Insurance News

New York rethinks broker commission disclosure rule

Posted on: July 13, 2009

NEW YORK?The New York Insurance Department softened its stance on mandatory producer compensation disclosure Wednesday, proposing revised regulations that would require disclosure only when requested by clients.

Under the proposal, all agents and brokers would be required to disclose to clients, either in writing or orally, whether as insurance producers they represent the purchaser or the insurer for purposes of a sale. In addition, they would have to disclose to clients if they will be receiving compensation from insurers and that compensation varies between insurers.

They also would have to notify customers that at any time during their relationship they may obtain detailed information about the source and amount of compensation the producer expects to receive, as well as any alternative quotes obtained or considered.

The rule differs from the department?s initial disclosure proposal issued in February. Under that proposed rule, all producers would have been required to provide written notification to clients of the ?nature and amount? of any compensation received in conjunction with an insurance placement, including contingent commissions, loans, vacations, prizes and gifts, among other things ( BI , Feb. 9).

The initial rule received mixed reaction from the industry. While the world?s largest brokers and the Risk & Insurance Management Society Inc. supported it, saying it was a step toward complete transparency in the marketplace, agent groups said the requirements would be burdensome for smaller agencies.

In revising the rule, Matthew J. Gaul, special counsel with the New York Insurance Department, said the department wanted to come up with a workable solution for all producers.

?We?re looking at the market holistically and coming up with a workable regulation that applies across the board to all types of business and that can give consumers the information they need to make informed decisions about their producers and about the sales process,? he said.

Before the department issued its initial proposal, former New York Superintendent of Insurance Eric Dinallo and New York Attorney General Andrew Cuomo held joint hearings in July 2008 to address the compensation system established by their predecessors in 2005 and 2006 settlements with certain brokers and insurers.

Brokers Marsh Inc., Aon Corp. and Willis Group Holdings Ltd. have criticized the existing system, saying they are at a competitive disadvantage because the vast majority of the industry continues to collect contingent commissions and are not held to the same rigorous disclosure standards.

Mr. Gaul acknowledged that while a two-tiered compensation model remains in place, ?we think this brings the rest of the producer market to a higher level.?

Interested parties have until July 29 to comment on the revised rule. The department hopes to go into formal administrative proceedings in August.

Copyright © 2009 Crain Communications, Inc.

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