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First Substitute S.B. 114

Senator Beverly Ann Evans proposes the following substitute bill:


             1     
PRODUCER AND AFFILIATE DISCLOSURE

             2     
AMENDMENTS

             3     
2006 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Chief Sponsor: Beverly Ann Evans

             6     
House Sponsor: James A. Dunnigan

             7     
             8      LONG TITLE
             9      General Description:
             10          This bill amends the licensee compensation provisions of the Insurance Code.
             11      Highlighted Provisions:
             12          This bill:
             13          .    defines terms including "compensation from an insurer or third party";
             14          .    beginning January 1, 2007, under certain circumstances, requires the disclosure of
             15      the amount or extent of compensation from an insurer or third party that is received
             16      by an insurance producer; and
             17          .    clarifies disclosure requirements for conflict of interest and compensation.
             18      Monies Appropriated in this Bill:
             19          None
             20      Other Special Clauses:
             21          None
             22      Utah Code Sections Affected:
             23      AMENDS:
             24          31A-23a-401, as renumbered and amended by Chapter 298, Laws of Utah 2003
             25          31A-23a-501, as renumbered and amended by Chapter 298, Laws of Utah 2003


             26     
             27      Be it enacted by the Legislature of the state of Utah:
             28          Section 1. Section 31A-23a-401 is amended to read:
             29           31A-23a-401. Disclosure of conflicting interests.
             30          (1) (a) (i) Except as provided under Subsection (1)(b)[, no]:
             31          (A) a licensee under this chapter may not act in the same or any directly related
             32      transaction as:
             33          (I) a producer for the insured or consultant; and
             34          (II) a producer for the insurer; [nor may]
             35          (B) a producer for the insured or consultant may not recommend or encourage the
             36      purchase of insurance from or through an insurer or other producer:
             37          (I) of which the producer for the insured or consultant or producer for the insured's or
             38      consultant's spouse is an owner, executive, or employee; or
             39          (II) to which [he] the producer for the insured or consultant has the type of relation that
             40      a material benefit would accrue to the consultant or spouse as a result of the purchase.
             41          (b) Subsection (1)(a) does not apply if [the following three] each of the conditions in
             42      this Subsection (1)(b) are met[:].
             43          (i) Prior to performing the consulting services, the producer for the insured or
             44      consultant [discloses] shall disclose to the client, prominently, in writing[,]:
             45          (A) (I) the producer for the insured's or consultant's interest as a producer for the
             46      insurer[,]; or
             47          (II) the relationship to an insurer or other producer[,]; and
             48          (B) that as a result of those interests the [consultant's] recommendations of the
             49      producer for the insured or consultant should be given appropriate scrutiny.
             50          (ii) The producer for the insured's or consultant's fee [is] shall be agreed upon, in
             51      writing, after the disclosure required under Subsection (1)(b)(i), but prior to performing the
             52      requested services.
             53          (iii) Any report resulting from requested services [contains] shall contain a copy of the
             54      disclosure made under Subsection (1)(b)(i).
             55          (2) [No] A licensee under this chapter may not act as to the same client as both a
             56      producer for the insurer and a producer for the insured without the client's prior written consent


             57      based on full disclosure.
             58          (3) Whenever a person applies for insurance coverage through a producer for the
             59      insured, the producer for the insured shall disclose to the applicant, in writing, that:
             60          (a) the producer for the insured is not the producer for the insurer of the potential
             61      insurer[. This disclosure shall also inform the applicant that]; and
             62          (b) the applicant likely does not have the benefit of an insurer being financially
             63      responsible for the producer for the insured's conduct.
             64          (4) If a licensee is subject to both this section and Subsection 31A-23a-501 (4), the
             65      licensee shall provide the disclosures required under each statute.
             66          Section 2. Section 31A-23a-501 is amended to read:
             67           31A-23a-501. Licensee and affiliate compensation.
             68          (1) As used in this section:
             69          (a) "Commission compensation" includes funds paid to or credited for the benefit of a
             70      licensee from:
             71          (i) commission amounts deducted from insurance premiums on insurance sold by or
             72      placed through the licensee; or
             73          (ii) commission amounts received from an insurer or another licensee as a result of the
             74      sale or placement of insurance.
             75          (b) (i) "Compensation from an insurer or third party" means fees, awards, overrides,
             76      bonuses, contingent commissions, loans, stock options, gifts, prizes, or any other form of
             77      valuable consideration:
             78          (A) whether or not payable pursuant to a written agreement; and
             79          (B) received from:
             80          (I) an insurer; or
             81          (II) a third party to the transaction for the sale or placement of insurance.
             82          (ii) "Compensation from an insurer or third party" does not mean compensation from a
             83      customer that is:
             84          (A) a fee or pass-through costs as provided in Subsection (1)(e); or
             85          (B) a fee or amount collected by or paid to the producer that does not exceed an
             86      amount established by the commissioner.
             87          (c) (i) "Customer" means:


