Earlier this year, the Independent Insurance Agents and Brokers of New York (the “IIABNY”) and the Council of Insurance Brokers of Greater New York (the “CIBGNY”) filed an Article 78 petition in New York State Supreme Court in Albany County against the New York Insurance Department (the “NYID”) in order to prevent the mandatory producer compensation disclosure requirements of Regulation 194[1]. The claim filed by the IIABNY and CIBGNY alleges that the NYID exceeded its statutory authority in promulgating Regulation 194 and that certain of its “provisions are arbitrary and lack a rational basis.”
At the end of July, the New York Attorney General’s office filed its response, wherein it defended the NYID against accusations that it exceeded its authority in adopting Regulation 194 and asked that the IIABNY and the CIBGNY’s petition be dismissed. The response argues that the NYID engaged in an exhaustive regulatory process in which it “fairly balance[d] the interests of licensed insurance producers with the needs and expectations of insurance consumers.”
Further, according to the response, the adoption process was not only proper, but in addition, Regulation 194 “addresses a missing component in financial services oversight.” By way of analogy, the Attorney General pointed to the compensation disclosure requirements for stockbrokers, real estate agents and mortgage brokers, who “must all disclose to their clients any compensation they receive from third parties for work on their clients’ behalf.”
The IIABNY and the CIBGNY have until August 20, 2010 to file their rebuttal. In a press release, the IIABNY has stated that they and the CIBGNY “have vigorously contended that this regulation was issued completely without the required statutory authority, and that certain of its provisions are arbitrary, unreasonable and unconstitutional.”
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[1] Regulation 194 requires producers to disclose certain compensation information to purchasers before they apply for a policy, including: (1) a description of the producer’s role in the sale; (2) whether the producer will receive compensation from the selling insurer or another third party; (3) that the compensation paid to the producer may vary depending on a number of factors, including the insurance contract and the insurer that the purchaser selects; and (4) that, upon request, the purchaser can obtain information from the producer regarding the producer’s expected compensation for the sale, as well as expected compensation for any alternative quotes presented by the producer.
