3-13-09 NY Reg comment prod comp FINAL

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Informations

• Publié par: Aprea
• Nombre de lectures: 17
• Langue: English

Extrait

March 13, 2009

Eric R. Dinallo, Superintendent New York State Insurance Department 25 Beaver St. New York, NY 10004

RE: DRAFT 1/29/09 NYSID REGULATION: (11 NYCRR 30) PRODUCER COMPENSATION TRANSPARENCY Dear Superintendent Dinallo: Thank you for the opportunity to review and offer our comments regarding the department’s draft producer compensation disclosure regulation. We appreciate the opportunity to meet with your staff to further discuss a large number of specific concerns our members have with the draft regulation. Moreover, we appreciate the opportunity to participate in the working group discussions organized by your staff relative to this issue. As we indicated in our initial correspondence regarding this matter, we completed a comprehensive line-by-line review of the draft regulation and outlined a number of issues of concern to insurance producers. Moreover, in response to the invitation of your staff to respond with draft language specifically addressing our concerns, we submit our detailed concerns and suggestions for your consideration as an attachment to this correspondence.

From the outset, however, we feel it incumbent upon us as representatives of insurance producers across New York state to identify and address a few fundamental points of disagreement between ourselves and the department relative to the need for disclosure generally. I will address these in a point-by-point fashion.

1) That a problem exists and, therefore, mandatory disclosure is necessary and good for the consumer. PIANY, and the agent community generally, fundamentally disagrees with this conclusion and points to the absence of evidence supporting this conclusion. We submit that the disclosure set out in this draft (and arguably any type of disclosure mandated by the department) is not proportionate to any documented harm resulting from the market conduct of Main Street-level agents or brokers. In fact, as we’ve pointed out repeatedly, the department has not offered to document any harm relative to the actions of Main Street agents and brokers that would be proportionate to the adoption of a widespread disclosure mechanism. Therefore, we believe it is incumbent upon PIANY to reiterate our position that the department’s move toward mandated disclosure is neither supported by its holding out a clear remedy to any documented harm to consumers, nor is it currently required expressly by law, since commissions are being paid from the companies to the producers and not by policyholders. - continued -

Letter to Superintendent Dinallo: RE: Draft 1/29/09 NYSID Regulation: (11 NYCRR 30) Producer Compensation Transparency March 13, 2009

2) That requiring disclosure in a written format would not raise the consumer’s perception of the importance of compensation above the benefits, cost and coverage aspects of the policy. Again PIANY, and the agent community generally, disagree with this conclusion. Regardless of where in the transaction this disclosure is mandated, the very fact that disclosure of producer compensation is required would suggest to the consumer that compensation is somehow more important than other aspects of the policy. We strongly believe that this would do a disservice to consumers by distracting them from the pertinent protection aspects of the policy that should be considered when making a purchasing decision. This focus is made all the more troublesome when disclosure is required to be specific as to dollar amounts and the allocation of future (and oftentimes uncertain) compensation is required to be specifically allocated to individual policy placements.

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3) That an inherent conflict of interest exists with independent producers regarding compensation, and that they steer policies because of this. PIANY strongly disagrees with both these conclusions. The idea that an insurance agent or broker would seek to increase the cost of their customers’ insurance is a formula for business failure. The high level of competition inherent in the insurance marketplace provides a reliable “check” against any incentive for producers to act in anything other than the best interests of the consumer. The insurance industry is an intensely competitive business, and this level of competition effectively safeguards consumers. Moreover, in the current market few, if any, risks exist without competition. As long as an insurance agency has to compete for business, there is no perceived or actual conflict created by having performance-based compensation arrangements. Because of widespread competition and the number of choices available to the consumer, there is no inherent advantage in trying to place business in anything but the most appropriate and competitive market. This results in lower premiums and better coverage for the consumer.

