The Insurance Advocate has opined that the regulation should be withdrawn in its present form. Meanwhile, the Independent Insurance Agents and Brokers of New York has threatened a lawsuit against the Insurance Department, to undo the proposed rule. The Professional Insurance Agents of New York has communicated with its members indicating that, some changes to the regulation have been made, the rule still presents concerns for professional insurance agents, “especially in the area of compliance”.

An Alliance of Life Insurance interests has endeavored to distinguish itself from the property casualty agents cause and from the regulation itself, arguing that the rule seeks to reduce actions of P/C brokers and need not touch upon the Life side (see related article).

IIABNY reports that although the group has argued that a compensation disclosure rule is unwarranted, it has nevertheless worked with the department to mold it. According to IIABNY President and Chief Executive Officer Richard A. Poppa, “We ultimately believe this rule is not necessary. However, we have worked with the department on it throughout this year. We continue to seek a reasonable approach that should a regulation take effect, gives consumers value while minimizing the burdens on producers.”

“Throughout this process,” Poppa added, “IIABNY has worked with other insurance industry groups, and we will continue to do so, on any legal challenge.”

IIABNY’s letter to the Superintendent denounced the mandate that a producer disclose to the insurance buyer whether he is acting as a legal representative of the buyer or of the insurance company. “This provision of the Proposed Regulation,” the letter said, “requires that producers evaluate complex legal concepts and then make legal conclusions that even the judiciary has struggled with.” It also faulted the rule for assuming that all agents and brokers have incentives to place clients with unsuitable companies, despite the possibility of punishment under existing law. It noted that some groups with the same potential conflicts of interest are exempt from the rule. It also warned that the rule would result in higher costs, may promote illegal rebating of premiums to clients, and improperly focus buyers’ attention on payments to producers rather than the quality and price of their coverage.

“Unfortunately,” the letter concluded, “unless the Proposed Regulation is withdrawn, we will have no alternative but to seek redress in the court system to challenge the Proposed Regulation and any efforts to adopt a similar regulation.” Mathew Gaul, special counsel for the Insurance Department reportedly said, “We are surprised that what we viewed as least controversial aspect of the disclosure has prompted a threat of a lawsuit—the requirement that agents and brokers clearly explain who they rep in a transaction. For years the Big I (IIABNY’s national association) members have said they are the “Trusted Choice” for consumers; what they apparently don’t want to tell their customers is that in most transactions, they represent the insurance company.” Gaul is quoted in a National Underwriter online report (Dec. 3. 12:48 EST).

PIANY has not indicated its interest in pursuing a lawsuit to date. Kevin Ryan, its President, wrote in the Insurance Advocate on November 17th. “From the beginning, PIA applauded the prosecution of acts that stained our industry’s reputation and, the association argued that honest, professional Main Street agents should not be penalized for the illegal acts of those charged with illegally rigging bids and steering business and who now seek to change the market in their favor. PIA testified and reiterated that contingent commissions are legal and effective compensation for producers that benefit both New York’s consumers and economy. And courts confirmed the legality of contingent commissions. Further, PIA contended, nobody—not a single consumer, has issued a complaint or put forward the absurdity that New York’s insurance buying public is unaware that independent agents, or any American salesperson for that matter, makes a living by selling their product.

But the confusion persisted. In an atmosphere that seemed obsessive, insurance regulators, many of whom had moved from the AG office to the NYSID, continued to blur the lines, and called for public meetings, inviting complaint that never materialized. Ultimately regulators insisted that independent agents should be required to disclose that they are compensated by carriers for the work they do. All this time, PIA has held adamantly that mandated disclosure is unnecessary, unfair and burdensome to agents. We do not believe it helps New York’s insurance buying public and the idea that anyone is unaware that independent agents are making a living when they go to work is downright ridiculous.”

According to PIANY the latest version of the proposed regulation incorporates two substantial changes that PIANY advocated for on behalf of its members:

1. Compensation limited to quotes “presented.” The new draft requires producers to disclose information about compensation expected to be received in connection with quotes “presented,” rather than quotes “obtained” (Section 30.3(a)(4) and (b)(2)). This represents the adoption of a change suggested by PIANY and would take a substantial step in reducing the burdens upon producers attempting to comply with any new disclosure requirement.

2.Recordkeeping limited to 30 days. The draft permits a purchaser to request information about a producer’s compensation for up to 30 days, rather than three years, after issuance of the contract upon which the compensation was based. Commensurate with this shortened time frame, the new draft also requires the producer to provide the requested information within five business days, rather than 30 days, after the request for information is received. This change also represents the adoption of a change suggested by PIANY and would take a substantial step in reducing the recordkeeping burdens upon producers attempting to comply with any new disclosure requirement, according to the PIANY’s letter to members.

The clock is ticking as agents swing into communications blitz mode, led by their associations. The matter is far from resolved. -SA

Life Insurance Producers Set Action as Deadline Looms

Immediately following the posting of the regulation on the public registry on December 2nd, a Coalition of Life Insurance Associations began a grassroots electronic letter writing campaign to Senator Breslin, Chairman, Senate Insurance Committee, Senator Seward, Ranking Member, Senate Insurance Committee, Assemblyman Morelle, Chairman, Assembly Insurance Committee, Assemblyman Barclay, Ranking Member, Assembly Insurance Committee, and Matthew J. Gaul, Special Counsel, NYSID. Within the first 72 hours of the posting of the regulation, the NAIFA – New York generated 5,000 e-mail letters to the intended recipients, according to the team’s leader David A. Dreifuss, JD, MBA, President & CEO, The Alliance of Insurance & Financial Professionals, Inc. Dreifuss, who communicated with this publication during late and weekend hours, orchestrated a yeoman team effort to defeat the Law vis a vis the life sector.

