New York producer pay rule draws ire of buyers, brokers

NEW YORK—Reaction to the New York State Insurance Department's final producer compensation disclosure regulation ran the gamut last week among agent/broker and risk management groups whose members will be affected by the new rule.

The Risk & Insurance Management Society Inc. reiterated its disappointment with what it sees as inadequate disclosure requirements, while a producer group representing smaller agents and brokers slammed the rules as too onerous and said it would sue to stop them from being enforced.

But another producer group supported the regulation, calling it not “overly burdensome.”

The final Producer Compensation Transparency regulation, which was published Feb. 10 in the New York State Register, is the fifth iteration of the rule on which regulators had been working since holding joint hearings in 2008 with the New York attorney general's office (BI, July 28, 2008).

The final version is the most lax in terms of disclosure requirements on producers operating in the state and differs greatly from the original version in January 2009, which would have mandated that producers disclose in writing to clients the nature and amount of any compensation they receive in connection with an insurance placement.

Under the final regulation, which takes effect Jan. 1, 2011, producers operating in the state must, among other requirements, disclose to clients their role in the insurance transaction and whether they will receive compensation from an insurer based on the sale. Further information about the nature, amount and source of that compensation must be disclosed to clients upon request (see box, page 21).

The disclosure regulation does not apply to reinsurance placements, insurance placements within a captive insurance company, wholesalers and on renewals.

“This regulation will provide New Yorkers buying insurance with an important tool to use in making an informed decision,” New York State Insurance Superintendent James J. Wrynn said in a statement. “Almost everyone buys insurance at some point, and in these difficult economic times, consumers should understand any incentives that may potentially affect the recommendations from their agents or brokers.”

Not everyone is happy with the final regulation, though.

RIMS called the revised rule a “180 degree shift from previous versions in terms of its commitment to consumer protection for renewals.”

The final regulation also contains diminished disclosure requirements for producers, said New York-based RIMS, which called on the New York department to reopen its public comment period for an additional 30 days.

“Consumer organizations have not had the opportunity to digest these additional changes and comment upon them,” Scott Clark, director of RIMS' external affairs committee, said in a statement. “The previous revision had reinstated the disclosure requirements for most renewals, so the reversal would appear to warrant another comment period.”

In the previous version of the regulation, published in early December, renewals were exempt from the disclosure requirements when the producer had no sales or solicitation contact with the purchaser in connection with the renewal. In the final version, the disclosure requirements do not apply to renewals unless the purchaser requests more information about the producer's compensation less than 30 days prior to renewal or less than 30 days after a renewal.

“The intent of the rule, as it was initially presented, was to bring greater clarity and certainty to the insurance purchase transaction in order to protect consumers,” RIMS said. “While this objective was a positive first step by the department, each subsequent revision has diluted the original intent and has resulted in the final rule that falls short of complete and mandatory disclosure, for which RIMS has been a longtime advocate.”

In response, the New York department said it did not intend to reopen the public comment period.

Despite what it described as “some positive changes” to the final rule, the Independent Insurance Agents and Brokers of New York said it plans to file suit against the department to try to block it from taking effect.

“IIABNY has a responsibility to represent and to protect the interests of its members, and our members have unanimously and vociferously told us that this rule is unnecessary, ineffective and overly burdensome to their businesses,” IIABNY President and CEO Dick Poppa said in a statement. “We cannot sit back idly and let the department impose an unnecessary rule that will only serve to add another time-consuming and costly requirement for our members, which in turn could also result in additional costs to consumers.”

Responding to the IIABNY, the New York department said in an e-mail that the rule “protects consumers and their right to receive the information they need when making important financial decisions. We are confident in our legal authority to promulgate the regulation and look forward to aggressively defending it in court if necessary.”

The Council of Insurance Agents and Brokers, for one, supports the new regulation.

“The regulation is watered down to some extent...it's not as demanding as the (National Assn. of Insurance Commissioners' compensation disclosure) model that we've supported from the beginning, but we're fine with it,” said Ken Crerar, president of the Washington-based CIAB.

“Our biggest concern has always been that there be consistent transparency. We've been supportive of transparency across the board and we're concerned that there are inconsistent requirements,” he said.

“Having said that, the New York requirement appears to be not a heavy burden. It's a basic transparency requirement and we don't see any major issues with it per se,” Mr. Crerar said. More than anything, it's time for the industry to move on from this, he said.