Client-Producer Trust Cannot Be Regulated

Trust is at the heart of the insurance agent/broker-client relationship. In the long run, the most important consideration an insurance producer has is to secure the coverage that best meets the needs of the client with the right terms and the right price. In order to achieve that, the producer needs to build the relationship on trust and competence.

If a client wants to know about the producer's compensation to achieve that trust, then we believe the client should ask and the producer should tell. If for some reason the producer doesn't want to tell, then the client has the option to go to someone who will. Consumers are smart and know this.

We believe there is no need to create and mandate a burdensome and confusing disclosure regime to regulate this transaction. The fact that the New York State Insurance Department will now subject more than 100,000 licensed producers to its unreasonable terms when only a handful of brokers have ever been found by the department to have engaged in improper “steering” makes for government decision-making at its most arbitrary.

More than six years ago, the board of the Independent Insurance Agents and Brokers of New York adopted a policy supporting voluntary disclosure, and we stand by that decision today.

According to IIABNY's policy position, producers should disclose the nature of their compensation within the broader context of a well-structured communications program with the client or prospective client that outlines the entire relationship and services of the agency/brokerage.

Substituting a mandatory and extensive disclosure requirement for a more sensible voluntary arrangement is likely to damage the relationship of trust and confidence on which producers and clients depend.

In 2007, the association adopted a Code of Consumer Rights and Responsibilities and a compensation disclosure kit for its members. IIABNY created this kit to help agents and brokers explain to their clients how insurance producers are compensated.

IIABNY supports the declaration of insurance consumers' rights and responsibilities and encourages agents and brokers to communicate them to clients.

Unfortunately, the insurance department has moved transparency in a direction that is fundamentally flawed and is not in the best interest of the consumer it is charged to protect or the industry it regulates.

Regulation 194 requires agents and brokers to provide an extensive amount of information even if the customer only asks about one specific aspect of compensation. These items cannot always be stated with certainty because of various contractual arrangements that insurance companies have with their sales force.

The breadth and vagueness of the regulation and its ridiculous deadlines for making the disclosures take the focus away from the coverage provided, the terms and conditions of the policy, and the cost to the purchaser.

Since the regulation's inception, one of IIABNY's inherent problems with it is the implication that agents and brokers misdirect their customers based on compensation incentives.

Agents and brokers have nothing to hide about their compensation. Consumers know that agents and brokers are paid for the product they sell, as in any other sales transaction. It is always in the best interest of agents and brokers to recommend the appropriate combination of coverage and premium for their customers' individual needs because that is how an agent or broker builds and retains a client base.

What it all comes down to is this–this regulation is an overreaching solution to a problem that simply doesn't exist.

IIABNY and the Council of Insurance Brokers of Greater New York have been steadfast in our position against this burdensome and unnecessary regulation.

IIABNY and CIBGNY have vigorously contended in our petition, affidavits and legal briefs that the regulation was issued completely without the required statutory authority, and that some of its provisions are arbitrary, unreasonable and unconstitutional.

While IIABNY and CIBGNY strive to overturn Regulation 194 in the courts, we also realize it is extremely important agents prepare for its possible implementation if the courts do not make a final decision before the Jan. 1, 2011 effective date.

In addition to the legal challenge, IIABNY has submitted to the insurance department sample disclosure language for agents and brokers to use to comply with the regulation. The association has also created several education programs for IIABNY members and non-members to help agents understand the requirements of the regulation, its ramifications and to determine how they will comply.

IIABNY members are located in small villages and large cities, rural settings and the suburbs. IIABNY's typical member is independently owned by local community members, represents about eight insurance companies, has 10-to-12 employees, and has employees who are active in their community and civic and charitable organizations.

These members have nothing to hide from consumers–their friends and neighbors–in terms of how they are compensated. If you ask any of these agents or brokers why they chose to do what they do, most likely all would say they are in the business of providing clients with the best match of coverage, terms and price that meets their needs.

Instead of allowing producers to work toward that end, this regulation hovers like a huge cloud, confusing consumers and creating unnecessary compliance costs.

Richard A. Poppa, CAE, AAI, is President and CEO of the Independent Insurance Agents and Brokers of New York. He may be reached at dpoppa@iiabny.org.