New York – An insurance agents’ trade group says it is prepared to fight New York’s proposed agent and broker compensation disclosure rule in court.
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If New York implements regulations mandating that insurance agents and brokers disclose to their clients information about their compensation, then the Independent Insurance Agents & Brokers of New York plans to file suit against the New York State Insurance Department, seeking to halt the enforcement of the rules.
The IIABNY said that it believes the superintendent does not have legal authority to compel compensation disclosure. It also cited what it said were serious problems with the proposal’s extent, according to a letter to New York Insurance Superintendent James J. Wrynn, signed by IIABNY counsel James C. Keidel.
IIABNY said it sent the letter to comply with state law requiring notification of any state agency prior to initiating legal action.
Matt Gaul, special counsel to the insurance department, commented on the threatened suit.
“We are surprised that what we viewed as the least controversial aspect of disclosure has prompted the threat of a lawsuit — the requirement that brokers and agents clearly explain who they represent in the transaction,” Gaul said. “For years the Big I’s members have said they are the ‘trusted choice’ for consumers. What they apparently don’t want to tell their customers is that in most cases they represent the insurance company.”
The new rule stems from charges then-New York Attorney General Eliot Spitzer filed against Marsh and other large brokers in 2004 over alleged bid-rigging and steering of business to insurers that paid contingent commissions. Marsh eventually paid a large settlement to its clients, and two Marsh executives were convicted of restraint of trade.
But in the last two months, a court acquitted three Marsh executives and, at the request of current Attorney General Andrew Cuomo, dropped charges against two others and an insurance company executive.
Proposed rules ‘unwarranted’
The proposed rule has been in debate since June 2008, when the New York insurance and attorney general’s offices held a joint hearing investigating if a need for the regulations existed. The possible implementation of the rules is being watched by several insurance commissioners in other states, who say they may enact similar rules.
The IIABNY said in a statement that it has been working with state officials and other stakeholders “to make the proposal reasonable” even though it believes the compensation disclosure rule is “unwarranted.”
“We ultimately believe this rule is not necessary,” IIABNY President and Chief Executive Officer Richard A. Poppa said. “We continue to seek a reasonable approach that, should a regulation take effect, gives consumers value while minimizing the burdens on producers.”
Poppa said his group is working with other insurance industry groups on the possible suit.
IIABNY’s letter to Wrynn denounced a mandate that a producer disclose to the insurance buyer whether he is acting as a legal representative of the buyer or of the insurance company.
“This provision of the proposed regulation,” the letter said, “requires that producers evaluate complex legal concepts and then make legal conclusions that even the judiciary has struggled with.”
Negative consequences likely, group says
The IIABNY also faulted the rule for assuming that all agents and brokers have incentives to place clients with unsuitable companies, despite the possibility of punishment under existing law. It noted that some groups with the same potential conflicts of interest are exempt from the rule.
The IIABNY said in the letter that the result of the rule’s implementation will be higher costs, possible promotion of illegal rebating of premiums to clients and an improper focus of buyers on payments to producers rather than the quality and price of their coverage.
“Unfortunately,” the letter concluded, “unless the proposed regulation is withdrawn, we will have no alternative but to seek redress in the court system to challenge the proposed regulation and any efforts to adopt a similar regulation.”
The rule’s publication in the New York State Register Dec. 2 opened a 45-day period for the public to comment on the proposed rule.
After its first release in January, the proposed regulation underwent a rewrite, leading to its publication Dec. 2 in the New York State Register, a key step in its approval process. The publication opens a 45-day public comment period, during which the IIABNJ said it intends to offer its criticism of the proposed rule.
Can somebody explain to us novices in simple terminology what this about? what’s the current situation? what does the gov. want to achieve? who will utimately be affected?
This is another example how our so called “Malchus shel chesed” wants to institute socialisim on us & make sure no one should have parnasa.
I don’t see what grounds they would have for a lawsuit. The federal government granted states pretty much unlimited authority to regulate — or not regulate — insurance as little or as much as they wish. Other parts of the financial services industry are required to disclosue commisions and fiduciary responsibilities, why should not insurance brokers have transparency as well?
so the grocery store should also be reqired to diclose ther profits