Defining the roles of agents and brokers.

As each U.S. state seeks to improve transparency in broker-compensation practices, a new study by Conning Research & Consulting Inc. brings to the fore one problem many regulators and legislators struggle to get a handle on: the distinction between "agent" and broker."

While it's a rare state that has the broker/agent distinction already marked on its books--Nevada is one--the one-size-fits-all label of "producer," employed by most states, has served as a stumbling block.

"Brokers may need a strategic makeover because an important source of their pricing power--the influence they wielded over insurance companies, from which it is alleged they unfairly profited in the form of contingent commissions--is likely to be subjected to far closer scrutiny by regulators and clients in the future," according to the Conning study, entitled "Prospects for Agents and Brokers: Producers, Consultants, or Distributors?"

Stephan Christiansen, director of research at Conning and co-author of the study, agrees that the distinction got muddied as a result of Gramm-Leach-Bliley, as states began adopting a model law on producer licensing created by the NAIC, which simplified the regulatory distinction to provide uniform licensing of "producers."

Nevada Insurance Commissioner Mice Molasky-Arman said her department saw the train coming and, while adopting GIL-inspired measures to protect business in the state, the decision was made to keep the distinction in place.

"We felt, at that time, that there was still a need to distinguish between an agent and a broker and the roles that they play. There always has been that question; we've had it before in our courts," Molasky-Arman said.

But GLB does not bear the sole responsibility for indirectly creating confusion in defining agent and broker. The way producers market themselves also has added to a misunderstanding in the roles played.

As cited in his report, Christiansen maintains, following the money" to establish in what capacity a broker was acting, no longer works. And despite periodic efforts by states and industry groups to strengthen or enforce disclosure of compensation, transparency has not always been available, leaving it unclear as to what a brokers' contractual responsibilities actually were.

Ken Crerar, president of the Council of Insurance Agents and Brokers, said the roles of "agent" and "broker" have evolved over time as each has taken on responsibilities formerly exclusive to the other.

"There's been a shifting of responsibility all the way up the chain and down again," Crerar said.

The concept of a changing dynamic is not new, he said, but the spotlight that is now shining on all corners of the industry is new--causing both an internal and external examination of the way it does business.

"To regain a profitable business model, the broker needs to redefine its role though service enhancement and, of course, greater transparency in the bidding process," Christiansen said. "They need to once again differentiate their role from that of the agent. If the broker cannot make the business case to clients that they add value in the transaction, they will not be able to make up for the loss of contingent commissions."