Regulation

Courts: Last Hope To Stop NYS Compensation Disclosure Rule

It appears that legal action is now the only path left open to life insurance agents and others who seek to overturn the New York State Insurance Department’s new regulation requiring agents or brokers tell who’s paying them and, if asked, how much.

The regulation, finalized last month, becomes effective January 1, 2011 unless overturned by the courts. Interested parties have until June 10 to appeal the reg under Article 78 of the state’s Civil Practice Laws Rules, which provides a mechanism for challenging the actions or inactions of state and local agencies in New York courts.

The “Big I,” an organization of property/casualty insurance agents, has indicated its intention to launch Article 78 proceedings. The NYS affiliate of the National Association of Insurance and Financial Advisors (NAIFA) is reportedly considering such a move, but at press time had not announced its intention.

NAIFA-NYS contends the reg will “create more unintended consequences than solutions” including “a decrease in the sale of much needed insurance in an already under-insured population.”

NAIFA-NYS’ executive vp David Dreifuss and lobbyist Mark Yavornitzki made the rounds to key state legislators in late January and found “no political will” to interfere with the Department’s promulgation of the reg.

But Dreifuss told members via the association’s publication that “each legislator assured us that they would re-engage on this issue with the NYSID if it was clear that many of our concerns were in fact manifesting themselves.”

The reg requires agents and brokers to explain to every applicant for insurance:

• Their role in the transaction and whether they will receive compensation (e.g., a commission) from the insurer based on the sale.

• That this compensation may vary depending on the volume of business done with that insurer or its profitability. . .and

• That the purchaser may obtain more information about the compensation the agent or broker expects to receive simply by requesting it from the agent or broker. In which case, the agent or broker must provide a detailed written disclosure of the compensation along with a description of any alternatives presented to the purchaser and the compensation associated with those alternatives.

“This regulation will provide New Yorkers buying insurance with an important tool to use in making an informed decision,” said Insurance Superintendent James J. Wrynn.

But NAIFA sees it as reducing life insurance sales, costing insurance jobs and leaving consumers and businesses without adequate financial protection.

Two common arguments used by plaintiffs in Article 78 proceedings are that the action was (1) “arbitrary and capricious” or not reasonably related to pertinent facts and (2) not supported by “substantial evidence.”

“New York courts very often decide in favor of the agency if the agency has written down some reason for its decision, even if many people would think the decision was wrong,” attorney Jeff Hogue wrote for www.Lawny.org

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