4) That consumers are interested in this data. Again, PIANY disagrees with this premise. In fact, all evidence in the course of our members’ business experience suggests the contrary. Producers have repeatedly testified that they are not asked for this information and that consumers understand that producers are compensated by the carriers. Nonetheless, regardless of whether a consumer thinks producer compensation is an important consideration when entering a producer’s office, it certainly will come to be considered an important aspect— perhaps to the exclusion of the truly important aspects of the policy that should form the basis of the consumer’s decision— if producers are required to disclose this information.

5) That the illegal acts of the mega-brokers are equally applicable to small independent agents. PIANY believes this is the fundamental misconception that leads regulators to the conclusion that disclosure is necessary. Main Street independent agents simply do not have the market share to illegally manipulate the market the way the large brokerages did. One must remember that it wasn’t market- standard contingent income that was the problem, it was the illegal bid rigging scheme. From the viewpoint of law-abiding agents and brokers, just because some brokers were caught being greedy and engaging in illegal behavior does not mean that law-abiding professionals should pay the penalty. Finally, we note that there was a sufficient body of existing law making market manipulation illegal, as - continued -

Letter to Superintendent Dinallo: RE: Draft 1/29/09 NYSID Regulation: (11 NYCRR 30) Producer Compensation Transparency March 13, 2009

evidenced by the cases brought by the Attorney General; therefore, we believe there is no need for burdensome, additional regulation.

We sincerely hope that you will take these comments into consideration. Moreover, we look forward to meeting with you and your staff to further discuss the issues and concerns of our members relative to this undertaking.

Sincerel ,

D. SCOTT LIEBERT, CIC President

cc: Kermit Brooks Robert Easton Matthew Gaul Steve Nachman

Encs. Drafting recommendations Detailed comments on the 1/29/09 draft

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(What follows are drafting recommendations from PIANY, provided in response to the invitation of the Insurance Department to submit specific language capturing the substance of various issues that have been discussed relative to the draft published by the Department dated 1/29/09. PIANY must state, as a disclaimer, that the Association does not favor adoption of a regulation requiring mandatory disclosure; however, PIANY’s leadership has authorized staff to work with the Department to the extent of submitting specific feedback on the wording of the 1/29/09 draft and the additional discussion items that have surfaced during the Working Group meetings.— PIANY Government Affairs staff) (Proposed deletions from the draft appear with strike-throughs; proposed additional language appears with underlining.) Draft 3/11/09 NEW YORK STATE INSURANCE DEPARTMENT REGULATION NO. xx (11 NYCRR 30) PRODUCER COMPENSATION TRANSPARENCY I, Eric R. Dinallo, Superintendent of Insurance of the State of New York, pursuant to the authority granted by sections 201 and 301 and Articles 21 and 24 of the Insurance Law, do hereby promulgate a new Part 30 to Title 11 of the Official Compilation of Codes, Rules and Regulations of the State of New York (Regulation No. xx) to take effect upon publication in the State Register. (ALL NEW MATTER)

A new Part 30 is added to read as follows: § 30.1 Purposes. The purposes of this Part are: (a) to implement the New York Insurance Law by regulating the acts and practices of insurers, insurance producers and other Insurance Department licensees with respect to transparency of compensation paid to insurance producers and their role in insurance transactions; and (b) to protect the interests of the public by establishing minimum disclosure requirements relating to the role of insurance producers and the actual or potential conflicts of interest created by compensation paid to insurance producers.

§ 30.2 Definitions.

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For purposes of this Part : (a) Compensation means anything of value, including money, credits, loans, interest on premium, forgiveness of principal or interest, vacations, prizes, gifts or the payment of employee salaries, benefits or expenses, whether paid as commission or otherwise; but shall not include [ here describe de minimus item s; suggested: those items, other than commission, valued in the aggregate at less than $1,000 ].

(b) Considered , with respect to alternative insurance contracts, shall not include alternatives examined but rejected by the insurance producer by reason of price, coverage or other factors less advantageous to the purchaser, relating to the terms of the contract; nor alternatives examined but determined by the producer to be unavailable to the purchaser by reason of eligibility, underwriting or other factors relating to the nature of the risk.

