A new mandate requiring every retail broker in New York to disclose to their clients the value of all compensation deals with insurers is being drafted by the state insurance department, a regulator revealed here at a meeting of wholesalers.

The proposed “producer transparency rule” would “ban any New York broker from accepting any compensation from an insurer if not disclosed to the client beforehand,” said Steven Nachman, deputy superintendent for frauds and consumer services in the state insurance department.

“Our goal is to bring disclosure regulations in line with agreements in effect with Marsh, Aon and the other major retail brokerages,” he added during a speech here before the Professional Insurance Wholesalers Association of New York State.

“If the amount of compensation cannot be determined up front,” he noted, such as with contingent deals based on the overall profitability of the total book of business an agency writes with a particular carrier, “the broker would have to provide an estimate and then disclose the actual amount within a reasonable time–say, within 10 business days of knowing the figure.”

Of particular interest to the PIWA members attending the meeting, Mr. Nachman said the proposed regulation would only apply to brokers dealing directly with the public, meaning it would effectively exempt wholesalers and managing general agents.

In talking with some retail agency officials in attendance, they noted that the insurance department has been considering such a regulation since early summer and had spoken with some agent association leaders to sound them out about the concept and its implementation to lay the groundwork for the exposure draft.

Mr. Nachman said he didn't expect the regulation to be released for public comment anytime soon, however. “We're talking months, not weeks,” before the draft is officially unveiled, he said.

Both the Professional Insurance Agents of New York and the Independent Insurance Agents and Brokers of New York confirmed they were aware regulation is forthcoming but said they would withhold judgment until they see what the department has planned.

“PIANY has been aware for several months that the insurance department has been working on a proposed regulation of this kind, and we have been offered an opportunity to comment on a draft once it is ready,” said Ellen Kiehl, assistant executive director for government and industry affairs at PIANY. “We are awaiting the chance to review the specifics of this proposal and plan to provide input at that time.”

Michael Barrett, legislative representative for IIABNY, said “we have had meetings with the department. We have discussed compensation disclosure with the department staff and we knew they were working on some type of a regulation. At this point it's an internal draft.”

He added, “The IIABNY position is that we support transparency and disclosure on a voluntary basis on the part of producers, and we have communicated that to the department.”

National producer groups were also hesitant to comment until they see the details of the draft regulation.

However, speaking generally, Cheryl Arvidson, assistant director of strategic communications with the Council of Insurance Agents and Brokers, said her group “has always been in favor of transparency and full disclosure of compensation arrangements.”

Wesley Bissett, senior counsel for government affairs and state relations for the Independent Insurance Agents and Brokers of America, said “on one hand, Superintendent [Eric] Dinallo, on a host of issues, is showing he is thinking outside of the box. He is proving to be innovative and a breath of fresh air, so we welcome his approach on a lot of issues.”

On this particular issue, he added, “we would hope that there is nothing onerous and that we will have the ability to comment and work with [the department] on whatever they ultimately develop.”

One question he raised is “…whatever is ultimately devised, does it have statutory backing, and is it consistent with what is on the books in New York?”

He added that “philosophically, our inclination is to let the marketplace work. Anytime you have the government and the state insurance department mandating the kinds of things that are disclosed, when they are disclosed and why they are disclosed, there is the potential for overregulation. We are cautiously optimistic that the department will strike the right balance.”

A representative for the National Association of Professional Insurance Agents said the group is deferring comment to its state affiliate on the subject.

(Additional reporting by Phil Gusman and Mark E. Ruquet.)

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