Insurance Regulation 194 - Frequently Asked Questions
11 NYCRR 30 (INSURANCE REGULATION 194)
Source: http://www.dfs.ny.gov/insurance/faqs/faqs-reg194.htm
What does Insurance Regulation 194 require?
Answer: Simply stated, § 30.3(a) of Insurance Regulation 194 requires an insurance producer to provide in all cases a mandatory initial disclosure to a purchaser. Section 30.3(b) of Insurance Regulation 194 requires a disclosure of compensation amounts, but only if the purchaser asks for that information. Special rules apply for title insurance agents, as discussed separately below. The text of the regulation, which sets forth the information that must be disclosed in both cases, may be found at http://www.dfs.ny.gov/insurance/r_finala/2010/rf194txt.pdf.
Who must provide the Insurance Regulation 194 disclosures?
Answer: Every insurance producer, as defined in Insurance Law § 2101(k), which includes insurance agents, insurance brokers, excess line brokers, title insurance agents, limited licensees, and any other person required to be licensed to sell, solicit or negotiate insurance, must provide disclosure pursuant to Insurance Regulation 194. Title insurance agents also are subject to the requirements of Insurance Law § 2113(b).
Are any types of insurance producers or insurance sales exempt from Insurance Regulation 194?
Answer: Yes. Insurance Regulation 194 does not apply to reinsurance, and thus the regulation does not apply to reinsurance intermediaries. In addition, Insurance Regulation 194 does not apply to the placement of insurance with a captive insurance company pursuant to Insurance Law Article 70; an insurance producer that has no direct sales or solicitation contact with the purchaser, which may include wholesale brokers or managing general agents; to the sale of insurance by a person who is not required to be licensed as an insurance producer under Insurance Law § 2102(a)(1) for the purpose of that sale; or to renewals (with certain exceptions).
Section 30.5(b) of Insurance Regulation 194 provides that disclosure does not apply to the placement of insurance with a captive insurance company pursuant to Article 70 of the Insurance Law. In that case, must a captive insurance agent comply with Insurance Regulation 194?
Answer: Yes. A captive insurance company is a specialized kind of insurer, licensed under Insurance Law Article 70, which generally writes risks on its affiliates or, in the case of a group captive, the owners of the captive insurer. An insurer that utilizes captive agents—a term not defined or used in the Insurance Law but that generally refers to agents that are permitted to place insurance only with one insurer and its affiliates, as distinguished from independent agents—is not a captive insurance company. A captive agent is like any other independent insurance agent or broker, and therefore, Insurance Regulation 194 applies to captive agents in the same manner as it applies to independent agents or brokers.
May the insurer (rather than the insurance producer) deliver the mandatory initial disclosure pursuant to § 30.3(a) of Insurance Regulation 194, along with the application materials and other legally required disclosures provided by insurers to purchasers at the time of sale?
Answer: Yes. Generally, an insurer may provide the mandatory initial disclosure pursuant to § 30.3(a) of Insurance Regulation 194 on behalf of an insurance producer with the application materials and the other legally required disclosures provided by insurers to purchasers at the time of sale. Indeed, the Department has approved life and health application forms that set forth the initial mandatory disclosure notice. However, pursuant to § 30.3(a), the disclosure must be prominent.
Must a producer initially disclose how much compensation the producer will be paid for the sale of the policy?
Answer: No. As stated above, except for a title insurance agent, a producer need only disclose the amount of the compensation if the purchaser asks for additional information. However, Insurance Law § 2113(b) and § 30.3(g) of Insurance Regulation 194 require a title insurance agent to disclose to the applicant, at the time of application, the amount of compensation to be paid to the agent by the title insurance corporation, regardless of whether the applicant asks.
If there is no request from a purchaser for any information under Insurance Regulation 194, does the insurance producer still need to make any disclosures?
Answer: Yes. An insurance producer, other than a title insurance agent, still must provide the mandatory initial disclosure required by § 30.3(a) of Insurance Regulation 194 to all purchasers, and a title insurance agent must provide the mandatory initial disclosure required by Insurance Law § 2113(b) and § 30.3(g) of Insurance Regulation 194 regardless of whether the purchaser requests any information under Insurance Regulation 194.
If an insurance producer posted the mandatory initial disclosure prominently in the producer’s office, would that producer satisfy the mandatory initial disclosure requirement of Insurance Regulation 194?
Answer: No. Simply posting the mandatory initial disclosure required by § 30.3(a) of Insurance Regulation 194 is insufficient. In all cases, the purchaser must be provided with a copy of the mandatory initial disclosure.
If an insurance producer sells a policy to a purchaser, but is not compensated in whole or in part for that sale, must the producer nonetheless make disclosures pursuant to Insurance Regulation 194?
