Agents Team Up in New York to Sue State Officials

Insurance agents utilize commissions to make a substantial portion of their salary in many cases.

In one state, agents are banding together to fight a ruling that they feel is unfair to them.

The Independent Insurance Agents and Brokers of New York (IIABNY) and the Council of Insurance Brokers of Greater New York (CIBGNY) are teaming up to sue the state regarding new rules that will mandate agents disclose their commissions to clients.

Both groups told their lawyers to proceed on an Article 78 proceeding - basically, challenging the New York Insurance Department in court regarding the agency's legal right to form the rule.

According to CIBGNY President Anthony Aquilino, "The Insurance Department's insistence on forcing on overbearing and burdensome regulation on our members is more than troubling. Our board decided recently to initiate an Article 78 proceeding; it was a logical next step to work with IIABNY and protect the interests of both our members."

IIABNY Chairman Lane Rubin noted, "IIABNY never sought to pick a fight with the department over this issue. We spent countless hours working with state regulators to come up with a solution that would be acceptable to all parties. Unfortunately, that hasn't happened yet, and we were forced to turn to the courts. Fortunately for agents and brokers in New York, we now have a willing and able partner in CIBGNY, who is standing with us against an unwarranted regulatory regime."

The groups reported that they expected to file the suit sometime in May.

The groups are debating the legal validity of Insurance Department Regulation 194.

To gain a little history on IDR 194 (Producer Compensation Transparency), the item was initiated by the New York Insurance Department in reaction to illegal activities by a number of major insurance brokers who the attorney's general office alleged were taking payoffs from insurers.

Officials claim that the large brokers were able to use their large volume to receive compensation arrangements that would not have been possible, but for their size.

According to Aquilino, "Many of our members are involved in family businesses, some in their second and third generation of ownership. These businesses would not exist if they were not providing competent services and competitive premiums to their clients. Furthermore, there has been no clamoring by consumers for compensation disclosure, and when asked if there were any complaints against any other agents or brokers, the Insurance Department could not cite one instance of a consumer complaint."

CIB Legislative Chairman Anthony Calafiore, added, "This regulation creates an unreasonable burden on the small and mid-size insurance producer by requiring written disclosure when quoting the insurance of the role of the producer, information that the producer will be paid for selling the product, how much the producer will be paid, and a discussion of the factors that determine the amount of the compensation. While we have no problems in disclosing that we are compensated for providing the insurance it should be at the time of the sale and not when quoting the account."

Agents say the requirements for disclosure apply no matter the size of the premium.

As it stands, the agent will be required to provide the same details for a $200 apartment policy as they will for a commercial policy costing thousands of dollars.

The regulation does not provide any added protection for the consumer, but reportedly adds excessive costs to the agent in complying with the regulation.

It will be interesting to follow this case and see if the agents come out on top with a policy they can stomach.