Assemblyman Ryan Scott Karben (D/I-Rockland), a majority member of the New York State Assembly’s Insurance Committee, has introduced a legislative package on agent and broker compensation that would require disclosure and impose a standard of “reasonable care” upon producers.
Karben’s reform package comes in the wake of nvestigations by New York State Attorney General Eliot Spitzer involving contingent commisisons and charges of bid-rigging and account steering.
Karben’s insurance reform package is the first such legislative proposal introduced in New York. Karben’s proposal marks the first time insurance agents and brokers would be legally obligated to act on behalf of the customer.
“This legislation is about one thing – putting the customer first,” said
Karben at an Albany press conference.
Karben’s reform package consists of the following four bills:
A.5827 – This bill permits incentive or profit-sharing compensation
arrangements between insurance companies and agents and/or brokers in New York State, so long as the arrangement is based on the agency’s or broker’s overall performance on its book of business, based on a combination of profitability, volume, growth and/or retention. In addition, any such incentive or profit-sharing compensation arrangement must be filed annually with the New York State Insurance Department.
A.5828 – This bill states that insurance agents and brokers in New York
State have a duty to exercise reasonable care in obtaining the best terms possible for their clients. In the event that an agent or broker fails to provide a client with a proposal of the best terms and fails to obtain what would reasonably be believed to be the best possible quote, it is deemed that the duty to exercise reasonable care has been breached.
A.5825 – This bill requires that insurance agents and insurance brokers in New York State avoid any conflict of interest, self-dealing and excessive compensation. In addition, all insurance agents and insurance brokers in New York State would be required to disclose to all clients or potential clients the existence and nature of all compensation on a form devised and distributed by the New York State Insurance Department. The failure to disclose compensation received would be a violation of the agent’s or broker ‘s fiduciary duty. Any insurance agent or insurance broker who earns an annual salary from an exclusive employer in lieu of commissions is exempt from the disclosure requirement.
A.5826 – This bill requires insurance agents, brokers and producers in New York State to disclose to all clients or potential clients of the existence and nature of all compensation, including but not limited to, the source, nature, form, value and method of calculation of such compensation. Gifts of minimal value and statutory fees or expenses from compensation are exempt from the disclosure requirement. The failure to disclose compensation received constitutes a violation of the fiduciary duty of the agent, broker or insurance producers.
“This legislation will restore a sense of accountability and transparency to the insurance industry and re-establish consumer confidence in this
economically vital industry,” said Karben, “This initiative will provide the
insurance industry with clear and predictable guidelines for the conduct of their business and obviate the need for the creation of situational based ad-hoc regulations.”
“This reform package became necessary when some members of the insurance industry got too greedy and embarked on a money making scheme at the expense of the public by pulling the wool over the eyes of state regulators, and fleecing unsuspecting consumers,” Karben said, “This anti-consumer practice, which went undetected for far too long, highlighted deficiencies in the current law. This legislation will fix the shortcomings in the law and make certain that the public is provided with the proper level of protection in the future.”
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