Broker disclosure plan disappoints buyers

NEW YORK—New York's revamped broker compensation disclosure proposal does not go far enough in protecting insurance buyers, according to the Risk & Insurance Management Society Inc.

Under the NYSID's revised proposed rule issued July 8, risk managers would have to ask their agent or broker to disclose—rather than automatically receive—information about the nature, amount and source of their compensation as well as details of any alternative quotes received.

The New York-based society said the original disclosure mandate proposed by the department in January was a step in the right direction toward strengthening the trust between insurance consumers and producers, which was severely damaged by the bid-rigging and contingent commission scandal that erupted in 2004.

RIMS called the revision a “significant retreat from the regulation's premise of protecting the rights of insurance consumers.”

Others, including Marsh Inc. and Willis Group Holdings Ltd., as well as risk managers contacted by Business Insurance, voiced varied opinions.

Acting New York Superintendent of Insurance Kermitt Brooks and New York Attorney General Andrew Cuomo are attempting to address the compensation system that resulted from various state officials' 2005 and 2006 settlements with several brokers and insurers.

In 2005, Marsh, Aon Corp. and Willis paid millions of dollars in client restitution and agreed to stop accepting contingent commissions to settle allegations that they steered business to insurers paying the highest contingents. They since have complained that the vast majority of the brokers and agents still collect contingents and are not held to the same disclosure standards as the large brokers.

The NYSID and attorney general's office held joint hearings last July on the issue and proposed new regulations in late January that would have required all agents and brokers operating in the state to provide written notification to clients of the “nature and amount” of any compensation they received prior to the issuance or renewal of an insurance contract (BI, Feb. 9).

Under the revised regulation, insurance consumers would have to request such information from their producers, although all agents and brokers would have to disclose to clients who they represent in the transaction (see box).

Matthew J. Gaul, special counsel with the NYSID, said that in revising the rule the department was “looking at the market holistically and trying to come up with a workable regulation that applies across the board...and that can give consumers the information they need to make informed decisions.”

He noted that while a two-tiered market still exists, the new rule “brings the rest of the producer market to a higher level.”

RIMS, however, said it has “serious concerns” about the burden that would be placed on consumers in having to request compensation information from their producers and that renewals would be exempt from all of the disclosure requirements.

“While the regulatory process is advancing, RIMS is disappointed that the new document does not contain consumer protections that were part of the original proposal,” RIMS board member Deborah M. Luthi, who also is director of enterprise risk management services at Matheson Inc. in Sacramento, Calif., said in a statement.

Other risk managers had varying opinions on the new draft.

Bill Chapin, director of risk management at (Catholic) Diocese of Rockville Center in Rockville, N.Y., said the difference between mandatory and requested disclosure is just “semantics.”

“Why not have a discussion every year, disclose everything, and be done with it? It's that simple in my mind,” he said.

Raymond J. Alletto, vp-risk management for United Rentals Inc. in Irving, Texas, however, said any mandate should require full transparency.

“I think more transparency will lead to more accountability,” he said. “We're taking half a step. I don't understand why we can't take the whole step” and mandate transparency.

John Phelps, director of business risk solutions for Blue Cross and Blue Shield of Florida Inc. in Jacksonville, also disagrees with the NYSID's new position.

“If they are so committed to transparency, why does the buyer have to make a specific request? That should be coming automatically and well in advance of when the coverage is bound,” he said. “Otherwise you hinder the insurance buyer's ability to make a choice, in part, based upon other revenue streams the broker may be receiving.”

While a spokesman for Willis was unavailable to comment, Willis Chairman and Chief Executive Officer Joe Plumeri was quoted in a recent article about the revised rule saying he doesn't think it goes far enough in protecting clients. “They didn't call for transparency and they didn't call for the abolishment of contingents, and I'm saddened by that. With all the reform and all the hearings that were done in New York, what basically happened was nothing.”

Marsh Chairman and CEO Dan Glaser, on the other hand, called the revised draft “practical, balanced and good for consumers” and “an important step toward establishing a level playing field.”

“If the regulation is adopted, consumers in New York will, for the first time, receive consistent, mandatory disclosures that will enable them to understand how producers are paid and that their compensation may vary from insurer to insurer,” Mr. Glaser said.

A spokesman for Chicago-based Aon said the broker is reviewing the new rule and will provide comment to the NYSID.

The Independent Insurance Agents and Brokers of New York, which voiced its concerns over mandatory disclosure rules, favors the revisions.

However, “we still have some concerns about the scope of it and some of the details that would have to be provided in a disclosure that the insured requested,” an IIABANY spokesman said.