February 11, 2010 

Written By Attorneys: William Dirk Pastorick, Kymberly Kochis and Ashley Lauren Farnschlader

This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

The New York Insurance Department recently implemented a new regulation that will require all insurance agents and brokers conducting business in New York to inform clients how they are compensated. Under this regulation, all monetary compensation, trips, prizes and other gifts received in connection with the sale of a policy of insurance must be disclosed to a client prior to the issuance of a policy. These regulations are intended to protect clients' interests by eliminating any conflict of interest created by compensation received by agents and brokers from sales of insurance policies. The regulation does not apply to agents or brokers who have no direct contact with a client and only applies in limited circumstances for policy renewals.

Specifically, the regulations require that when a client applies for an insurance policy, the agent or broker must explain the following:

• the role of the agent or broker 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; and
• that the purchaser may obtain more information about the compensation the agent or broker expects to receive from the sale from the agent or broker.

This revolutionary disclosure regulation comes in the aftermath of the New York Insurance Department's investigation of policy purchase "steering" by major insurance companies and is meant to discourage future similar actions. This move towards increased consumer awareness in New York will undoubtedly have its fair share of critics, as it has opened the inner workings of the insurance industry's compensation structure to public scrutiny.

These disclosures are mandatory for all agents and brokers beginning January 1, 2011.

NLdh is prepared to assist agents and brokers in their compliance with the disclosure regulation. For more information contact Dirk Pastorick at dpastorick@nldhlaw.com or Kym Kochis at kkochis@nldhlaw.com.

A complete copy of the Regulation can be found here.