On February 10, 2010, the New York Insurance Department (NYID) adopted a revised version of Regulation 194 ("Reg 194") which will become effective on January 1, 2011. The revision added language to Reg 194 "to protect the interests of the public by establishing minimum disclosure requirements relating to the role of insurance producers and the compensation paid to insurance producers."

Summary of Revisions to Reg 194

The modified regulation requires an insurance producer selling an insurance contract in New York to 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."

If the disclosure is provided orally, the insurance producer must also disclose this required information to the purchaser "in a prominent writing no later than the issuance of the insurance contract."

Additional Disclosure at Purchaser's Request

If the purchaser decides that the required information is insufficient and requests additional information about the producer's compensation prior to the issuance of the insurance contract, Reg 194 requires that the producer "...shall disclose the following information to the purchaser in a prominent writing at or prior to the issuance of the insurance contract, except that if time is of the essence to issue the insurance contract, then within five business days:" (Emphasis added)

  1. "a description of the nature, amount and source of any compensation to be received by the producer or any parent, subsidiary or affiliate based in whole or in part on the sale;
  2. a description of any alternative quotes presented by the producer, including the coverage, premium and compensation that the insurance producer or any parent, subsidiary or affiliate would have received based in whole or in part on any such alternative coverage;
  3. a description of any material ownership interest the insurance producer or any parent, subsidiary or affiliate has in the insurer issuing the insurance contract or any parent, subsidiary or affiliate;
  4. a description of any material ownership interest the insurer issuing the insurance contract or any parent, subsidiary or affiliates has in the insurance producer or any parent, subsidiary or affiliate; and
  5. a statement whether the insurance producer is prohibited by law from altering the amount of compensation received from the insurer based in whole or in part on the sale."

If the purchaser requests more information about the producer's compensation after issuance of the insurance contract but less than 30 days after issuance, the insurance producer must disclose to the purchaser in a prominent writing the information required above within five business days.

If the nature, amount or value of any compensation is not known at the time of the disclosure, then the insurance producer must include in the disclosure:

  1. "a description of the circumstances that may determine the receipt and amount or value of such compensation; and
  2. a reasonable estimate of the amount or value, which may be stated as a range of amounts or values."

Retention of Disclosure

Unless the producer has a written agreement with the insurer that it will keep a written copy of the disclosure, the producer must retain a copy of the disclosure for three years.

Transactions Not Subject to Regulation

The final regulation is not applicable to:

  • The placement of reinsurance;
  • The placement of insurance with a captive insurance company;
  • An insurance producer that has no direct sales or solicitation contact with the purchaser, which may include wholesale brokers or managing general agents;
  • A sale of insurance by a person who is not required to be licensed as an insurance producer; or
  • Renewals, unless the purchaser requests additional information about the producer's compensation less than 30 days prior to or subsequent to renewal. If the request is made then the producer shall disclose in writing the information required within five business days.

Other states are monitoring the situation and a successful implementation of these rules in New York could prompt them to follow suit.