First of Three NY Producer Compensation Hearings Held

New York First Deputy Superintendent of Insurance Kermitt Brooks (“Superintendent”) and Deputy Attorney General for Economic Justice Michael Berlin (“Attorney General”) recently held the first of three joint public hearings on producer compensation in Buffalo, New York.  To view an archived webcast of this hearing, click here.

Subsequent hearings will take place on July 23, 2008 in Albany, New York, and July 25, 2008 in New York City.  For more information, click here.

The purpose of these hearings is to gather information from the public regarding a possible conflict of interest in the matter of producer compensation and determine what regulatory action, if any, needs to be taken.  Interested persons are asked to provide their views on whether insurance producers should be required to make full disclosure to the insured, and obtain the insured’s consent in writing, of any compensation from an insurer or other entity relating to the issuance, renewal or servicing of the insured’s insurance policy or annuity contract.  The Superintendent and Attorney General also are seeking input regarding contingent commissions and whether such compensation creates an irreconcilable conflict of interest for producers.  

Under New York insurance law, an “insurance producer” is defined as an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under New York law to sell, solicit or negotiate insurance.  For purposes of the proposed regulation, compensation shall mean anything of value, including money, credits, loans, interest on premium, forgiveness of principal or interest, vacations, prizes, gifts or the payment of employee salaries or expenses, whether paid as commission or otherwise, unless provided as part of an insurance agent’s employee benefit plan where similar benefits are provided to non-agent employees. 

Independent insurance producers generally receive both a flat-percentage commission based on premium volume paid at the time of sale and contingent commissions, which are typically based on profit, volume, retention, and/or business growth.  Some producers also receive supplemental commissions, which typically reset the flat percentage commission for the following year instead of being paid out as an additional cash commission.  During the Hearings, the Attorney General and Superintendent seek to learn to what extent these types of commissions currently result in steering or other deceptive or anti-competitive practices in the marketplace, and to understand what mechanisms are most effective in curbing such practices.

At the first meeting, which took place on July 14, a number of interested parties offered testimony, including:

• Don Bailey, CEO North America, Willis Group Holdings
• David Gelia, Executive Vice President, United Insurance Agency, Inc.
• Consumers

To view the complete written testimonies, click here.

Mr. Bailey spoke against contingent commissions.  He said contingent commissions create an unbalanced insurance market, and should be abolished across the board.  Mr. Bailey also spoke in favor of making all insurance broker compensation transparent.

Mr. Gelia spoke in favor of contingent commissions, saying incentive-based compensation does not lead to steering or other deceptive practices.  Mr. Gelia also spoke in favor of voluntary disclosure of compensation by producers to consumers if requested. 

The next hearing will take place on July 23, 2008 starting at 10:00 a.m. in the Chancellor’s Hall, State Education Building, 89 Washington Avenue, Albany, New York, and will be available via webcast here.

If you have any questions or comments, please do not hesitate to contact Colodny Fass.