The Risk and Insurance Management Society issued a statement yesterday calling upon the New York State Attorney General's Office and the New York Insurance Department to issue new regulations to govern broker compensation.
The association said it also made the request to New York officials last summer that broker transparency should be mandatory, rather than voluntary.
Beginning in 2005 after a New York State investigation a number of insurance carrier and insurance brokerage executives were hit with criminal charges related to using hidden contingent compensation fees as cover for kickbacks to brokers cooperating in commercial insurance bid-rigging schemes.
Several major brokerages in the wake of the probe by the New York Attorney General's Office agreed to forego compensation fees for brokers.
The New York State Insurance Department and the Office of the Attorney General held hearings in 2008 on producer compensation to determine whether producers should be required to fully disclose to the buyer all compensation received from the insurer. Because the issue is on the New York State legislative agenda for 2009, RIMS said it was prompted to renew its stand on the issue.
"This was put out as a reminder of the position that RIMS has always taken on broker compensation," Deborah Luthi, director of External Affairs for RIMS, told National Underwriter. She said Janice Ochenkowski, RIMS president for 2008, testified before Insurance Superintendent Eric Dinallo and Attorney General Andrew Cuomo and gave RIMS' perspective.
"The agent-brokers maintain they are willing to disclose the information upon request of the risk manager," she said. "RIMS is taking the position of transparency."
She explained that RIMS doesn't believe risk managers should have to ask for the information. "That should be a part of the whole transaction."
The issue is coming up again in 2009, she said. "They heard testimony, so now we expect there may be some movement on this," adding that "the Independent Agents and Brokers of New York (IIABNY) and the Professional Insurance Agents of New York (PIANY) have questioned the issue of disclosure of broker compensation."
RIMS reaffirmed its position in a statement. "Contingent fees for insurance producers should be prohibited, and in the absence of prohibition, all compensation arrangements should be fully disclosed to the client in writing.
"The acceptance of such fees in transactions that are made on behalf of the buyer represents an inherent conflict of interest," RIMS said. "Furthermore, RIMS believes that all sources of compensation, direct or indirect, now or in the future, should be disclosed to the client whether or not it is requested."
RIMS also said it "looks forward to the release of the findings and policy recommendations made by the New York Insurance Department and Attorney General."
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