New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

David A. Paterson
Governor

James J. Wrynn
Superintendent

OGC Op. No. 10-09-06

The Office of General Counsel issued the following opinion on September 14, 2010, representing the position of the New York State Insurance Department.

Re: Producer Compensation Transparency and Regulation 194

Questions Presented:

1. Does Regulation 194 require an insurance broker to provide information about the broker’s compensation if an insured requests the information 45 days before or 90 days after the renewal of the policy?

2. Must an insurance broker disclose compensation information to a new insurance purchaser without being asked by the purchaser?

3. What is the effective date of Regulation 194?

Conclusions:

1. No. Regulation 194 does not require an insurance broker to provide information about the broker’s compensation if an insured requests such information 45 days before or 90 days after the renewal of the policy. However, an insurance producer may find it desirable to provide information about the producer’s compensation to a renewing insured at the insured’s request, consistent with the purpose and intent of the regulation, regardless of the time of the insured’s request.

2. Yes, a broker must disclose certain general compensation information to a new insurance purchaser without being asked by the purchaser.

3. Regulation 194 has been promulgated by the Superintendent of Insurance and will take effect on January 1, 2011.

Facts:

The inquiry is of a general nature, without reference to particular facts.

Analysis:

1. Renewals

The inquirer asks whether Regulation 194 requires an insurance broker to provide information about the broker’s compensation if an insured requests the information 45 days before or 90 days after the renewal of the policy. Regulation 194 regulates insurance producers, including insurance brokers as defined in N.Y. Ins. Law § 2101(k) (McKinney 2009), by requiring them to disclose to purchasers of insurance certain information about the compensation paid to them and their role in the insurance transaction. Exceptions to the disclosure requirements are provided in 11 NYCRR § 30.5. Specifically, with respect to renewals, 11 NYCRR § 30.5(e) states that the disclosure requirements of Regulation 194 shall not apply, subject to the following conditions:

[This Part shall 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, the insurance producer shall disclose to the purchaser in a prominent writing the information required by subsection 30.3(b) of this Part within five business days.

Regulation 194 requires that insurance producers disclose the necessary information to a renewing insured if the insured requests information about the producer’s compensation within 30 days before or 30 days after a renewal. Although Regulation 194 does not obligate a producer to disclose compensation information more than 30 days before a renewal or more than 30 days after a renewal, the stated purpose of the regulation is to promote transparency in the insurance purchasing process and facilitate the communication of the producer’s compensation and role in the insurance transaction to the insured. Therefore, an insurance producer may find it desirable to provide information about the producer’s compensation to a renewing insured at the insured’s request, consistent with the purpose and intent of the regulation, regardless of the time of the insured’s request.

2. New Purchasers

The inquirer also asks whether a broker must disclose compensation information to new purchasers of insurance without being asked by such purchasers. Regulation 194 provides, in 11 NYCRR § 30.3(a), as follows:

Except as provided in section 30.5 of this Part, an insurance producer selling an insurance contract shall disclose the following information to the purchaser orally or in a prominent writing at or prior to the time of application for the insurance contract….

The regulation then lists the mandatory minimum disclosures, namely, the role of the producer in the insurance transaction; whether the producer receives compensation from the selling insurer or other third party; that the producer’s compensation may vary depending on a number of factors; and that the purchaser may request additional information from the producer. Regulation 194 requires the insurance producer to disclose the information listed in Section 30.3(a) to all purchasers of insurance, at or prior to the time of the application for insurance, regardless of the purchaser’s status or whether the purchaser requests the information. Exceptions to the disclosure requirements are set forth in Section 30.5, which does not exempt new purchasers from being provided the mandatory disclosures listed in Section 30.3(a). Therefore, a producer must disclose the mandated compensation information in Section 30.3(a) to a new purchaser without being asked by the new purchaser.

Section 30.3(b) addresses disclosure of more specific producer compensation information and states, in pertinent part, that “[i]f the purchaser requests more information about the producer’s compensation prior to the issuance of the insurance contract, the producer shall disclose the following information to the purchaser in a prominent writing at or prior to the issuance of the insurance contract….” Thus, if a purchaser requests any information about the producer’s compensation prior to the issuance of the policy, the producer must provide the information set forth in Section 30.3(b) in writing at or prior to the issuance of the policy, except that if time is of the essence to issue the policy, the producer must provide the information within five business days. Section 30.3(c) also requires the written disclosure to the purchaser within five business days if the purchaser requests compensation information within thirty days after issuance of the policy.

3. Effective Date

The inquirer asks whether there is a date when Regulation 194 becomes final. Regulation 194 was promulgated by the Superintendent of Insurance as 11 NYCRR 30 on January 25, 2010, and is available on the Insurance Department’s website. The regulation will take effect on January 1, 2011.

For further information you may contact Supervising Attorney D. Monica Marsh at the New York City office.