On January 29, 2009, the New York Insurance Department (“NYID”) released a draft regulation on producer compensation transparency (the “Draft Regulation”), which aims 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.”
The Draft Regulation requires the selling producer to provide the purchaser with a written disclosure prior to policy issuance or renewal that includes:
- A description of the nature and amount of compensation to be received by the producer in connection with the sale;
- A description of any material ownership interest the insurance producer has in the insurer issuing the insurance contract;
- A description of any material ownership interest the insurer issuing the insurance contract has in the insurance producer; and
- A notice, as specified by the Draft Regulation, that the purchaser is buying a particular product and, as producer compensation varies depending on the issuer and product, that the producer may have incentives to recommend one product over another; the notice also states that the producer is required to provide the purchaser with details about the compensation and, upon request, provide information about quotes and alternatives.
If compensation is not known at the time of the sale, the insurance producer must describe to the purchaser, in writing, the method of calculating the compensation. Each disclosure provided must be retained for at least three years.
The Draft Regulation does not apply to the placement of reinsurance, the placement of insurance with a captive insurance company, or an insurance producer that has no contact with the purchaser (e.g. wholesale brokers or managing general agents).
Any violation of the requirements set forth in the Draft Regulation would constitute an unfair method of competition or an unfair or deceptive act and practice.
According to industry reports, the NYID plans to hold working group meetings later this month to discuss the Draft Regulation.