In 2004, a joint investigation by New York insurance regulators and former New York Attorney General Elliot Spitzer leveled bid-rigging allegations against brokerages that resulted in prohibitions on contingent commissions. Since then, efforts have been made to create a broker compensation disclosure rule. Such a rule has now been published by the New York State Insurance Department, and it mandates that producers tell their clients, if asked, who is paying them and how much. The rule goes into effect January 1, 2011, and is expected to draw challenges by a number of agent organizations. The rule is designed to provide transparency by requiring agents and brokers to describe to consumers their role in a business transaction and how they are compensated.
Specifically, the regulation requires that when a consumer applies for an insurance policy, the agent or broker must explain to the consumer: (a) the agent or broker’s role in the transaction; (b) whether the agent or broker will receive compensation from the insurer based on the sale; (c) that the compensation insurers pay to agents or brokers may vary depending on the volume of business done with that insurer or its profitability; and (d) that the purchaser may obtain more information about the compensation the agent or broker expects to receive from the sale by requesting that information from the agent or broker.
Thanks to Chris O’Leary for his contribution to this post.
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