N.Y. Revises Proposed Producer Compensation Rules

The Professional Insurance Agents of New York said agents benefit from this change because it reduces the recordkeeping burdens on producers attempting to comply with new disclosure requirements.

The second change limits the disclosure requirements for agents and brokers to "quotes presented" rather than "quotes obtained".

Mr. Mais said an agent may do his/her due diligence by obtaining, for example, 10 quotes for a client. But after reviewing the quotes, the agent may decide that only two of them fit the client's needs. Under the change, the agent will only have to disclose compensation information for the two quotes it presents to the client rather than all ten.

PIANY said the change reduces compliance burdens for agents.

The changes were added to a draft regulation that has gone through multiple versions as industry representatives, consumers groups, and the department worked to hammer out guidelines for producer compensation.

Matthew Guilbault, director of government & industry affairs for PIANY said the department's decision to revise the draft regulation came as a surprise, and he noted that the department had characterized the previous draft as a final version.

Throughout the drafting process, Mr. Guilbault said the proposed regulation has undergone "substantial improvement" over the department's original proposal, but he said PIANY is still against mandatory disclosure, calling it a "solution in search of a problem."

However, he noted that if mandatory disclosure is forthcoming, he wants to make sure it is in a form that allows easy compliance for agents and brokers.

To that end, Mr. Guilbault raised some concerns with the existing draft, even with the two changes added. He explained the proposed regulation says producers must tell consumers that they may be compensated by a carrier, and that the level of compensation may vary depending on the carrier and/or policy. Then, if the consumer asks for more information, the producer must disclose the level of compensation.

The regulation draft, in part, says a producer, upon request, must provide "a description of the nature, amount and source of any compensation to be received by the producer or any parent, subsidiary or affiliate based in whole or in part on the sale."

Mr. Guilbault said defining compensation based in whole or in part on the sale could get tricky. For example, he said a carrier could have an incentive program where a producer gets a lunch if he or she sells 200 policies. Mr. Guilbault wondered whether this would have to be disclosed to all 200 customers, or just the 200th customer.

Additionally, Mr. Guilbault asked if an agent would need to disclose that a carrier provides incentive programs that the producer qualifies for even if the producer does not accept them.

Agent broker compensation has been an issue for the department since 2005 when it discovered that some commercial insurance brokers accepted hidden fees to steer client business to insurers who were involved in a bid rigging scheme.