NU Online News Service, Dec. 9, 3:55 p.m. EST

Four consumer groups blasted the Independent Insurance Agents & Brokers of New York for their threat to sue the New York State Insurance Department over proposed compensation disclosure regulations.

The Center for Economic Justice, Consumer Federation of America (CFA), New York Public Interest Research Group and Consumers Union released a statement admonishing the trade group for threatening to take legal action when the department is trying to make a good faith effort to make compensation arrangements transparent.

Proposed Regulation no. 194 requires agents and brokers to disclose to their clients their compensation arrangements with insurers and their relationship with the carrier.

J. Robert Hunter, director of CFA, called the action a "silly lawsuit" and a waste of time and money. He said IIABNY should be working to solve issues with conflicts of interest over compensation and not seeking to keep the system unchecked.

"This lawsuit is clearly a diversionary maneuver to preserve industry secrecy about compensation practices that are grossly unfair to customers and completely indefensible in today's insurance marketplace," said Mr. Hunter.

He added, "By going to court and continuing their advocacy campaign, IIABNY is undermining a year-long negotiating process to reach a fair accommodation between consumer organizations and the insurance industry. How long are independent agents and brokers going to stonewall even minor progress in cleaning up the industry's financial conflicts of interest?"

Compensation arrangements became controversial in New York in 2005 when an investigation by the State Attorney General's Office and the Insurance Department found some brokers took hidden fees to steer commercial accounts to insurers involved in a price-fixing scheme.

Several major brokerages settled charges by agreeing to forego contingent commissions.

Birny Birnbaum, executive director of the Center for Economic Justice in Austin, Texas, said an outright ban "would be the most logical and efficient means to curtail these abusive practices," but the department's effort to deal with the issue is "a good faith effort" and receives "our enthusiastic support as a significant, concrete step forward in breaking the impasse on these issues."

"At a bare minimum customers have a right to know the details of broker/agent compensation arrangements so they can protect their economic interests in obtaining affordable, appropriate coverage for their needs and make an informed choice," said Chuck Bell, programs director of Consumers Union.

NYPIRG Legislative Counsel Russ Haven said the department's proposal would give consumers "valuable information."

"While a negligible burden to agents and insurance companies, this would be a huge benefit to consumers trying to comparison shop for policies," he said.

Responding to the criticism, Richard A. Poppa, president and chief executive officer of IIABNY, said, "They are entitled to their opinion, but they are clearly wrong. They do not understand our position," adding that their assessment of IIABNY's position is "not accurate." Their comments, he said, do not reflect the association's position and lack understanding about what agents and brokers do for their clients.

He said the association adopted a voluntary disclosure policy in 2004 that says producers need to disclose their compensation information when a client wants to know it. If an agent or broker fails to comply, "there are 20 agents waiting in the wings to provide for that client's needs."

"Their accusation and comments that agents and brokers keep their clients in the dark is simply wrong," he said, adding that he believes the regulations are unnecessary.

None of the consumer groups have contacted IIABNY to discuss its position, he pointed out, adding it would welcome a meeting with them.

"We have nothing to hide or that we feel can't be addressed," he said. "We just feel that the marketplace is a better arbiter of this issue than regulation."

As for the threatened lawsuit, Mr. Poppa said raising the possibility of legal action is necessary under New York codes when objecting to a proposed regulation. He said the association has filed no legal action and is hopeful it can avoid doing so as it continues to discuss the issue with the department.

"While we disagree, we try not to be disagreeable," said Mr. Poppa of talks with the department. "This is an honest difference of opinion between two honorable parties. We have to fight for our members and [their] clients. And that is what we are trying to do."

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