The New York Insurance Department softened its stance on mandatory producer compensation disclosure last week, proposing revised regulations that would require disclosure only when requested by clients.

The rule differs from the department’s initial disclosure proposal issued in February. Under that proposed rule, all producers would have been required to provide written notification to clients of the “nature and amount” of any compensation received in conjunction with an insurance placement, including contingent commissions, loans, vacations, prizes and gifts, among other things.

PIA of New York reports that the new draft substantially modifies the original draft by eliminating language that stated insurance producers have incentives to recommend a particular insurance policy based upon the amount of compensation paid in connection with that policy. PIA of New York found this provision highly offensive, and led the charge for its elimination through a series of meetings with the New York State Insurance Department.

The new draft also establishes a two-tiered disclosure mandate, whereby policyholders first would be told who the producer represents; that the producer will receive compensation for selling the policy; that this compensation may vary from carrier to carrier; and that more information is available if requested. A request would trigger a more detailed disclosure. At PIA of New York’s urging, the NYSID also included language reflecting that producers are precluded from negotiating commission levels by law.

Interested parties have until July 29 to comment on the revised rule. The department hopes to go into formal administrative proceedings in August.

NY Rethinks Broker Commission Disclosure Rule (Business Insurance 7/10/09)

July 15, 2009