David A. Paterson
James J. Wrynn
The Office of General Counsel issued the following opinion June 2, 2010, representing the position of the New York State Insurance Department.
Re: Regulation 194 Disclosure
Does the language set forth below satisfy the disclosure requirement set forth in Regulation 194?
Yes. The language set forth below satisfies the disclosure requirements set forth in Regulation 194.
The inquirer reports that he represents an association of professional insurance agents. The inquirer asks whether the following language comports with the disclosure requirements set forth in § 30.3 of Regulation 194:
[The Producer] is an insurance producer licensed by the State of New York. Insurance producers are authorized by their license to confer with insurance purchasers about the benefits, terms and conditions of insurance contracts; to offer advice concerning the substantive benefits of particular insurance contracts; to sell insurance; and to obtain insurance for purchasers. The role of the producer in any particular transaction typically involves one or more of these activities.
Compensation will be paid to the producer, based on the insurance contract the producer sells. Depending on the insurer(s) and insurance contract(s) the purchaser selects, compensation will be paid by the insurer(s) selling the insurance contract or by another third party. Such compensation may vary depending on a number of factors, including the insurance contract(s) and the insurer(s) the purchaser selects. In some cases, other factors such as the volume of business a producer provides to an insurer or the profitability of insurance contracts a producer provides to an insurer also may affect compensation.
The insurance purchaser may obtain information about compensation expected to be received by the producer based in whole or in part on the sale of insurance to the purchaser, and (if applicable) compensation expected to be received based in whole or in part on any alternative quotes presented to the purchaser by the producer, by requesting such information from the producer.
Regulation 194 was promulgated on January 25, 2010, and goes 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 insurance 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 insurance producers and the compensation paid to insurance producers.
Section 30.3 of Regulation 194 addresses disclosure of producer compensation, ownership interests and role in the insurance transaction. That section provides:
(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 selling an insurance contract must disclose to the purchaser the four items set forth in § 30.3 of Regulation 194. The language that the inquirer has provided squarely addresses those four items, and therefore satisfies the requirements of the regulation.
For further information you may contact Paul A. Zuckerman Assistant Deputy & Counsel at the New York City Office.