Think you’ve got too many consumer disclosures to deal with? Well, get ready for a new one. If you operate in New York, you will be required to become more transparent about compensation. According to the state’s insurance department, producers in its jurisdiction must explain the following at the time consumers apply for insurance:
- The agent or broker’s role in the transaction.
- Whether the agent or broker will receive compensation from the insurer based on the sale.
- That the compensation insurers pay to agents or brokers may vary depending on the volume of business done with that insurer or its profitability.
- That the purchaser may obtain more information about the compensation the agent or broker expects to receive by requesting it from the agent or broker.
If consumers ask for more information, producers must then provide a more detailed written disclosure.
“This regulation protects the interests of consumers while allowing agents and brokers flexibility in how they present compensation information,” said James J. Wrynn, the state’s insurance superintendent. “Disclosure will help increase the trust and confidence consumers should feel when buying insurance.”
Efforts to bring greater transparency to insurance began in 2004 with a joint investigation by the insurance department and the New York attorney general’s office. Since then, the department has held hearings and discussed the issue with consumer groups, trade associations and government officials, among others.
Although the new regulation was published early in February, it will not take effect until January 1, 2011.
It’s hard to know if compensation disclosure will spread to other states. But even if it doesn’t, there probably will be more discussion of compensation in the media, especially of commission options that help agents but hurt consumers. As a cautionary measure, advisors may wish to reconsider their use of such arrangements.