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. 10-12-13

The Office of General Counsel issued the following opinion on December 16, 2010, representing the position of the New York State Insurance Department.

Re: Insurance Producer Compensation Disclosure

Question Presented:

Do the compliance guidelines and disclosure forms, as discussed herein, that the inquirer submitted to the Department comport with N.Y. Comp. Codes R. & Regs. tit. 11, Part 30 (2010) (Regulation 194)?

Conclusion:

Yes. The compliance guidelines and disclosure forms, as discussed herein, that the inquirer submitted to the Department comport with Regulation 194.

Facts:

The inquirer states that she is senior vice president of industry relations and education at ABC, Inc., and submitted sample compliance documents to the New York State Insurance Department (the “Department”) for the Department’s consideration and approval.

The sample compliance documents that the inquirer submitted include compliance guidelines, which define important words and phrases used in Regulation 194 and set forth the requirements for mandatory initial disclosure, disclosure upon request, and record retention. The sample compliance documents also include disclosure forms set forth in five appendices. Appendix A is the “Statement of Compensation, Ownership Interest, and Prohibition Against Rebating” and Appendices B, C, and D are the “Description of Alternative Quotes Presented as Required by Regulation 194” for “Personal or Commercial Lines,” “Health & Disability,” and “Life & Annuities,” respectively. Appendix E discloses the “Potential for Additional Compensation Not Known at the Time of Policy Issuance.”

The inquirer asks whether the foregoing compliance guidelines and disclosure forms comport with Regulation 194.

Analysis:

The Department promulgated Regulation 194 on January 25, 2010, and the regulation is effective January 1, 2011. Regulation 194: (1) regulates “the acts and practices of insurers and insurance producers with respect to transparency of compensation paid to insurance producers and their role in insurance transactions” in New York; and (2) protects “the interests of the public by establishing minimum disclosure requirements relating to the role of insurance producers and the compensation paid to insurance producers.” See 11 NYCRR § 30.1.

Section 30.3 of Regulation 194 addresses disclosure of a producer’s compensation, ownership interests and role in the insurance transaction. That section provides in relevant part that:

(a) 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:

(1) a description of the role of the insurance producer in the sale;

(2) whether the insurance producer will receive compensation from the selling insurer or other third party based in whole or in part on the insurance contract the producer sells;

(3) that the compensation paid to the insurance producer may vary depending on a number of factors, including (if applicable) the insurance contract and the insurer that the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the insurance contracts that the producer provides to the insurer; and

(4) that the purchaser may obtain information about the compensation expected to be received by the producer based in whole or in part on the sale, and the compensation expected to be received based in whole or in part on any alternative quotes presented by the producer, by requesting such information from the producer.

Thus, an insurance producer must disclose the information set forth in section 30.3(a) to a person purchasing an insurance contract at or prior to the time of application for the insurance contract. However, if the purchaser requests more information about the producer’s compensation, then pursuant to section 30.3(b), the producer must disclose the following information in a prominent writing at or prior to the issuance of the contract or within five business days if time is of the essence to issue the insurance contract:

(1) a description of the nature, amount and source of any compensation to be received by the producer or any 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 would have received based in whole or in part on the sale of any such 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 [sic] 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.

If the purchaser requests more information about the insurance producer’s compensation after issuance of the insurance contract, but less than 30 days after issuance, then the producer must disclose in a prominent writing the information required by section 30.3(b) within five business days. See 11 NYCRR § 30.3(c). Further, if the nature, amount, or value of any compensation to be disclosed is not known at the time of the disclosure, then the producer must include in the disclosure: “(1) a description of the circumstances that may determine the receipt and amount or value of such compensation; and (2) a reasonable estimate of the amount or value, which may be stated as a range of amounts or values.” See 11 NYCRR § 30.3(d).

The language set forth in the compliance guidelines and disclosure documents that the inquirer provided squarely addresses the foregoing requirements, and therefore those guidelines and documents comport with Regulation 194.

For further information, you may contact Senior Attorney Joana Lucashuk at the New York City Office.