New York Producer Compensation Regulation
Final Enacted: February 10, 2010
Will go into effect: January 1, 2011

First step- The regulation establishes a two step process for what compensation information must be disclosed to the consumer. At the time a consumer applies for an insurance policy, the producer must explain to the consumer, orally or in writing:

  1. The agent or broker’s role in the transaction
  2. Whether the producer will receive compensation from the selling insurer or another third party based in whole or in part on the contract the producer sells
  3. That compensation paid to the producer may vary depending on factors including the insurance contract and the insurer the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the contracts that the producer provides the insurer
  4. That the purchaser may obtain further information about the compensation to be received by the producer

Note: If this information required in the first step is provided orally, the producer must follow-up with this information in writing no later than the issuance of the insurance contract.

Second Step -It is then up to the consumer to trigger the second step of the disclosure process. The consumer may request further information either prior to the issuance of the insurance contract or within 30 days after the issuance of the contract. Once the consumer makes this request, the producer is required to provide the following information to the consumer in prominent writing:

  1. A description of the nature, amount and source of any compensation to be received by the producer orany parent, subsidiary or affiliate based in whole or in part on the sale;
  2. A description of any alternative quotes presented by the producer, including the coverage, premium and compensation that the insurance producer or any parent, subsidiary, or affiliate may have received based in whole or in part on the sale of any alternative coverage;
  3. A description of any material ownership interest the insurance producer or any parent, subsidiary, or affiliate has in the insurer issuing the insurance contract or any parent, subsidiary, or affiliate
  4. A description of any material ownership interest the insurer issuing the insurance contract or any parent, subsidiary, or affiliates has in the insurance producer or any parent, subsidiary, or affiliate; and
  5. A statement whether the insurance producer is prohibited by law from altering the amount of compensation received from the insurer based in whole or in part on the sale.

This two step disclosure process does not initially apply to renewals. The onus is on the consumer to request disclosure information less than 30 days prior to a renewal or less than 30 days after a renewal. Once requested, the producer must provide all compensation information required in the second step of the process.

There are exceptions to this regulation that consumers should be aware of. The regulation does not apply to:

  1. The placement of reinsurance;
    2. The placement of insurance with a captive insurance company; and
    3. To an insurance producer that has no direct sales or solicitation contact with the purchaser, which may include brokers or managing general agents.

RIMS encourages all of its members to request full disclosure from their insurance producer as it will allow the risk manager to make an informed decision as to whether the producer is operating under a significant conflict of interest. To help educate our members on this issue, we have developed and released the “Practical Guide to Insurance Broker Compensation and Potential Conflicts of Interest for the Risk Manager.” This document can be downloaded for free for RIMS members here.

The final version of the NYID’s regulation can be found here.

RIMS press release on the final version of the regulation can be found here.

RIMS position statement on broker compensation can be found here.