The New York Insurance Department has begun the regulatory promulgation process by filing its proposed “Producer Compensation Transparency” regulation with the Governor’s Office of Regulatory Reform (GORR). The regulation is not final and will be subject to a public comment period before the Department would have the right to adopt it. The move is significant as it marks an end to the Department’s informal discussions with industry representatives over the regulations more controversial provisions.
The regulation has come a long way since the Department initially “floated” a draft earlier this year. The initial draft raised the ire of just about the entire insurance industry and had industry state representatives running to the state legislature for protection. However, after many hours of discussion and suggestions between the industry and Department staff, a significantly better regulation has been developed.
However, that does not mean the industry is completely satisfied with the provision.
Notably, the regulation provides the following:

• A client will be able to ask for compensation information on a contract after it is issued.
• In cases where a producer does not know how much compensation they will receive on the account a “reasonable estimate of the amount of value” can be given.
• Producers are prohibited from “contradicting the disclosure requirements” or making “knowingly inaccurate statements” about the producer’s role in his or her compensation.

Matthew Guilbault of the Professional Insurance Agents of New York (PIANY) stated that “overall, we are pleased with the draft” and that there has been “substantial and significant changes since the initial draft which eliminated several “burdensome and onerous” requirements. However, some industry personnel are not pleased with what they call the “teaser” provision which requires that the disclosure include a provision that “the purchaser may obtain information about the compensation expected to be received by the producer for the sale and for any alternative quotes obtained by the producer by requesting such information from the producer.” (See 11 NYCRR Sec. 30.3(a)(4) as proposed). If the request for more information is made prior to the issuance of the insurance contract the disclosure must contain a “description of the nature, amount and source of any compensation to be received by the producer or any parent, subsidiary or affiliate based in whole or in part on the sale.”
Many feel that the “teaser” will essentially prompt a purchaser to ask for the information and that the information provided will become an undue distraction from the actual insurance transaction. Insurance producer compensation arrangements can become complicated and are somewhat unusual from other forms of producer compensation in other industries due to the unique nature of the insurance product. Consumers receiving information such as the type required by the regulation, without any context describing the economic realities of the insurance business may become angry or upset and the producer compensation amount disclosed. This could hinder the transaction, and prevent a consumer from purchasing much needed insurance.
It is hard to say what will happen with the regulation from here. The Department has shown that it will listen to industry concerns and has significantly changed the regulation from its more troublesome initial form. However, even in its current form, the regulation significantly changes the circumstances surrounding insurance transactions, and has the potential to alter the nature of the relationship between producer and purchaser. My friend George has been my insurance agent for nearly twenty-five years. I have always trusted him to advise me on my insurance purposes. I have always known that I did not compensate George directly and that he received his compensation from the company. I have always thought that was the only important fact that I needed to know. Would my relationship with George change if I knew exactly how much he made on my purchase? Do I really need to know that information as long as I am happy with the product and its price? Could I resist the temptation to find out how much he made off me?
I don’t know the answer to all of those questions. I may know after my next insurance purchase. What I do know is that producers all over New York are asking themselves the same questions about the people they sell insurance to.

AIG Back in Greenberg’s Hands?
You can only imagine my surprise as I read the paper on the balcony of my hotel room, looking into the controlled environment confines of the massive Gaylord National Harbor Resort, as I read that the United States Congress was seriously considering bringing Maurice “Hank” Greenberg back to AIG to restructure the provisions of the federal bailout. I have reminded many of my fellow attendees at the fall meeting of the National Association of Insurance Commissioners (NAIC) that it was I, in this column last November, who suggested that we would all feel better about AIG’s chances if Hank Greenberg was back in charge.
It appears since April of this year, that Greenberg has been quietly (as quietly perhaps as Hank G can be) convincing members of Congress that his “10 point” plan for restructuring the bailout and saving AIG is the best way to go to pay back to the people of the United States the more than $150 Billion dumped into AIG so far. His plan basically calls for the reduction of the federal ownership of the company, splitting off the Financial Products Division FPD from the rest of the company, and asking banks, who received billions from AIG as payments on the bad credit default swaps written by the FPD, to return some of that money in exchange for an equity stake in the company. The plan also extends the repayment period from five years to up to 20 years. The market reacted very favorably to the news that Greenberg might be back, sending the price of AIG stock up 21% in one day after Washington lawmakers announced that they would back his restructuring plan. Greenberg himself saw his AIG holdings increase some $588 million in value. Edolphus Towns (D-Brooklyn) the head of the House oversight panel monitoring the AIG bailout announced that he would recommend to Treasury officials that they implement Greenberg’s plan.
Greenberg caused quite a stir in April of this year when he testified before the oversight panel and boldly stated that the entire federal bailout effort was “unnecessary” and that the best way to handle the AIG collapse was to have it file for bankruptcy protection in federal court. He disputed the notion that if the federal government didn’t infuse so much capital into AIG that its collapse would have not have created economic havoc. He said an AIG bankruptcy would have created a “ripple”, not a “catastrophe”. Many in Congress that day had trouble believing his additional assertion that his leadership played no role in the AIG collapse. Nonetheless, five months later, Congress appears interested in taking his advice.
For Greenberg, the latest news must be somewhat of a vindication after all that has been written about him in the past four years. However you may feel about him, it appears that the hopes and dreams of all New Yorkers for a comeback in our financial services industry now ride, in large part, on his shoulders. A vibrant and healthy AIG could go a long way to restoring the New York economy to its prior greatness and, in turn, solving a lot of the State’s financial problems. In that effort we all must wish him well. All he has to do now is deliver on the substantial promises he has made. He’s done it before.