New Protection For Insurance Buyers
"This regulation will provide New Yorkers buying insurance with an important tool to use in making an informed decision," Wrynn said. "Almost everyone buys insurance at some point, and in these difficult economic times, consumers should understand any incentives that may potentially affect the recommendations from their agents or brokers."
In most cases, agents or brokers receive compensation for selling insurance products from the issuing insurer. This compensation is usually composed of a base commission, based on the policy premium, as well as certain year-end payments based on the volume and profitability of the policies an agent or broker places with the insurance company. In addition, some agents or brokers may receive other forms of non-cash compensation, including advertising support, office rent, training and trips or other prizes based on production.
The compensation packages provided to an insurance agent or broker can vary depending on the insurance company. Most consumers choosing among policies may not be aware of these compensation programs and how they may affect the insurance transaction.
The proposed regulation would require that when a consumer applies for an insurance policy, the agent or broker must explain to the consumer:
- The agent or broker's role in the transaction;
- Whether the agent or broker will receive compensation from the insurer based on the sale;
- That the compensation insurers pay to agents or brokers may vary depending on the volume of business done with that insurer or its profitability; and
- That the purchaser may obtain more information about the compensation the agent or broker expects to receive from the sale by requesting that information from the agent or broker.
If the consumer asks for more information from the agent or broker, he or she must be provided a more detailed written disclosure of the compensation expected to be received as well as a description of any alternatives presented by the agent or broker and the compensation associated with those alternatives.
"This regulation protects the interests of consumers while allowing agents and brokers flexibility in how they present compensation information," said New York State Insurance Superintendent James J. Wrynn. "Disclosure will help increase the trust and confidence consumers should feel when buying insurance. We have worked with consumers, agents, brokers and insurers to fashion a regulation that is fair to all stakeholders and takes all the comments we heard into account."
Birny Birnbaum of the Center for Economic Justice, a non-profit consumer organization which advocates on behalf of insurance consumers, praised the Department of Insurance's perseverance in promulgating a rule in the face of stiff insurance industry opposition. He said, "We hope consumers will take advantage of the compensation disclosures to discourage agents and brokers from steering consumers into unfavorable products – steering based on the agent and broker compensation arrangement and not the best interests of the consumers. Disclosures only work if consumers get the information and act on it." Birnbaum added, "Promulgating a regulation is a start, but effective implementation and enforcement is essential. We will monitor the Department's efforts to protect consumers."
Efforts to bring greater transparency to insurance transactions began in 2004 with a joint investigation by the Insurance Department and the State Attorney General's office. Over the past two years, the Department has been working on an industry-wide solution to the issue of producer compensation and disclosure. Together with the Attorney General's office, the Department held statewide hearings in 2009, and since then has engaged in extensive outreach with various stakeholders, including consumer groups, trade associations, government officials and others.
The regulation will be published in the February 10, 2010 issue of the State Register, and its requirements will take effect as of January 1, 2011.