In a series of court filings, the New York Attorney General’s Office and State Insurance Department argue that new rules requiring agents to disclose their pay to clients are needed to penetrate a “cloak of secrecy” that pervades over agent-client relationships.
The statements come in response to a lawsuit by two agents’ trade groups — The Independent Insurance Agents & Brokers of New York (IIABNY) and the Council of Insurance Brokers of Greater New York (CIBGNY) — that suing the state to block a new rule requiring agents to reveal their commissions to clients. That regulation —which agents argue is unnecessary and will saddle Main Street agencies with needless costs and paperwork — is set to go into effect in January.
The agents filed their suit earlier this year.
The disclosure regulations are needed to bring insurance agents and brokers business practices in line with other financial services-related professionals, and add transparency to the insurance-buying process, Deputy Superintendent Matthew Gaul said in a new affidavit filed in the case
“Insurance producers are virtually unique among financial services professionals in that they operate under a cloak of secrecy as to both the nature and extent of their compensation,” Gaul said. “Insurance agents, which by definition act as authorized or acknowledged agents for insurers, often hold themselves out to consumers as acting in the consumers’ best interests.”
Gaul also detailed numerous meetings between the department and key members of agents’ trade groups to discuss the regulations and described at length how suggestions and recommendations from those meetings were incorporated into the final regulation in order to ease any burden imposed on agents by the rule.
In another filing, Attorney General Andrew Cuomo — a leading candidate for the New York governor’s office — argued that the new regulation did not violate agents’ rights, and should be adopted.
“Boiled down to its essence, (the regulation) merely requires the producer to disclose the source of the producer’s compensation, and the producer’s role in the transaction,” Cuomo’s filing said. “Only if asked for more information, is the producer required to disclose the actual amount of compensation. It is not a radical concept for a customer to know how the customer’s representative is being compensated so that any potential or actual conflict of interest may be properly evaluated. The insurance industry is virtually unique in the financial services markets where the consumer is kept in the dark about the source, nature and amount of compensation that the consumer’s representative is receiving.”
In the filing, Cuomo added that “disclosure is an end to itself, so that insureds can better make informed decisions, not because every producer is inherently untrustworthy. To suggest that producers should not have to tell insurance customers that a potential or actual conflict of interest may exist is simply untenable.”
Reacting to the filings, IIABNY defended the lawsuit in a memo to its members, with IIABNY President and CEO Richard A. Poppa saying that “We remain steadfast in our opposition, and we look forward to presenting our response to the state’s arguments.”
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