New York Proposing Notice Requirement on Producer Compensati

 

Saturday, Mar 07,2009, 2:07:33 PM   Click:

New York Proposing Notice Requirement on Producer Compensation Alyn Ackermann
New York regulators are proposing a compensation transparency regulation that would require all agents and brokers in the state to inform their clients about their total compensation from insurers, including contingency fees.

The regulation would not ban contingency fees, as some consumer organizations had sought.

A discussion draft of the regulation was circulated among insurance industry members and groups and consumer organizations by the New York Insurance Department.

“We’re talking to brokers, agents, insurers and consumer groups,” said Matthew Gaul, a department special counsel who authored the draft regulation. “Even in the first few phone calls, the opinions have run the gamut of everything from applause to the opposite of applause.”

The proposed regulation follows a series of hearings on compensation issues held least year by New York officials, which focused on whether restrictions placed on some of the world’s biggest brokers in 2005 settlements that followed bid-rigging investigations (BestWire, July 14, 2008).

The disclosure requirements are similar to the disclosure regime imposed on Aon Corp., Marsh & McLennan Cos. and Willis Group Holdings Ltd. by New York, and Arthur J. Gallagher & Co. by Illinois, as part of the settlements. Those brokers also are banned from accepting contingency fees from insurers.

Officials of those brokers have been critical of what they term a two-tier regulatory system, and each of the three brokers that reached settlements with New York issued statements supporting the proposed regulation..

Gaul said the proposed regulation does not change the ban on contingency fees, nor does it expand that ban to any other producers.

“There has been major criticism about there being an unlevel playing field,” Gaul said. “We think this goes a lot of the way in terms of leveling the playing field.”

The regulation would require all agents and brokers to provide each client with a written notice stating that the producer may receive incentive payments from insurance companies that could influence decisions on placing policies. They would also be required to provide clients, upon request, with information on any payments they receive for a policy they recommend.

“We are open to comment,” Gaul said. “Some form of transparency is coming. But there may be some discussion about the mechanics, the timing, the nature of the disclosure.”

Gaul said the proposal must be approved by the Governor’s Office of Regulatory Reform, and then a formal comment period will be opened. The department hopes to be able to implement the regulation by the end of the year.

According to the Best’s Review ranking of global brokers, Aon is the world’s largest broker based on 2007 brokerage revenue, MMC is second, Willis third and Gallagher fifth.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)

Copyright © 2009 A.M. Best Company, Inc. New York regulators are proposing a compensation transparency regulation that would require all agents and brokers in the state to inform their clients about their total compensation from insurers, including contingency fees.