(c) In connection with , with respect to compensation received or to be received by an insurance producer as a result of the sale of an insurance contract, means compensation that results directly and exclusively from the sale plus any additional compensation that will or may be received by the insurance producer based indirectly or not exclusively on the sale.

(b) (d) Purchaser means the person or entity to be charged under an insurance contract or a group policyholder and may include the named insured, policyholder, owner of a life insurance policy or annuity contract, principal under a bond, or other person to be charged, including an applicant for insurance, bond or annuity; but does not include a certificate holder or member under a group or blanket insurance contract unless the certificate holder or member has direct contact with the insurance producer, or the certificate holder pays the whole premium.

(c) (e) Insurer means any person doing insurance business in this State, or its affiliate, parent corporation, or subsidiary.

(d) (f) Insurance contract means an insurance policy, surety bond, contract of guarantee, or annuity contract.

(d) (e) Insurance producer means any insurance producer as defined by insurance Law section 2101(k) or its affiliate, parent corporation or subsidiary. § 30.3 Disclosure of producer compensation, ownership interests and role in the insurance transaction.

(a) Except as provided in section 30.5 of this Part, prior to the initial issuance or renewal of any insurance contract, an insurance producer selling the insurance contract shall give the purchaser prominent written disclosure that includes:

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(1) a description of the nature and amount of compensation to be received by the producer in connection with the sale

(2) (1) a description of any material ownership interest the insurance producer has in the insurer issuing the insurance contract;

(3) (2) a description of any material ownership interest the insurer issuing the insurance contract has in the insurance producer; and

(3) (2) the following notice:

“You are purchasing a(n) [insurance policy, annuity contract, guarantee contract, surety bond] from an [independent, exclusive/captive] insurance producer.

“Insurance producers must pass licensing examinations, which require knowledge about insurance rules, policies and practices. Insurance producers can give you information about the kinds of policies available and how to protect yourself. In addition, your insurance producer usually will be able to assist you in the settlement of any claims.

“Insurance producers typically are paid by the insurance company based on the [insurance policies, annuity contracts, guarantee contracts, surety bonds] the producer sells. Insurance producers are not permitted to charge you any additional fee for services without a written memo, signed by the insured/applicant, which specifies or clearly defines the amount of the fee. The memo should also specify the services that are provided.

“An independent insurance producer is an insurance producer who is not owned or controlled by any insurer, and who is not prohibited from selling [insurance policies, annuity contracts, guarantee contracts, surety bonds] issued by more than one insurer or group of insurers. Only an independent insurance producer can be represented to the public as an independent insurance producer.

“An exclusive or captive producer agrees to sell exclusively [insurance policies, annuity contracts, guarantee contracts, surety bonds] issued by one insurer or a group of insurers under common management.”

An insurance producer is often paid by the insurance company based on the [insurance policies, annuity contracts, guarantee contracts, surety bonds] the producer sells.

“The compensation that insurance companies pay to insurance producers varies from company to company and from [insurance policy to insurance policy, annuity contract to annuity contract, guarantee contract to guarantee contract, surety bond to surety bond]. Therefore, an insurance producer may have incentives to recommend a particular [insurance policy, annuity contract, guarantee contract, surety bond] to you based on the amount of compensation paid in connection with that [policy, contract, bond]. Therefore,

the insurance producer’s compensation may vary, depending on the [insurance policy, annuity contract, guarantee contract, surety bond] you purchase. The insurance producer is prohibited by law from offering or discussing any direct or indirect reduction in premium based on negotiation of the producer’s compensation, nor may a purchaser knowingly receive such a reduction.

“The insurance producer is required to provide you with information about his or her compensation in connection with the [insurance policy, annuity contract, guarantee contract, surety bond] you are purchasing. You also have a right to receive information from the insurance producer about any quotes or alternative [policies, contracts, bonds] the insurance producer considered and the relative amounts of compensation the insurance producer would have received in connection with those quotes or alternatives.

