As discussed here and here, the New York Insurance Department (the “Department”) has drafted a new regulation regarding the transparency of insurance producer compensation.  The proposed rule, Regulation 194, would require insurance producers to disclose to clients information about their compensation.  After bring vetted by the Governor’s Office of Regulatory Reform, the Department published the proposed regulation in the New York State Register (pages 16-20) on December 2, 2009.  The proposed rule’s publication in the New York State Register starts a 45-day period during which the public may provide comments.

While the Department has worked closely with industry representatives and held hearings regarding this matter, discussed here and here, some believe that the Department’s attempt to create greater transparency in producer compensation is an overreach of its regulatory authority.

The Independent Insurance Agents & Brokers of New York (the “IIABNY”) announced earlier this month that it is prepared to bring a legal action to thwart the Department’s proposed regulation.  In the IIABNY’s press release announcing its plans to sue the Department for exceeding its statutory authority, the IIABNY charges that the proposed regulation:

  • Requires that producers evaluate complex legal concepts regarding agency theory and then make legal conclusions that even the judiciary has struggled with;
  • Assumes that all agents and brokers have incentives to place clients with unsuitable companies, despite the possibility of punishment under existing law;
  • Exempts some groups with the same potential conflicts of interest that apply to groups that are not exempt;
  • Would result in higher costs;
  • May promote illegal rebating of premiums to clients; and
  • Improperly focus buyers’ attention on payments to producers rather than the quality and price of their coverage.

Media reports have quoted Dick Poppa, president and chief executive of IIABNY, as stating, “We believe that the [D]epartment does not have the authority to do what it’s doing.  We continue to hope that we can find a ground with them that would not require us to go through with [a lawsuit].”

Matthew Gaul, special counsel at the Department, has been quoted by industry news sources as boiling down Regulation 194 into the following simple points:  “This is who I represent.  This is how I get paid.  And if you’d like more information, just ask.”  Gaul has also stated that the current version of Regulation 194 is a “compromise arrangement,” as previous versions mandated wider disclosure but met with heavy industry resistance.

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