A New York state rule requiring insurance brokers to disclose who is paying their commissions was upheld last week by an appellate division of the New York State Supreme Court.
The court’s ruling involves Regulation 194, issued by the state’s Insurance Department in 2010, which requires insurance brokers or agents to inform customers of their role in insurance sales, as well as any compensation they will receive from the insurer or a third party, and any factors that impact that compensation. The Council of Insurance Brokers of Greater New York, the Independent Insurance Agents & Brokers of New York and other groups challenged the rule in court, arguing that the Insurance Department didn’t have the authority to issue it and that there was no “rational basis” for the rule.
The appeals court affirmed a 2010 decision by the State Supreme Court in Albany that the rule was valid. The appeals court said that the department had the necessary authority and the bid-rigging scandal that was kicked off by a 2004 probe by then-New York State Attorney General Eliot Spitzer demonstrated a “rational basis” for the rule.
“The investigation demonstrated that insurance producers regularly receive incentive-based compensation from insurers, and that these payments influence producers’ recommendations to their clients,” Acting Presiding Justice Thomas Mercure wrote in the court’s opinion. “From 2005 to 2007, the Attorney General entered into settlement agreements and regulatory stipulations with a number of major insurers and brokers, resulting in more than $1 billion in compensation paid to consumers harmed by bid-rigging and improper steering.”
The Risk and Insurance Management Society (RIMS), which represents corporate buyers of insurance, applauded the court’s decision. “Consumers deserve the same transparency and information from their insurance brokers that is required of any other financial entity in order to make intelligent purchasing decisions,” Daniel Kugler, RIMS’ external affairs committee board liaison, said in a statement. “RIMS strongly believes that these disclosures will eliminate the inherent conflict of interest posed by contingent fee arrangements, enhance the relationship between brokers and consumers, ultimately benefiting all risk practitioners by creating a more efficient and accurate insurance marketplace.”
Christopher A. Brassard, chairman of the board of the Independent Insurance Agents & Brokers of New York, said in a statement that the group “still believes that Insurance Regulation 194 is a burdensome, unnecessary regulation that imposes new duties on insurance producers beyond those in existing law.”