Answer: Yes. Even if an insurance producer is not compensated in whole or in part on the sale of an insurance policy, the producer must still provide the mandatory initial disclosure under § 30.3(a) containing a description of the producer’s role in the sale, and a notice that the producer will not receive compensation from the selling insurer or any other third party.
Must an insurance producer obtain the purchaser’s signature on the disclosures required by Insurance Regulation 194?
Answer: No. Although nothing prevents an insurance producer from asking the purchaser to sign the disclosures, Insurance Regulation 194 does not require any such signature by the purchaser.
Does Insurance Regulation 194 apply if an insurance producer conducts business with a purchaser through the mail, internet, and telephone, and does not have any face-to-face contact with the purchaser?
Answer: Yes. The disclosure requirements of Insurance Regulation 194 are not limited to face-to-face contact between a producer and a purchaser. Business conducted by mail, internet or telephone involves direct contact with the purchaser since the purchaser is interacting directly with the insurance producer.
If an insurance producer takes an insurance application over the phone and mails it to the purchaser for review and signature, then when must the producer make the mandatory initial disclosure required by Insurance Regulation 194?
Answer: If an insurance producer takes an insurance application over the phone and mails it to the purchaser for review and signature, then the producer may provide the mandatory initial disclosure required by Insurance Regulation 194 either: orally over the phone, followed by a disclosure in a prominent writing no later than the issuance of the insurance contract; or by including a disclosure in a prominent writing with the written application.
If a purchaser requests disclosure of compensation amount at the time of application may the insurance producer provide that disclosure when the policy is subsequently issued?
Answer: Yes. Section 30.3(b) requires an insurance producer, if asked, to provide the disclosure of compensation amount at or prior to the issuance of the insurance policy or contract, except where time is of the essence to issue the policy or contract (for example, when an insured needs the policy in order to buy a car). While there is no requirement that the disclosure be provided earlier than the issuance of the policy or contract, the producer is free to provide earlier disclosure.
To what kind of insurance does Insurance Regulation 194 apply?
Answer: Insurance Regulation 194 applies to all kinds of direct insurance, including life insurance, annuities, accident and health insurance, and property/casualty insurance (such as homeowners’ insurance, automobile insurance, and surety).
Is there any kind of insurance to which Insurance Regulation 194 does not apply?
Answer: Yes. Insurance Regulation 194 does not apply to reinsurance.
Does Insurance Regulation 194 apply if an insurance producer assists a purchaser with placing a state-mandated disability contract?
Answer: Yes. As noted above, Insurance Regulation 194 applies to the placement of any kind of direct insurance, including state-mandated coverage.
For group and blanket insurance policies, to whom must the producer give Insurance Regulation 194 disclosures?
Answer: The insurance producer must always provide the disclosures to the group policyholder, such as an employer or association. However, the insurance producer also must provide the disclosures to a certificate holder or member if the insurance producer has direct sales or solicitation contact with the certificate holder or member, and the certificate holder or member pays the entire premium.
Does Insurance Regulation 194 apply to a renewal policy?
Answer: Section 30.5(e) provides that Insurance Regulation 194 generally does not apply to renewals except that, if the purchaser requests more information about the producer’s compensation less than 30 days prior to a renewal or less than 30 days after a renewal, then the producer must disclose to the purchaser in a prominent writing the additional disclosure information required by section 30.3(b) within five business days.
Does Insurance Regulation 194 apply if a policy is renewed with an affiliate of the insurer?
Answer: Generally speaking, an insurer may not move coverage to its affiliate unilaterally. Moreover, the issuance of a policy by an affiliate would be considered a new policy. However, in limited instances, Insurance Law § 3426 considers the issuance of a policy by an affiliate to be a renewal and, thus, in these instances, the policy would be considered a renewal for purposes of Insurance Regulation 194. Therefore, Insurance Regulation 194 generally does not apply to renewals, with a limited exception set forth in section 30.5(e)
If an insurance producer is a business entity that sells insurance contracts through its employees or sublicensees, does the producer have to disclose the compensation that it receives from the insurer or just the portion of the compensation that it pays to an employee or the individual sublicensee?
Answer: If an insurance producer is a business entity, such as a corporation or partnership, that sells insurance contracts through its employees or sublicensees, the business entity is the producer “selling an insurance contract” for purposes of § 30.3(a) of Insurance Regulation 194. Therefore, the business entity is required to provide the disclosure of compensation amount. The producer need not separately disclose the compensation that it pays to its individual employees (whether licensed or not) or sublicensees. However, if the sublicensee receives separate additional compensation from the insurer, then that compensation must be disclosed, though the disclosure may be combined with the disclosure by the business entity.
Must an individual who owns an insurance agency, but does not personally write or discuss a policy, and instead relies on a salaried and licensed staff to sell and have direct contact with the purchasers, disclose compensation pursuant to Insurance Regulation 194?