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“If you would like such information about quotes, alternative [policies, contracts, bonds] or compensation, and alternatives, just ask the insurance producer.”If you are not satisfied with the information you receive you may contact the New York State Insurance Department.

(b) Upon a purchaser’s request, an insurance producer shall provide information, to the extent known to the producer at the time of the request, about compensation, quotes or alternatives as follows: -a description of the nature and, if specifically requested, the amount of compensation to be received by the producer in connection with the sale; and/or -any alternative contracts considered, including quotes solicited and received on such contracts and a description of the coverage, premium and compensation the insurance producer would receive in connection with those alternatives

If, upon a purchaser’s request, the amount or value of any compensation to be received by the insurance producer in connection with the sale is not known at the time of the sale request, then the insurance producer shall describe to the purchaser in writing the method of calculating the compensation, including the factors on which compensation is based such as volume, profitability and retention and a reasonable estimate of the amount or value. The insurance producer may state the amount as a percentage of premium. The disclosures required by this subdivision (b) shall be made in writing upon the specific request of the purchaser; otherwise, they may be made orally.

With respect to alternatives considered, nothing in this subdivision shall require the acquisition, development or retention of information by the producer, beyond the producer’s normal business practices, except at the request of the purchaser.

(c) An insurance producer shall not make statements to a purchaser contradicting the disclosures required by this section or any other misleading or inaccurate statements about the role of the insurance producer in the sale.

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(d) Upon a purchaser’s request, an insurance producer shall provide comprehensive information about quotes solicited and received and alternative insurance contracts considered including but not limited to a description of coverage, the premium and the compensation the insurance producer would have received in connection with those quotes or alternatives. (e) If at the initial issuance of an insurance contract, the disclosure provided pursuant to subdivision (a) of this section expressly applies to future renewals of the insurance contract, then no additional disclosure shall be required upon renewal except if there has been a material change in the information required to be disclosed pursuant to subdivision (a) at the time of renewal. §30.4 Retention of disclosures. An insurance producer shall retain a copy documentation of the disclosure required by section 30.3(a), and, if applicable, of any disclosure provided pursuant to section 30.3(b), for not less than three years after the disclosure is given. § 30.5 Exceptions. This part shall not apply: (a) to the placement of reinsurance; (b) to the placement of insurance with a captive insurance company organized for the exclusive purpose of providing insurance or reinsurance covering the risks of its parent and affiliated companies; (c) to an insurance producer that has no contact with the purchaser, which may include wholesale brokers or managing general agents. §30.6 Obligations of an authorized insurer. The amount of any compensation that an authorized insurer or its agent pays to an insurance producer, and the reasons for the compensation, shall be included in a producer file maintained by the insurer in accordance with Part 243 or this Title (Regulation 152). §30.7 Conformity with other laws. Nothing in this Part shall be construed in a manner inconsistent with, or in violation of Insurance Law sections 2119, 2324, 4224, or other provisions of the Insurance Law and regulations promulgated thereunder. § 30.8 Unfair trade practice.

A contravention of this Part performed with such frequency as to indicate a general business practice shall be deemed to be an unfair method of competition or an unfair or deceptive act and practice in the conduct of the business of insurance in this State; and shall be deemed to be a trade practice constituting a determined violation, as defined in Insurance Law section 2402(c), in violation of section 2403 of such law. No such penalty shall be assessed in an amount greater than that for a willful violation of insurance law as provided in [Section 109].

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Detailed comments on the 1/29/09 draft Section 30.1 Purposes.

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30.1(b) [and 30.3(a)]. Conflict-of -interest language . We dispute the premise that the industry-standard compensation structure creates actual or potential conflicts of interest. The Department has stated repeatedly that the origins of the proposed regulation rest in the 2004-05 investigations of wrongdoing. The charges against the settling brokers involve compensation structures that were integrated into larger anti-competitive schemes, as well as outright, deliberate misrepresentation to the client regarding receipt of compensation from carriers. We disagree that the regulation should reference “actual or potential conflicts of interest” as an inherent feature of producer compensation. We therefore propose that reference to conflicts should be deleted from the sentence.

