Agent, Risk Management Groups Remain at Odds over N.Y. Reg. 194

NU Online News Service, March 14, 3:43 p.m. EDT

 Close to four years after the New York Department of Insurance proposed its disclosure rule for producer compensation, a risk-management association and an independent-agents group remain at odds over the implications of Regulation 194, issuing dueling statements over its impact.

Today, The Risk and Insurance Management Society Inc. issued a statement approving of last Thursday’s decision by the Appellate Division of the Supreme Court of New York that upheld Regulation 194.

The regulation is the controversial broker-disclosure rule that two agents’ groups—the Independent Insurance Agents & Brokers ofNew Yorkand the Council of Insurance Brokers of Greater New York—have been fighting in court to have overturned since 2010.

Under the regulation, brokers and agents must advise a client that they receive compensation from the insurer in the form of commissions, and customers are entitled to know the extent of that compensation if they want to.

In a statement, Daniel H. Kugler, external affairs committee-board liaison for RIMS says, “Consumers deserve the same transparency and information from their insurance brokers that is required of any other financial entity in order to make intelligent purchasing decisions. RIMS strongly believes that these disclosures will eliminate the inherent conflict of interest posed by contingent fee arrangements, enhance the relationship between brokers and consumers, ultimately benefiting all risk practitioners by creating a more efficient and accurate insurance marketplace.”

In their suit, the IIABNY and CIBGNY have countered that the rules are an unnecessary burden to producers, who they say have always been willing to discuss their compensation with clients if asked.

Responding to the RIMS statement, IIABNY issued a statement saying that the association has encouraged agents and brokers to voluntarily disclose the extent of their compensation to clients for years. However, “mandatory disclosure creates significant recordkeeping burdens for insurance producers with little benefit to insurance buyers.”

IIABNY says the records need to be detailed accounts that include information about compensation, differences in coverage and the amount of coverage, options, deductibles, payment plans, commissions and potential profit-sharing.

“They must amass all of this information because of the possibility that they may have to produce it to someone within five days of request,” says the association.

The rules are also a distraction for buyers, IIABNY contends, when buyers should be more concerned with how much coverage their insurance provides not what their agent is being paid.

“If an insurance buyer wants to know how the agent is benefiting from the sale, the agent should give a satisfactory answer or be prepared to lose that customer,” says IIABNY. “However, mandatory disclosure creates work, distracts producers from spending time helping their clients better protect themselves, and does not help buyers judge the quality of their insurance options.”

IIABNY has indicated that it has not decided if it plans to appeal the court’s ruling from Thursday.

The disclosure controversy sprang from investigations launched by then-New York Attorney General Eliot Spitzer in 2004 against several insurance-brokerage firms.

Spitzer uncovered a kickback scheme at the insurance-brokerage firm Marsh, where business was steered to certain insurance carriers in exchange for lucrative contingent commissions. The practice included carriers creating false quotes to make it appear the client’s business was shopped around and the client was getting the lowest price.

In 2005, Marsh & McLennan, Marsh’s parent company, Aon, Willis and Arthur J. Gallagher agreed to give up contingent commissions, an agreement that was lifted in 2010.    

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