The thinking of the life sector—that is, to distinguish its producers and their position from the P& C producers the regulation originally sought to redress— is clear from the letters that follow.

Dear Superintendent Wrynn:

As a unified voice of life insurance agents who practice in and serve the residents of New York, NAIFA – New York State*, NAIFA*, and AALU* submit comments and request your assistance on NYSID Proposed Regulation No.194, Producer Compensation Transparency. Specifically, we urge you to remove life insurance products (life, annuities, long-term care and disability) from the scope of the proposed regulation, or, if included, provide that required disclosure will consist only of notification to customers that producers represent insurers in selling insurance and receive compensation based on sales. We make this request for the following reasons:

1. The proposed regulation emerged from past problems on bid-rigging and steering in the property casualty arena, and no problems have been identified in the life insurance product marketplace.

2. If a steering problem were to emerge, the proposed regulation would do nothing to address it.

3. The proposed regulation would provide no benefit to consumers, but would decrease sales, decrease financial protection, increase unemployment, hurt the state economy, and increase the burden on state government programs.

I. No Problem in Life Insurance Product Sales: In nearly eighteen months since hearings were first held, there have been no findings that there is any problem of steering or any other abuse in the life insurance product marketplace. We have no opinion whether it is appropriate to broaden regulatory oversight to all property-casualty producers beyond the specific restrictions imposed on several PC carriers or firms in the aftermath of bid-rigging issues in the PC arena in 2004.

II. If Future Steering Were to Emerge in this Marketplace, the Proposed Regulation Would Not Address It: Requiring producers who are asked by customers to provide the amount of their compensation for the product recommended, and any alternatives considered, would not be a deterrent to producers who would act against their customers’ interest. Such producers could simply recommend and consider only products which pay the highest compensation.

III. The Proposed Regulation Would Not Provide a Benefit to Consumers, Would Decrease Sales, Decrease Financial Protection, Increase Unemployment, Hurt the State Economy, and Increase the Burden on State Government Programs: The chief problem with proposed regulation 194 is that it would require producers to “prompt” customers to request specific information about the producers’ compensation. The prominent focus on producer compensation would create another barrier to an already extremely difficult process; specifically, getting customers to focus on meeting their financial needs related to death or retirement and make sacrifices by setting aside money to address these needs, rather than spending it. The specific harmful results that the proposed regulation would have are outlined below.

HARMFUL IMPACT OF PROPOSED REGULATION

• There would be a drop in coverage and fewer New Yorkers would be prepared for their financial needs due to death or retirement.
• Reductions in life insurance product sales would lead to greater unemployment because of job loss among the current 85,000 New Yorkers employed by the life insurance industry.
• The life insurance field force would also shrink. New agents particularly, would have difficulty overcoming concerns brought on by “prompts” of producer compensation disclosure. To lessen the negative impact, commissions would be spread over a longer period of time, making it harder for new agents to survive the first few years in the business.
• Fewer producers would necessarily lead to decreased financial protection and service to middle and lower income New York residents because remaining agents would focus on more affluent customers. • The decrease in life insurance sales, loss of jobs, declining size of the life insurance field force, and increase in New Yorkers without financial protection will hurt the state economy and further burden state entitlement and other programs.

In summary, the proposed regulation would solve no existing problem, would not provide any meaningful benefit to customers, but instead would reduce financial protection, increase unemployment, and hurt the economy. For the reasons above, it is critical that the Department remove life insurance products from the scope of the proposed regulation, or, if included, provide that required disclosure will consist only of notification to customers that producers represent insurers in selling insurance products, and receive compensation based on sales. Finally, due to the vital issues at stake on this issue, we are also providing copies of our comments to key state legislators responsible for oversight on insurance matters.

Sincerely,

David J. Reedy, CLU
NAIFA-NYS President
Thomas D. Currey, CLU, ChFC, LUTCF NAIFA President
Robert R. Carter, CLU, ChFC
AALU President

cc: The Honorable Neil Breslin
David A. Dreifuss, JD, MBA
The Honorable James Seward
John J. Healy, CAE
The Honorable Joseph Morelle
Ken Kies
The Honorable William Barclay
Tom Korb
Wendy Burns
Robert A. Miller
Matthew J. Gaul
Nathan M. Perlmutter, CLU, ChFC
Bill Anderson
David J. Stertzer, FLMI
Marc Cadin
Mark Yavornitzki, CAE

• * NAIFA – New York State and its members are continuing a 91 year tradition of upholding the highest ethics of their profession, and take pride in assisting their clients in making important financial decisions on issues ranging from asset management, growth of net worth, employee benefits, retirement and elder planning, life, health, long term care and disability insurance planning, college funding, and business, succession and legacy planning. Visit NAIFA-NYS website at www.naifanys.org.
• * NAIFA comprises more than 700 state and local associations representing the interests of approximately 200,000 agents and their associates nationwide. NAIFA members focus their practices on one or more of the following: life insurance and annuities, health insurance and employee benefits, multiline, and financial advising and investments. The Association’s mission is to advocate for a positive legislative and regulatory environment, enhance business and professional skills, and promote the ethical conduct of its members. Visit NAIFA’s website at www.naifa.org.
• * AALU is a professional trade association representing 2,000 life insurance agents and professionals nationwide, who have significant expertise and are industry leaders in helping individuals and businesses utilize life insurance in estate planning, charitable planning, business continuation planning, retirement planning, deferred compensation and employee benefit planning. The mission of AALU is to promote, preserve and protect advanced life insurance planning for the benefit of its members, their clients, the industry and the general public. AALU’s website can be accessed at www.aalu.org.