NU Online News Service

The Independent Insurance Agents and Brokers of New York (IIABNY) and the Council of Insurance Brokers of Greater New York (CIBGNY) jointly filed a legal action to prevent the New York Insurance Department from implementing a proposed producer compensation disclosure law.

The groups said they filed the action in New York State Supreme Court in Albany to stop what they characterized as "a burdensome and confusing regulation that will require insurance producers to disclose to their clients certain information about how insurance companies compensate them."

Insurance Regulation 194, which takes effect on Jan. 1, 2011, requires producers to disclose certain information about their compensation to all clients, regardless of whether the clients have asked for it, the groups noted.

"Should any client request more information, the regulation requires the producer to provide detailed information about their compensation for the policy sold and the compensation they would have received had the client chosen a different policy," the producer groups added.

IIABNY--which noted that it had called on insurance agents and brokers back in 2004 to "voluntarily disclose to their clients the existence and nature of all their compensation"--has opposed mandated disclosures as "burdensome for producers and of little benefit to consumers."

The board of CIBGNY voiced similar concerns. Both groups testified at hearings on the subject conducted by the Insurance Department and the New York Attorney General's office during the summer of 2008, saying that such a regulation is "unnecessary" and "would not be in the best interests of either consumers or producers."

IIABNY and CIBGNY were part of an industry effort throughout 2009 aimed at convincing the New York Insurance Department to "drop Regulation 194 or minimize its burdens on producers."

"While standing up to protect producers' businesses, the industry group hoped to keep the dispute out of the courts," the producer associations said. "However, after the department adopted the final version of the rule last winter, IIABNY and CIBGNY announced their plans to take legal action, the only producer groups to do so."

The action--known as an Article 78 proceeding--asks the court to annul parts or all of the regulation. In its court filing, IIABNY and CIBGNY said it asserted that:

o The insurance department does not have authority under New York law to mandate compensation disclosure.

o The regulation "represents an impermissible attempt to rewrite the Insurance Law on a subject as to which the Legislature has already specifically legislated."

o Parts of the regulation "impose massive and unwarranted costs of compliance on brokers so as to constitute an arbitrary exercise of regulatory power," and

o The regulation violates producers' rights to due process and equal protection under the U.S. and New York State Constitutions.

Anticipating that the court proceeding might not conclude before the regulation's scheduled effective date, IIABNY on May 13 sent the department a proposal for specific language that a producer could use for making the required initial disclosure. (For more on this proposal, see http://www.property-casualty.com/News/2010/5/Pages/IIABNY-Proposes-New-Language-For-Disclosure-Regulation.aspx?k=New+York+and+producer+compensation.)

IIABNY and CIBGNY, however, continued to move forward with plans to pursue legal action, the groups noted.

An insurance department spokesman said the department is in the process of reviewing the filing.

Special Reports /

Producer Groups Sue To Stop Compensation Disclosure Rule

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