Independent Insurance Agents & Brokers of New York, Inc.

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August 5, 2009

In this Issue

•  New York Continues Work on Compensation Disclosure Proposal
•  Summer 2009 IIABNY Industry Index: Insurers Improve Agent Experience
•  Reminder: Don't Take Referral Fees from Auto Repair Shop
•  Big 'I' Pumps Up Grassroots Efforts during August Congressional Recess
•  St. John's University Announces its Fall Insurance Education Schedule
•  Insurance Dept. OKs Comp Rating Board’s Revised Factors
•  Does Your Agency Have the Right Stuff to be a Best Practices Agency?
•  Stay Cool with the August Issue of IA

Editor’s Note: Last week, IIABNY Chair of the Board Lane Rubin, Past Chair Mark Hagan and Kathy Weinheimer, senior vice president of industry relations and education, met privately with acting Superintendent of Insurance Kermitt Brooks, three of his top deputies and a representative from the state Attorney General’s office. The discussion focused on the association’s recommendations that reflect IIABNY’s continued concerns with the department’s latest draft regulation on producer compensation disclosure. Rubin and Hagan provided practical examples of how the proposed regulation would impact agencies and brokerages’ day-to-day operations. Their concerns, as well as those of other agents and brokers, are detailed by IIABNY At-Large Director Wes Bissett, who wrote the following column that originally appeared in the July 30 issue of IIABA’s Insurance News & Views weekly newsletter.

New York Continues Work on Compensation Disclosure Proposal
Latest Revisions Offer Improvements, But Concerns Remain

By Wes Bissett


Wes Bissett

One year ago, the New York State Insurance Department reopened the relatively dormant issue of insurance producer compensation with a series of public hearings and the announcement that the agency intended to establish new compensation disclosure requirements. An initial draft regulation was floated in late January, and the much-anticipated second draft was released by the department earlier this month. The revisions offer a mixed bag for producers who do business in the Empire State.

The latest proposal would require independent agents and brokers to make a series of unprecedented disclosures to every purchaser of insurance prior to the binding of any insurance contract. The producer would be required to disclose whether he/she represents the purchaser or the insurer in the transaction (so-called "role disclosure"), that he/she will be compensated by the insurer for the sale of insurance (if applicable), and that the compensation received varies from company to company and from policy to policy. The draft proposal would also require the producer to inform the purchaser that information about the source and amount of compensation to be received and any alternative quotes considered may be requested by the purchaser at any time. If this information is requested by the buyer, then the producer must provide "detailed description[s]" of the "nature, amount, and source of any compensation to be received" and "any alternative quotes obtained or considered," including information concerning the differences in coverage, premium, and compensation under each of the alternatives.

While the proposal may sound burdensome to many readers, several key improvements were included. The initial version of the proposal required producers to make prominent written disclosures concerning the nature and amount of their compensation and all quotes received in connection with every sale. Under the revised framework, the availability of this information must be disclosed in every instance, but the detailed information itself need only be produced when requested by the consumer.

Unfortunately, not all of the revisions were positive, and three changes are particularly troublesome for independent agents and brokers. First, the addition of the "role disclosure" is especially problematic. Such a requirement is subjective, difficult for producers to comply with, likely to convey misleading information to buyers, and offers no meaningful value to the consumer. Second, the draft requires agents and brokers to be prepared to make detailed disclosures regarding every quote obtained or considered. This is a change that will impose new burdens and responsibilities on many agents, force major changes in operational systems, and potentially have anti-consumer ramifications. Third, the initial draft applied equally to all industry distribution channels, but the most recent version eliminates that parity and creates an uneven playing field by exempting certain types of agents and salespeople from the regulation.

While many in the independent agent and broker community continue to question the necessity and purported consumer benefit of such a proposal, it is important to note that the New York State Insurance Department has been willing to openly discuss these issues with Big "I" representatives. These conversations and ongoing discussions have been helpful and informative – for both sides – and IIABA’s national and state associations will continue to actively represent the interests of producers across the country.