[We also propose deleting similar language in the written disclosure prescribed at 30.3(a).] 30.2 Definitions

30.2(a) Compensation . The NYSID has granted that it does not contemplate extending this definition to items of de minimus value such as pens. This would be the appropriate spot to except such items. We are furnishing a drafting suggestion based on an aggregate dollar amount approach.

30.3(3) Insurance producer . PIA entirely supports the Insurance Department in the inclusive nature of the regulation; in other words, while not granting the necessity for a mandatory disclosure, we believe that any mandatory disclosure that were to be adopted should apply across the board (although we do not object to the exemption provided in Section 30.5(c) for producers such as wholesalers and MGAs who do not deal directly with the public).

This position is fundamental to PIA’s view of any subsequent draft. The Department argues cogently that, even within the exclusive/captive-agent/employee sales model, there likely will be differential compensation based on different products the company makes available, and that disclosure of this fact has material value to the purchaser equal to that of disclosing compensation differentials within the independent producer model.

Moreover, as we have argued previously, even within the “exclusive/captive” agent model, we believe it is an extremely common business practice for such agents, with or without the knowledge and authorization of their principal, to place business through other insurance producers if it cannot be placed with the company the agent normally

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does business with, or to use a residual market in these situations. Accordingly, the pure “exclusive/captive” sales model may not be so prevalent as it may appear.

Briefly, our additional strongly-held reasons are as follows: Mandatory disclosure, applied to one market segment but not to others, would lead to the public perception that one distribution method entails costs that are not present in other distribution systems— whereas, in fact, all distribution systems include costs for acquisition and servicing of policies. Moreover, the additional compliance costs associated with this disclosure, if imposed upon one market segment but not upon others, would place independent insurance producers at a marked competitive disadvantage from the standpoint of the expenses associated with serving the public’s insurance needs. All insurance producers, including licensed salaried employees, receive some type of compensation that is part of the cost structure of providing the insurance product. And, we maintain, it would be a rare salaried employee who is not eligible for some type of incentive compensation from the employer based on volume, risk quality or type and/or differential products sold. Any salaried employee must be licensed if he or she receives “a commission or other compensation for his services which commission or other compensation is directly dependentupontheamountofbusinessdone.”[§2101(a)(1)] In listening to others’ arguments for exempting some producers, we respectfully ask that the Department please keep in mind the long and distasteful history of insurance companies which spend, literally, billions on advertising, but which frequently try to attack the independent insurance producer as an unnecessary cost factor. Such companies will attempt to justify the exclusion of their sales representatives from this draft, but their real purpose and, we believe, a predictable effect, would be to cripple their competitors with excess compliance costs while reinforcing in the public’s mind their advertising theme— a reprehensible, deceptive meme purporting that their model does not include costs for marketing, booking and servicing policies, whereas the independent agency channel does entail paying such “extraneous” charges. The Insurance Department staff will likely think this concern misses their point, i.e., the whole premise on which their drafting effort is based, and therefore may be inclined to dismiss this line of argument out-of-hand. We realize that cost-disclosure is not the Department’s intended point of the regulation; however, we believe that this intention may well be lost on the consuming public. Insurance consumers, rather, may well take the point of disclosure, if differentially applied, to be— “If I buy from this source, I am paying costs that are disclosed, but these costs (since they are not disclosed) obviously must not exist if I buy from this other source.” (This concern formed the basis for our verbal comments about the costs of saturation, 24/7 TV advertising at the March 5 property-casualty working group.) Also, we guarantee that the regulation’s potential for making independent producers appear more costly is not lost on our competitors. Finally, we anticipate that the Department intends to re-work wording to mitigate prejudicial implications about insurance producers’ motivation; however, to the extent that such wording appears in the 1/29/09 draft and were retained to any degree, this would be an additional competitive disadvantage for our members if not applied equally to all insurance producers.