Our membership feels that the Producer Compensation Disclosure Regulation is an attack on their honesty and integrity. The majority of our membership are small business people. If we are not able to provide the proper coverage and pricing, our client can go down the block to find another agent or broker. We don’t feel that there is a consumer need for mandated disclosure, and we find that the regulation is vague and will cause difficulty for agents and brokers to comply,” said Lane Rubin, Chairman of the IIABNY, following the group’s announcement of a lawsuit to undo the Producer Compensation Disclosure Regulation.
The Independent Insurance Agents & Brokers of New York will proceed aggressively to stop the New York Insurance Department’s Producer Compensation Disclosure regulation from taking effect. The final version of the Department’s regulation, published in the February 10 edition of the New York State Register, requires insurance producers to disclose to their clients information about how insurance companies compensate them, from incentives and bonus commissions to trips and gifts and more. It is scheduled to take effect on January 1, 2011.
The final rule includes revisions to the original proposal that the Insurance Department published on December 2, 2009. When the Board of the IIABNY received an advance copy of the final rule, the group deliberated for several hours at its quarterly business meeting on February 8th in Albany. “While recognizing that the department made some positive changes, the board concluded that the rule would place an undue burden upon members for no justifiable reason,” an IIABNY press release stated. IIABNY plans to challenge the Insurance Department’s authority to promulgate the regulation. NYSID responded to the Insurance Advocate:
“This regulation protects consumers and their right to receive the information they need when making important financial decisions. We are confident in our legal authority to promulgate the regulation and look forward to aggressively defending it in court if necessary.” Andy Mais, Director of Public Affairs - NYSID.
“Unanimously and Vociferously..”
In announcing IIABNY’s intention to fight to block the rule, the Syracuse based Association’s president and CEO Dick Poppa said, “IIABNY has a responsibility to represent and to protect the interests of its members, and our members have unanimously and vociferously told us that this rule is unnecessary, ineffective and overly burdensome to their businesses. We cannot sit back idly and let the department impose an unnecessary rule that will only serve to add another time-consuming and costly requirement for our members, which in turn could also result in additional costs to consumers.”
The announcement comes after months of negotiations between IIABNY and several other producer associations and the Insurance Department to make the final rule less onerous for producers. The trade group expects to launch the formal legal action soon.
Other associations have not indicated whether or not they will join the suit or whether they favor the tactic. Some have opined privately that there may be a legislative remedy available to the producer community. Each has claimed successes— and not without reason—in gaining concessions in the regulation. It is quite different in some particulars from the original, but the essential requirement remains.
“It’s why we pay dues…”
The Insurance Advocate conducted a quick, unscientific and informal phone and in person survey of twelve agents, of whom five are IIABNY members. The other seven we reached are members of other trade groups. Three are life agents. They responded on the assurance of anonymity, as some are past officers of the different producer groups and others feared having their names “out there” or “in the Department’s face.” Each agent was asked if he felt a) that the regulation would be substantially harmful to his practice; b) that the undertaking of a lawsuit by the IIABNY was a good idea.
Each one agreed that the measure would be “onerous”, “harmful”, “bad for clients and agents”, “a good reason to retire” specific frustration that the lobbying power of the industry groups had not succeeded. One LI agent, who is a member of two of the groups, stated: “We have always played nice and hoped the legislators and the Department would like us and work with us, but now, the truth is we need to get tough like the other lobbies in Albany do, like the unions and the lawyers.” Another agent who has multiple locations noted that monitoring staff disclosure compliance would be “next to impossible”, exposing his agency to Department fines and to possible E&O problems.”
To the question of IIABNY’s suit, 10 of the 12 either applauded or were “OK” with the aggressive move. Two held that the Department might visit stricter enforcement on agents as a result of the lawsuit and one agent felt that the legislative route might be more prudent (“safer”). Agents opined that: “It’s why the Association exists, it’s why we pay dues— to protect us, period.” “If IIABNY and the others just let this sit there, I believe agents would get together and find another way to go—it’s bad—-I am glad they are standing up.” “I think we spend a lot of money on things like education, events and on the staff and the lobbyists , but this is what counts. I hope the Big ‘I’ wins big.” “What other serious alternatives do we really have to make sure that this is stopped? Depend upon the legislators?”