             88          (A) the person signing the application or submission for insurance; or
             89          (B) the authorized representative of the insured actually negotiating the placement of
             90      insurance with the producer.
             91          (ii) "Customer" does not mean a person who is:
             92          (A) a participant or beneficiary of an employee benefit plan; or
             93          (B) covered by a group or blanket insurance policy or group annuity contract sold,
             94      solicited, or negotiated by the producer or affiliate.
             95          [(b)] (d) (i) "Noncommission compensation" includes all funds paid to or credited for
             96      the benefit of a licensee other than commission compensation.
             97          (ii) "Noncommission compensation" does not include charges for pass-through costs
             98      incurred by the licensee in connection with obtaining, placing, or servicing an insurance policy.
             99          [(c)] (e) "Pass-through costs" include:
             100          (i) costs for copying documents to be submitted to the insurer; and
             101          (ii) bank costs for processing cash or credit card payments.
             102          (f) "State entity" is defined in Section 67-4-2 and includes:
             103          (i) state institutions of higher education; and
             104          (ii) state institution of public education.
             105          (2) A licensee may receive from an insured or from a person purchasing an insurance
             106      policy, noncommission compensation if the noncommission compensation is stated on a
             107      separate, written disclosure.
             108          (a) The disclosure required by this Subsection (2) shall:
             109          (i) include the signature of the insured or prospective insured acknowledging the
             110      noncommission compensation;
             111          (ii) clearly specify the amount or extent of the noncommission compensation; and
             112          (iii) be provided to the insured or prospective insured before the performance of the
             113      service.
             114          (b) Noncommission compensation shall be:
             115          (i) limited to actual or reasonable expenses incurred for services; and
             116          (ii) uniformly applied to all insureds or prospective insureds in a class or classes of
             117      business or for a specific service or services.
             118          (c) A copy of the signed disclosure required by this Subsection (2) must be maintained


             119      by any licensee who collects or receives the noncommission compensation or any portion
             120      [thereof] of the noncommission compensation.
             121          (d) All accounting records relating to noncommission compensation shall be
             122      maintained by the person described in Subsection (2)(c) in a manner that facilitates an audit.
             123          (3) (a) A licensee may receive noncommission compensation when acting as a
             124      producer for the insured in connection with the actual sale or placement of insurance if:
             125          (i) the producer and the insured have agreed on the producer's noncommission
             126      compensation; and
             127          (ii) the producer has disclosed to the insured the existence and source of any other
             128      compensation that accrues to the producer as a result of the transaction.
             129          (b) The disclosure required by this Subsection (3) shall:
             130          (i) include the signature of the insured or prospective insured acknowledging the
             131      noncommission compensation;
             132          (ii) clearly specify the amount or extent of the noncommission compensation and the
             133      existence and source of any other compensation; and
             134          (iii) be provided to the insured or prospective insured before the performance of the
             135      service.
             136          (c) The following additional noncommission compensation is authorized:
             137          (i) compensation received by a producer of a compensated corporate surety who under
             138      procedures approved by a rule or order of the commissioner is paid by surety bond principal
             139      debtors for extra services;
             140          (ii) compensation received by an insurance producer who is also licensed as a public
             141      adjuster under Section 31A-26-203 , for services performed for an insured in connection with a
             142      claim adjustment, so long as the producer does not receive or is not promised compensation for
             143      aiding in the claim adjustment prior to the occurrence of the claim;
             144          (iii) compensation received by a consultant as a consulting fee, provided the consultant
             145      complies with the requirements of Section 31A-23a-401 ; or
             146          (iv) other compensation arrangements approved by the commissioner after a finding
             147      that they do not violate Section 31A-23a-401 and are not harmful to the public.
             148          (4) (a) Beginning January 1, 2007, in addition to any other disclosures required by this
             149      section, a producer or an affiliate of a producer doing business with a state entity may not


             150      accept or receive any compensation from an insurer or third party for that placement of
             151      insurance unless prior to the state entity's purchase or renewal of insurance the producer:
             152          (i) obtains the state entity's signed acknowledgment that the compensation from an
             153      insurer or third party may be received by the producer or affiliate; and
             154          (ii) provides a description of the method and factors used to calculate the compensation
             155      from an insurer or third party for that placement.
             156          (b) A copy of the signed acknowledgment required by Subsection (4)(a)(i) must be
             157      maintained by the licensee who collects or receives any part of the compensation from an
             158      insurer or third party in a manner that facilitates an audit.
             159          (c) This Subsection (4) does not apply to:
             160          (i) a person licensed as a producer who acts only as an intermediary between an insurer
             161      and the state entity's producer, including a managing general agent;
             162          (ii) the placement of insurance in a secondary or residual market; or
             163          (iii) a producer whose sole compensation for the placement is derived from
             164      commissions, salaries, and other compensation from the insurer.
             165          [(4)] (5) This section does not alter the right of any licensee to recover from an insured
             166      the amount of any premium due for insurance effected by or through that licensee or to charge
             167      a reasonable rate of interest upon past-due accounts.
             168          [(5)] (6) This section does not apply to bail bond producers or bail enforcement agents
             169      as defined in Section 31A-35-102 .


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