On November 5, 2010, the New York Insurance Department (the “Department”) issued Circular Letter No. 18 (2010) (the “Circular Letter”) setting forth clarification on the implementation of and compliance of insurance producers and authorized insurers with 11 NYCRR 30 (Regulation 194). As previously reported here, Regulation 194, effective January 1, 2011, requires insurance producers to disclose information regarding their role in insurance transactions and the amount and sources of their compensation (including contingent compensation) to the insured. The Circular Letter, based on a draft circular letter distributed to industry groups in August, sets forth guidance on how insurance producers may satisfy initial and subsequent disclosure requirements. The Circular Letter also advises insurance producers that they may consult with the Department regarding any planned method of compliance with Regulation 194. Furthermore, the Circular Letter states that although the Department expects that insurance producers will comply with Regulation 194 immediately, the Department’s enforcement efforts will focus on willful or egregious violations in the first six months of implementation.
Last week, the Independent Insurance Agents and Brokers of New York (IIABNY) released a statement that the Circular Letter does not answer many key questions regarding Regulation 194. IIABNY Board Chairman David M. Gelia stated, “The changes the department made to its initial draft of the circular are underwhelming. . . . The end product shows that the department truly does not understand how complex the task it is requiring agents and brokers to perform really is. We will continue to press the department for definitive answers to the questions we sent them last summer.” As reported here, the IIABNY, along with the Council of Insurance Brokers of Greater New York (CIBGNY), filed a lawsuit against the Department to prevent the implementation of Regulation 194 earlier this year. The lawsuit alleges that the Department exceeded its statutory authority in promulgating Regulation 194 and that certain of its “provisions are arbitrary and lack a rational basis.” Oral arguments in the lawsuit were heard on October 15, 2010 and the IIABNY has requested an expedited decision.
Other industry groups, including the Professional Insurance Agents of New York (PIANY), stated that they will continue to work with the Department to provide additional clarification on Regulation 194 before it is enacted on January 1, 2011.