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 to stop implementation of a compensation disclosure law, wondering what brokers might be "trying to hide."

Matthew J. Gaul, deputy superintendent for the department, said he is "disappointed they have elected to take this route," adding that reporting requirements in the proposed regulation are minimal.

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 the 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."

A third producer group in the state--the Professional Insurance Agents of New York State--has declined to be part of the litigation.

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.

But Mr. Gaul observed that "since 2004 [the broker groups] have claimed [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 to give minimum reporting requirements to consumers and are not required to report amounts of compensation received unless the information is requested.

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

The department, he said, has for several years worked with industry groups on the regulation, and has drastically lowered reporting burdens to a minimum.

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

"This lawsuit was announced back in February. Knowing that litigation would be undertaken, PIANY carefully and seriously considered the role it should pursue on behalf of the producer community," 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, PIA will continue our equally important, ongoing effort of addressing compliance rules regarding Regulation 194 in ongoing discussions with the NYSID."

The statement continued that in the event the regulation does take effect at some point, Main Street agents and brokers will have had the benefit of a strong, persuasive voice shaping how producers can fulfill the requirements with as little disruption to their business as possible.

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

The action of IIABNY and CIBGNY --known as an Article 78 proceeding--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 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.)

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

Special Reports /

Regulator &#039;Disappointed&#039; In N.Y. Broker Compensation Lawsuit

Related Stories

Recommended For You

Regulator 'Disappointed' In N.Y. Broker Compensation Lawsuit