N.Y. Agent Group To Sue Over New State Comp Disclosure Regs

IIABNY first threatened to sue to block the rule when it was initially unveiled on Dec. 2 last year, but more recently had said that negotiations with New York regulators prompted some positive changes to the provisions originally proposed in late 2009.

For example, IIABNY had had particular problems with a prior provision requiring a producer to disclose whether he or she acts as an agent or broker in a given transaction–whether the producer represents the insurer or the buyer.

The department agreed to modify this, with the new version requiring only that the producer provide a description of his or her role in the sale.

In spite of such changes, however, the IIABY board ultimately "concluded that the rule would place an undue burden upon its members for no justifiable reason."

The association said that it is also challenging the department's authority to promulgate the regulation.

In announcing the association's intention to fight to block the rule, IIABNY President and Chief Executive Officer Dick Poppa said, "IIABNY has a responsibility to represent and to protect the interests of its members, and our members have unanimously and vociferously told us that this rule is unnecessary, ineffective and overly burdensome to their businesses."

"We cannot sit back idly and let the department impose an unnecessary rule that will only serve to add another time-consuming and costly requirement for our members, which in turn could also result in additional costs to consumers."

The group said it expects to launch the formal legal action soon.

For its part, the New York department issued a statement a day before the new regulations were released, trumpeting the disclosure rules as fair to producers and important for consumers. "This regulation protects the interests of consumers while allowing agents and brokers flexibility in how they present compensation information," Insurance Superintendent James J. Wrynn said in the statement.

"Almost everyone buys insurance at some point, and in these difficult economic times, consumers should understand any incentives that may potentially affect the recommendations from their agents or brokers," he said.

In 2004, an investigation commenced by then State Attorney General Eliot Spitzer found that brokers placing commercial insurance were taking undisclosed payments that served as kickbacks for steering clients to insurers involved in a bid-rigging scheme.

Last week's announcement from the New York department noted that in most cases, agents or brokers receive compensation for selling insurance products from the issuing insurer. This compensation is usually composed of a base commission, based on the policy premium, as well as certain year-end payments based on the volume and profitability of the policies an agent or broker places with the insurance company.

In addition, some agents or brokers may receive other forms of non-cash compensation, including advertising support, office rent, training and trips, or other prizes based on production, the announcement said.

The compensation packages provided to an insurance agent or broker can vary depending on the insurance company. "Most consumers choosing among policies may not be aware of these compensation programs and how they may affect the insurance transaction," the department said.

"Disclosure will help increase the trust and confidence consumers should feel when buying insurance," Mr. Wrynn said.

The New York-based Risk and Insurance Management Society representing buyers, however, responded to news of the final regulation with a statement expressing disappointment, and calling on the department to reopen its public comment period for 30 days.

In particular, RIMS said the final regulation represents "a 180-degree shift" from prior versions with respect to disclosures on renewals.

"The previous revision had reinstated the disclosure requirements for most renewals so the reversal would appear to warrant another comment period," said Scott Clark, director of RIMS External Affairs Committee and risk and benefits officer for Miami-Dade County Public Schools.

While applauding the original intent of the rule–"to bring greater clarity and certainty" to the purchase transaction in order to protect consumers–he also said that "each subsequent revision has diluted the original intent and has resulted in the final rule that falls short of complete and mandatory disclosure, for which RIMS has been a long-time advocate."

(Additional reporting by Phil Gusman)