As previously discussed here, the New York Insurance Department (the “Department”) has put forth a regulation regarding the transparency of insurance producer compensation (“Regulation 194”), which is slated to take effect January 1, 2011.

Under Section 30.3(a) of Regulation 194:

[With limited exceptions], an insurance producer selling an insurance contract shall disclose the following information to the purchaser orally or in a prominent writing at or prior to the time of application for the insurance contract:

  1. a description of the role of the insurance producer in the sale;
  2. whether the insurance producer will receive compensation from the selling insurer or other third party based in whole or in part on the insurance contract the producer sells;
  3. that the compensation paid to the insurance producer may vary depending on a number of factors, including (if applicable) the insurance contract and the insurer that the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the insurance contracts that the producer provides to the insurer; and
  4. that the purchaser may obtain information about the compensation expected to be received by the producer based in whole or in part on the sale, and the compensation expected to be received based in whole or in part on any alternative quotes presented by the producer, by requesting such information from the producer.

Earlier this year, the Professional Insurance Agents of New York (“PIANY”) submitted draft language to satisfy the above requirements to the Department for its approval. Last week the Department approved the language in a letter to PIANY, stating that it “squarely addresses [the] four items [set for the in Section 30.3(a)].”

Should the purchaser request more information about the producer’s compensation, Regulation 194 sets out a series of additional disclosure requirements not addressed in PIANY draft language, as it only address the “primary disclosure” requirements.

According to PIANY President Kevin M. Ryan, “PIA [our national organization] continues to object to the regulation, but we are pleased that our ongoing discussions with the [Department] have already garnered clear guidance from the [D]epartment on critical compliance issues.”

Additionally, as discussed here, the Independent Insurance Agents & Brokers of New York (“IIABNY”) and the Council of Insurance Brokers of Greater New York are suing the Department in an Article 78 proceeding that alleges it does not have the legal authority to require insurance producers to disclose to their clients certain information about how insurance companies compensate them. The two organizations filed their joint Article 78 Petition on May 25, 2010 in New York State Supreme Court in Albany.

In following a dual-course of action, IIABNY has also submitted proposed language to the Department for approval as satisfying the primary disclosure requirements of Regulation 194 in early May. The Department has not yet commented on IIABNY’s proposed language.