STATE OF NEW YORK
25 BEAVER STREET
NEW YORK, NEW YORK 10004
|Andrew M. Cuomo
James J. Wrynn
OGC Op. No. 11-07-01
The Office of General Counsel issued the following opinion on July 8, 2011, representing the position of the New York State Insurance Department.
Re: Disclosure of Entertainment and Merchandise Provided to Producers as Compensation
When disclosing compensation pursuant to Regulation 194, must an insurance producer itemize entertainment and merchandise received from an insurer, or may the producer provide a reasonable estimate?
When disclosing compensation pursuant to Regulation 194, an insurance producer must itemize entertainment and merchandise received from an insurer as compensation, if the value of the items is known at the time disclosure is required. If the value is not known, a producer must instead provide a reasonable estimate of the value of such compensation and a description of the circumstances that may determine the receipt and value of such compensation.
A marketing representative of an insurer occasionally entertains insurance agents and provides agents with certain merchandise, such as “shirts, lunches, pens, [and] pads.” The marketing representative asked whether an insurance producer must itemize entertainment and merchandise received from an insurer as compensation or whether the producer may provide a reasonable estimate when disclosing pursuant to Regulation 194.
Regulation 194 was promulgated on January 25, 2010, and went into effect on January 1, 2011. That regulation: 1) regulates the acts and practices of insurers and insurance producers with respect to transparency of compensation paid to producers and their role in insurance transactions in this State, and 2) protects the interests of the public by establishing minimum disclosure requirements relating to the role of producers and the compensation paid to producers. 11 NYCRR 30.1(a) and (b).
Regulation 194 requires producers to disclose to the purchaser “whether the . . . producer will receive compensation from the selling insurer . . . based in whole or in part on the insurance contract the producer sells.” 11 NYCRR 30.3(a)(2). (Italics added.) Compensation that is not based, in whole or in part, on the sale of an insurance contract does not need to be disclosed. “If the purchaser requests more information about the producer’s compensation . . . the producer shall disclose . . . a description of the nature, amount and source of any compensation . . . received.” 11 NYCRR 30.3(b)(1).
If the amount of the compensation to be disclosed by the producer is known, the producer may state the amount of compensation in a number of different ways. Circular Letter No. 18 (2010) (the “Circular Letter”) provides the following examples:
The Circular letter does not preclude a producer from disclosing the amount of compensation received from the sale of insurance in other ways from those explicitly suggested therein. Therefore, a producer could itemize the amount of compensation if the amount is known.
If, however, the amount of compensation is not known at the time of disclosure, the producer must disclose “a description of the circumstances that may determine the receipt and amount or value of such compensation” and “a reasonable estimate of the amount.” 11 NYCRR 30.3(d)(1) and (2). In order to meet the requirement that the producer disclose “a reasonable estimate” of the amount of unknown compensation, the producer may estimate the amount in a number of different ways. The Circular Letter again provides examples:
A producer that receives “items like shirts, lunches, pens, pads,” and other merchandise as well as entertainment as compensation based in whole or in part on the sale of insurance contracts must disclose such compensation pursuant to
For further information you may contact Assistant Counsel Jared Wilner at the New York City Office.
1 Such disclosure only pertains to life insurance and must state (1) the expected duration used (which must take account of the appropriate mortality and termination rates for the kind of policy sold), and (2) that most compensation is paid in the first year if such is the case, or that most of the compensation is paid in the first 5 years if such is the case. Circular Letter No. 18 (2010).
2 “Compensation does not mean tangible goods with the insurer name, logo or other advertisement and having an aggregate value of less than $100 per year per insurer.” 11 NYCRR 30.2(a).