Trusted Choice

Just when producers thought it was safe, mandatory compensation disclosure has reared its ugly head again.

In a move that has its origins in the Spitzer days, New York regulators are mandating that insurance agents and brokers disclose aspects of their compensation to clients. Agents in other states should watch this step closely as it could become one for other state regulators to follow.

The new regulation requires that when a consumer applies for an insurance policy, the agent or broker must explain to the consumer: the agent or broker’s role in the transaction; whether the agent or broker will receive compensation from the insurer based on the sale; that the compensation insurers pay may vary depending on the volume of business done with that insurer or its profitability; and that the buyer may obtain more information about the compensation from the sale simply by requesting it.

If the consumer asks for more information, he or she must be provided a more detailed written disclosure of the compensation expected to be received as well as a description of the compensation associated with any alternative quotes obtained.

“This regulation protects the interests of consumers while allowing agents and brokers flexibility in how they present compensation information,” maintained New York State Insurance Superintendent James J. Wrynn. “Disclosure will help increase the trust and confidence consumers should feel when buying insurance.”

The new regulation is supposed to take effect Jan. 1, 2011. But it won’t if agents and some of the customers the rule is written to protect have anything to say about it. They say the rule either goes too far or not far enough.

The Independent Insurance Agents and Brokers of New York is going to court to block the rule because it believes the rule would place an “undue burden” on agents “for no justifiable reason.” They’d like agents to have more flexibility in how they meet the requirement.

But the risk managers and commercial insurance buyers’ organization, RIMS — calling itself a consumer group — says the final rules were watered down too much so that the final rule “falls short of complete and mandatory disclosure,” which RIMS supports.

There may be merit to minimum disclosure in personal lines sales, although we suspect most consumers care more about the bottom line than how it was arrived at and probably couldn’t be bothered to seek out the compensation information.

But commercial lines is another kettle of fish. If compensation disclosure is so important to commercial insurance buyers, then they should negotiate that disclosure with their intermediaries. There are brokers happy and willing to go along with such requests. Mutually agreed-upon disclosure between buyer and seller would do more to “help increase the trust and confidence” between buyers and sellers than any mandatory rule is likely to do.

Why should the government, which has trouble enforcing all the rules it already has, get involved in these transactions? That seems as misplaced as calling RIMS a consumer organization.

Topics New York Agencies Legislation