As to the cost of the suit, the likely outcome and the arguments upon which it will rest, the answers will be presented in these pages as soon as they are available.
Not everyone agrees
On the flip side of the IIABNY view, one industry group feels the regulation does not go far enough. The Risk and Insurance Management Society, Inc. (RIMS) announced its “disappointment” with the Department’s final regulation “with regard to both policy and process.” The Society issued a press statement that stated: “The final regulation represents a 180 degree shift from previous versions, in terms of its commitment to consumer protection for renewals. It also contains diminished disclosure requirements for producers. Due to the substantive changes between the most recently published revision and the final rule, RIMS calls on the Department to reopen its public comment period for an additional 30 days.”
RIMS is a not-for-profit organization representing more than 3,500 industrial, service, nonprofit, charitable and government entities globally with nearly 10,000 risk management professionals, 85 percent of whom work for Fortune 500 companies or corporations.
“Consumer organizations have not had the opportunity to digest these additional changes and comment upon them,” says Scott Clark, director of RIMS External Affairs Committee and risk and benefits officer for Miami-Dade County Public Schools. “The previous revision had reinstated the disclosure requirements for most renewals so the reversal would appear to warrant another comment period.The intent of the rule, as it was initially presented, was to bring greater clarity and certainty to the insurance purchase transaction in order to protect consumers. While this objective was a positive first step by the Department; each subsequent revision has diluted the original intent and has resulted in the final rule that falls short of complete and mandatory disclosure, for which RIMS has been a long-time advocate,” he said. “If New York returns to a policy that permits contingent fees on a wide scale basis, smaller consumer entities, in particular, would be subject to a lack of complete transparency of producer compensation as a piece of the insurance purchase transaction. That could give rise to the same conflict-of-interest concerns that the proposed rule was meant to address. While RIMS will continue its mission of educating consumers, the published rule potentially puts many at a disadvantage when dealing with producers,” says Clark, concluding: “RIMS believes the Department should permit another comment period so that affected parties might once again have an opportunity to be heard.”
Article 78- what it provides
An Article 78 proceeding is named after Article 78 of the New York Civil Practice Laws and Rules. Relief that was previously obtained by writs of certiorari to review, mandamus or prohibition can be obtained in a proceeding under this article. However a proceeding under this Article shall not be used to challenge a determination that is not final or one that is made in a civil action or criminal matter unless it is an order summarily punishing a contempt committed in the presence of the court. A proceeding under this Article being a special proceeding can be brought only in the Supreme Court of the County. The following are the questions that can be raised in a proceeding under this article :
- whether the body or officer failed to perform a duty enjoined upon it by law; or
- whether the body or officer proceeded, is proceeding or is about to proceed without or in excess of jurisdiction; or
- whether a determination was made in violation of lawful procedure, was affected by an error of law or was arbitrary and capricious or an abuse of discretion, including abuse of discretion as to the measure or mode of penalty or discipline imposed; or
- whether a determination made as a result of a hearing held, and at which evidence was taken, pursuant to direction by law is, on the entire record, supported by substantial evidence.
The expression “body or officer” includes every court, tribunal, board, corporation, officer, or other person, or aggregation of persons, whose action may be affected by a proceeding under this article. Whenever necessary to accomplish substantial justice, a proceeding under this article may be maintained against an officer exercising judicial or quasi-judicial functions, or member of a body whose term of office has expired. Any party may join the successor of such officer or member of a body or other person having custody of the record of proceedings under review. On the motion of any party or on its own initiative, the court can stay further proceedings, or the enforcement of any determination under review upon terms including notice, security and payment of costs. However the enforcement of an order or judgment granted by the appellate division in a proceeding under this article may be stayed only by order of the appellate division or the court of appeals. The judgment may grant the petitioner the relief to which he is entitled, or may dismiss the proceeding either on the merits or with leave to renew. If the proceeding was brought to review a determination, the judgment may annul or confirm the determination in whole or in part, or modify it, and may direct or prohibit specified action by the respondent.
“Tick Tock…”
The cover of our December 14th issue was headlined “Tick Tock Tick Tock” signifying the public comment period’s time elapsing for review of the regulation. That time elapsed and so did the publication period.
Now, it seems that the IIABNY has just rewound the clock
