by John Darer® CLU ChFC MSSC RSP CLTC
The Office of General Counsel of the New York State Insurance Department issued an opinion on December 12, 2007 which stated that for the time being at least, New York insurance brokers are not legally required to disclose to clients the commissions they earn on policies they place, according to a new legal opinion released by the state's insurance department".
The insurance department however, reiterated that it planned to introduce new rules in 2008 that "would require insurance brokers and certain agents" to disclose to their clients both the amounts and sources of their income.
January 2008 Update
On January 30, 2008, the Office of General Counsel offered clear guidance on disclosure of fixed commissions in another opinion by answering the following question in the following manner.
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Update on broker disclosure of fixed commission and other compensation
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Question Presented:
Is an insurance broker required to disclose to its clients the fixed commission it earns on the policies it places?
Conclusion:
No. At present, and as a general matter, there is no legal requirement that a broker disclose to its clients the fixed commission that it earns on the policies that it places.
No exact time frame has been announced for when the department plans to make that change. In the meantime, a number of structured settlement firms already have the long standing practice of disclosure through structured settlement affidavits or certificates of reliability and assurances.
NAIC Compensation Disclosure Amendment 2005
In the NAIC Compensation Disclosure Amendment it was unclear how (if at all) the requirements would apply to structured settlements, given the nature of the structured settlement transaction would depend on (i) who is viewed as the "customer" for purposes of the NAIC Compensation Disclosure Amendment, and (ii) whether an insurance producer receives compensation from the customer or "represents the customer" in conjunction with the placement of insurance. At the time neither the NAIC Compensation Disclosure Amendment nor the Producer Licensing Model Act included any definition of the term "customer". because the insurance product (in this case the structured settlement annuity contract) as a qualified funding asset is normally the property casualty carrier, self-insured defendant or a qualified assignment company, many structured settlements will not involve he kind of customer relationship (i.e. a relationship between an insurance producer and a customer) that the NAIC Compensation Disclosure Agreement is intended to address.
NCOIL Model Compensation Disclosure Amendment
the term "customer" is defined to mean " the person signing the application or submission for insurance or authorized representative of the insured actually negotiating the placement of insurance with the producer"
January 2011 Update
New York State Insurance Department Regulation No. 194 (11 NYCRR 30) became effective January 1, 2011, . They also published this FAQ
§ 30.5 Exceptions
(a)to the placement of reinsurance
(c) to an insurance producer that has no direct sales or solicitation contact with the purchaser, which may include wholesale brokers or managing general agents;
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