NU Online News Service, may 26, 3:25 p.m.EDT

The New York Insurance Department expressed "disappointment"over the decision by two producer groups to file suit this week tostop implementation of a compensation disclosure law, wonderingwhat brokers might be "trying to hide."

Matthew J. Gaul, deputy superintendent for the department, saidhe is "disappointed they have elected to take this route," addingthat reporting requirements in the proposed regulation areminimal.

The Independent Insurance Agents and Brokers of New York(IIABNY) and the Council of Insurance Brokers of Greater New York(CIBGNY) filed a joint legal action on May 24 to prevent thedepartment from implementing a proposed producer compensationdisclosure law.

The groups said they filed the action in New York State SupremeCourt in Albany to stop what they characterized as "a burdensomeand confusing regulation that will require insurance producers todisclose to their clients certain information about how insurancecompanies compensate them."

A third producer group in the state--the Professional InsuranceAgents of New York State--has declined to be part of thelitigation.

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

But Mr. Gaul observed that "since 2004 [the broker groups] haveclaimed [transparency] is their position. Why are they fighting?Why litigate? What is it brokers are trying to hide?"

Mr. Gaul said that in the proposed law, brokers are required togive minimum reporting requirements to consumers and are notrequired to report amounts of compensation received unless theinformation is requested.

He also pointed out that consumer groups, such as the Risk andInsurance Management Society, are asking for more disclosure thanthe proposed rule requests.

The department, he said, has for several years worked withindustry groups on the regulation, and has drastically loweredreporting burdens to a minimum.

Meanwhile, yesterday's announcement prompted a furtherclarifying statement from the Professional Insurance Agents of NewYork State, which has declined to participate in the action.

"This lawsuit was announced back in February. Knowing thatlitigation would be undertaken, PIANY carefully and seriouslyconsidered the role it should pursue on behalf of the producercommunity," PIANY President Kevin Ryan said in a statement.

"Our commitment against mandatory disclosure is unwavering.Confident that the suit will ultimately be decided in court, PIAwill continue our equally important, ongoing effort of addressingcompliance rules regarding Regulation 194 in ongoing discussionswith the NYSID."

The statement continued that in the event the regulation doestake effect at some point, Main Street agents and brokers will havehad the benefit of a strong, persuasive voice shaping how producerscan fulfill the requirements with as little disruption to theirbusiness as possible.

PIANY said earlier this month it is negotiating with theinsurance department over difficulties its sees with theregulation. PIANY also said it has brought back its Agent andBroker Compensation Disclosure pages on its website, www.pia.org/comm/abcd.

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

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

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

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

o The regulation violates producers' rights to due process andequal protection under the U.S. and New York StateConstitutions.

Anticipating that the court proceeding might not conclude beforethe regulation's scheduled effective date, IIABNY on May 13 sentthe department a proposal for specific language that a producercould 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.)

Mr. Gaul stated that the insurance department will "vigorouslydefend the superintendent's authority to defend" its position onthe proposed requirement.