This updates our February 11, 2009 blog posting.
On January 29, 2009, the New York Insurance Department (“NYID”) released a draft regulation on producer compensation transparency (the “Original Draft”), which aimed to protect public interests by setting forth minimum disclosure requirements regarding the role of insurance producers and the “actual or potential conflicts of interest created by compensation paid to insurance producers.” Click here for a description of the Original Draft. Last week, the NYID issued a revised draft (“Revised Draft”) in which it softened its position on producer compensation disclosure.
The Revised Draft, unlike the Original Draft, only requires compensation disclosure when requested by the prospective insured (whereas the Original Draft mandated compensation disclosure). The compensation disclosure provisions set forth in the Revised Draft include disclosures relating to whether the insurance producer and the issuing insurer have any material ownership interest in each other, or each other's affiliates.
The Revised Draft does, however, mandate the insurance producer to disclose, either in writing or orally:
- whether the insurance producer represents the purchaser or the insurer for purposes of the sale;
- that the insurance producer will receive compensation from the selling insurer based on the insurance contract the producer sells (if applicable);
- that the compensation insurers pay to insurance producers varies from company to company and from insurance contract to insurance contract; and
- that at any time during the relationship the purchaser may obtain detailed information about the source and amount of compensation expected to be received by the producer for the sale and any alternative quotes obtained or considered by the producer by requesting such information from the producer.
The Revised Draft does not apply to renewals, the placement of reinsurance, the placement of insurance with a captive insurance company, an insurance producer that has no contact with the purchaser (e.g. wholesale brokers or managing general agents), or to a sale of insurance by a person who is not required to be licensed as an insurance producer.
Interested parties have until July 29, 2009 to comment on the Revised Draft.