Imagine a regulation that, implemented for the purpose of protecting consumers, actually has the opposite effect.
That’s the likely result of the New York State Insurance Regulation 194, which takes effect on January 1, 2011. An outgrowth of a 2004 investigation into certain mega-brokers by then-New York Attorney General Elliot Spitzer, the rule ratchets up compensation disclosure requirements for agents and independent brokers licensed to do business in the Empire State.
If Reg. 194 withstands a current court challenge, producers can expect to devote a lot more time and resources on client cases to remain in compliance. Indeed, as some fear, the rule may be so burdensome as to prompt significant numbers of small and mid-size agencies to leave the business. Upshot: Fewer producers selling life insurance, particularly to the already underserved middle market; and a rise in the number of uninsured consumers.
The Specifics on 194
Can a regulation designed to enhance compensation transparency really be so bad? Given the onerous two-step process, I don’t see how one can conclude otherwise.
In step 1, producers selling a policy have to disclose (verbally at or before the time of application; and in writing when the contract is issued): (1) a description of their role in the sale; and (2) whether they will receive compensation from the selling insurer or other party based on the sale.
Then they have to indicate whether the compensation might vary with the type of contract, the insurer, the volume of business they give the insurer and the profitability of their own practice. Plus, buyers have to be told they can ask for more information about compensation on the recommended policy and on any alternative quotes given.
If the buyer requests more information about compensation–Heaven forbid–then step 2 kicks in.