Answer: No. As stated above, the compensation that the insurer pays to the business entity must be disclosed, but the portion of the compensation paid to the owner of the agency, or the salary paid to licensed employees, need not be disclosed. However, if the owner or the licensed employees receive any additional compensation from the insurer for a particular sale, then that compensation must be disclosed.
If an insurance producer (“Producer A”) refers a purchaser to another producer (“Producer B”) who handles the actual sale, must Producer A disclose compensation pursuant to Insurance Regulation 194?
Answer: It depends on the circumstances. If Producer A is compensated based in whole or in part upon the sale of the policy, or if Producer A discusses the terms and conditions of the policy with the purchaser, then Producer A must provide disclosure pursuant to Insurance Regulation 194. However, if neither of those things occurs, then only Producer B need provide disclosure pursuant to Insurance Regulation 194, although Producer A is free to disclose, in the interest of transparency.
Does Insurance Regulation 194 apply to a wholesale producer or managing general agent (MGA)?
Answer: It depends. Insurance Regulation 194 does not apply to a producer who does not have direct sales or solicitation contact with the purchaser. Generally, a wholesale producer or MGA does not have any direct contact with purchasers, and instead acts as an intermediary between the insurer and the producing agent or broker. In such a case, the wholesale producer or MGA need not provide the disclosure required by Insurance Regulation 194, nor does the producing agent or broker have to disclose the amount that the wholesale producer or MGA has received in compensation. However, if the wholesale producer or MGA does have direct sales or solicitation contact with the consumer, then the wholesale producer or MGA must provide the disclosure required by Insurance Regulation 194. Furthermore, if the purchaser asks for additional information, then the MGA or wholesale producer need only disclose the compensation that is based on the sale of the policy. For example, if an insurer pays an MGA for undertaking the insurer’s underwriting activities, and pays the MGA based on each policy underwritten, then the MGA must disclose that compensation.
If an insurer, in addition to paying a commission to the insurance producer, also pays the producer an administrative fee for services that the producer provides to one or more large groups under policies issued by the insurer, then must the producer disclose the administrative fee?
Answer: It depends. The producer must disclose the administrative fee if: the fee is based in whole or in part on the business generated by the insurance producer. If the producer provides those services only with respect to business that it has placed, then the fee would be based in whole or in part on the sale of insurance.
What specific records, if any, must an insurance producer maintain pursuant to § 30.4 of Insurance Regulation 194?
Answer: An insurance producer must maintain a copy of any written disclosure provided to a purchaser pursuant to § 30.3 of Insurance Regulation 194 for at least three years after the producer provides the disclosure, unless the producer and the insurer have a written agreement providing that the insurer shall retain the copy.
Do any of the following qualify as compensation for which an insurer must maintain a record under Insurance Regulation 194?
a An insurer’s “service team” business meeting with an insurance producer, which may include dinner at the insurer’s expense.
b A producer training presentation either at an individual insurance producer’s office or at a single location with multiple insurance producers, which may include lunch at the insurer’s expense.
c Agency appreciation events, which may include dinner and awards for agency business milestones with the insurer.
d Customer council meetings held at a conference center and which involve business meetings and social events, such as golf.
Answer: Yes. Agency appreciation events that may include dinner and awards for agency business milestones with the insurer would constitute compensation under Insurance Regulation 194, because an insurance producer’s receipt of dinner and an award would be based in whole or in part on the producer’s sale of insurance. However, an insurer’s “service team” business meeting with an insurance producer, which may include dinner at the insurer’s expense; an insurance producer training presentation, which may include lunch at the insurers’ expense; and customer council meetings held at a conference center, which may include business meetings and social events, such as golf, would not constitute compensation under Insurance Regulation 194 so long as the insurance producer does not receive anything of value, such as lunch, dinner, or golf, based in whole or in part on the producer’s sale of insurance.
Must an insurer maintain compensation records for each individual insurance producer?
Answer: Yes. An insurer must maintain compensation records for each individual insurance producer, because § 30.6 of Insurance Regulation 194 states that "[t]he amount of any compensation that an authorized insurer or its agent pays to an insurance producer shall be maintained by the insurer in accordance with Part 243 of this Title (Regulation 152)." (Emphasis added.)
Must an insurer maintain records regarding the amount of any compensation it pays to non-New York licensed insurance producers who write multi-state risks with incidental New York exposures?
Answer: No. An insurer need not maintain records regarding the amount of any compensation it pays to non-New York licensed insurance producers who write multi-state risks with incidental New York exposures if the insurance producers are not soliciting, negotiating, or selling insurance in New York. In such a situation, the insurance producers would not need New York licenses to make the sales and Insurance Regulation 194 would not apply. The location of the risk is irrelevant.