits on sales (commissions for the transaction(s)
related to the Commissioner’s proceeding against the license) to the State of
Q. Is disclosure required for existing
policyholders at renewal? A. The
Act says no disclosure need be given upon renewal “unless the information
previously disclosed under subsection (b) has substantially changed”. A renewal, as opposed to modifications to
existing policies that do not involve the customer evaluating options related
to the purchase, is to be considered a placement of insurance triggering a
disclosure if such a disclosure has not previously been given. |
