Nearly a year and half of hearings, drafting and discussions has resulted in new compensation disclosure rules for agents and brokers in New York.

The state’s insurance department today (Feb. 10) published its new rule mandating that producers tell their clients who is paying them and how much, if asked. The rule goes into effect Jan. 1, 2011, and could be challenged by agent organizations, many of which argue the rule is unnecessary.

James J. Wrynn

New York State Insurance Superintendent James J. Wrynn said in a statement that the new regulation will provide transparency by requiring agents and brokers to describe to consumers their role in a business transaction and how they are compensated.

Under the new rule, if consumers request more detailed information about their compensation, the agent or broker must provide it.

“This regulation will provide New Yorkers buying insurance with an important tool to use in making an informed decision,” Wrynn said. “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.”

The focus of the regulation, according to the state, is to educate consumers on how producers are paid, with some receiving forms of non-cash compensation, including advertising support, office rent, training and trips, based on production that may come in addition to a base commission and/or year-end payments based on volume.

The Independent Insurance Agents & Brokers of New York (IIABNY) said it has seen the final version of the regulation and scheduled a meeting with state regulators yesterday (Feb. 9) and would issue a “formal response” afterward, according to a statement.

The IIABNY had threatened to file suit against New York regulators if an earlier and stricter version of the proposed regulation was enacted.

‘Concern’ remains

The IIABNY did note that following a meeting with New York regulators in January, the regulation had undergone “important revisions” it suggested, but “has also left other areas of concern.”

The final version requires only that a producer provide a description of his role in the sale, the agents’ group noted, not wording from an earlier version that indicated a producer must disclose whether he was representing the insurance company or the purchaser in a particular transaction. The IIABNY said it felt that was confusing to the purchaser and forced producers to make legal distinctions they are not qualified to make.

The published version also omits a requirement that producers provide initial compensation disclosure on all policy renewals, another requirement the group felt needed to be taken out.

The rule does not, however, change the definition of compensation that a producer must disclose or in the required timing of disclosure notification, two of  “a number of other needed changes,” the IIABNY noted.

Under the regulation, if the purchaser requests more information about compensation prior to issuance of a contract, the agent or broker must disclose that information in writing at or prior to issuance of the contract, within five business days.  If the purchaser requests the information after issuance of the contract, but within a 30-day window of time, the producer must also disclose the information within five business days.

Consumer protection

Wrynn said the regulation “protects the interests of consumers while allowing agents and brokers flexibility in how they present compensation information.

“Disclosure will help increase the trust and confidence consumers should feel when buying insurance,” he said. “We have worked with consumers, agents, brokers and insurers to fashion a regulation that is fair to all stakeholders and takes all the comments we heard into account.”

The push toward transparency began in 2004 with a joint investigation by New York insurance regulators and then-New York Attorney General Eliot Spitzer amid bid-rigging allegations against brokerages, including Marsh & McLennan Cos. and others, leading to prohibitions on contingent commissions.

In the summer of 2008, the two agencies held public hearings on whether a broker compensation disclosure regulation was needed and have worked since then on several drafts of the regulation.