IIABA has received many inquiries about the status of the New York deliberations, and responses to the most frequently asked questions are provided below:

What is the status of the proposed regulation? The proposal is not final and has not been implemented. The insurance department is expected to continue vetting and considering revisions to the draft, and it is unclear when the regulators will initiate the formal rulemaking process.
Does the insurance department have the statutory authority to promulgate such disclosure requirements? Many industry and legal observers question the legality of such a regulation, especially in light of recent New York appellate court cases suggesting that there is no statutory foundation for imposing such disclosure mandates. The department’s final proposal may ultimately be challenged in the courts, and the likelihood of such an action increases if the promulgated regulation is expansive and unduly burdensome.
How will the state legislature respond? State legislators are often protective of their policymaking turf, and elected officials may not look favorably on any final proposal that imposes particularly sweeping, legislative-like mandates.
How will this regulation affect the mega-brokers that entered into restrictive settlements with Eliot Spitzer and others in 2005? The big brokers that agreed to forego contingent commissions and accept certain disclosure mandates are closely monitoring this process, and some speculate that there may be a connection – or "linkage" – between the implementation of an across-the-board disclosure mandate and the big brokers being released from their settlements. On a related note, in the wake of the announcement concerning the revisions to Gallagher’s settlement (see below), a spokesman for the New York Insurance Department stated that "[o]ur goal is to level the playing field and, at some point, we will need to revisit the settlement agreements and see if they still work." Dan Glaser, chairman and CEO of Marsh, offered a similar sentiment and stated that Marsh "has consistently advocated for a level playing field" and "continues to believe that the settlement agreements should sunset and that a clear set of rules grounded in transparency should apply equally to all insurance producers."
Has any other state implemented this type of disclosure requirement? Several states in recent years have established disclosure requirements for producers who are compensated in the same transaction by both the insurance company and the purchaser, and many states require disclosure when a producer charges a fee to a buyer. No state, however, has implemented the type of requirements proposed in New York, and the breadth of the proposal exceeds the recommendations developed by the National Association of Insurance Commissioners and the National Conference of Insurance Legislators. Even if the department accepts the suggestions previously offered by the Big "I," the proposal would establish the most extensive compensation disclosure framework in the country.
How would such a regulation affect agents outside of New York? Any resident or nonresident writing business in New York State would be required to comply with the regulation (at least for risks located in the Empire State). Although some have speculated that other states might consider implementing similar requirements, there has been little debate about compensation disclosure mandates outside of New York in recent years and most policymakers elsewhere have concluded that instituting such disclosure requirements is unwarranted.

Wes Bissett is IIABA senior counsel for government affairs and an IIABNY at-large director.

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Summer 2009 IIABNY Industry Index: Insurers Improve Agent Experience
Property-casualty insurance companies grew more popular with their agents during the first half of the year, according to survey results released by IIABNY. The Summer 2009 IIABNY Industry Index showed that approval ratings for companies conducting business in New York rose by 3.6 points for commercial insurance and 1.7 points for personal insurance over the Winter 2008 results. More than 200 different agencies across the state participated. Independent consulting firm Vincent McCabe, Inc. administered the survey.

So-called super regional companies (those that write insurance in multiple states but do not operate nationwide) saw the biggest gains, increasing 6.3 points in commercial insurance and 4.3 points in personal. Smaller regional companies also improved by 1.1 points in commercial insurance and 2.3 points in personal. Large national companies gained 1.5 points in commercial insurance but declined slightly in personal.

"For the first time since the inception of the IIABNY Industry Index, we saw improvements in nearly every category," said Kathy Weinheimer, IIABNY’s senior vice-president of industry relations and education. "Insurance companies have worked hard to improve the agent experience, and these results show that those efforts are paying off."

In particular, agents gave their companies high marks for the responsiveness and quality of relationships with company field personnel. They also generally approved of the fairness of compensation agreements, with scores rising in this regard for both commercial and personal.

The IIABNY Industry Index is composed entirely of ratings from agency principals or leaders responsible for company relations in New York State. Both IIABNY members and non-member agencies participated. While IIABNY also invited other agency personnel to participate in the survey and their accumulated responses are available to individual companies, the index only includes ratings from agency principals or leaders.

An executive summary of the survey results is available online.

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Reminder: Don't Take Referral Fees from Auto Repair Shop
In the June 24 issue of IIABNY Insider, we reported on three agents who were fined by the New York Insurance Department for violating N.Y. Insurance Law Sect. 322, which prohibits producers from accepting referral payments from auto repair shops. The department released a new disciplinary actions report on July 31, and it clearly shows that they are actively enforcing this area of the law. Individual producers were fined for accepting the payments, while agencies were fined for failing to properly supervise staff who accepted payments. Some of the more notable numbers:

Agencies and/or producers fined: 22
Smallest fine: $250
Largest fine: $5,000
Number of licenses revoked: 1

All producers should keep in mind that accepting referral gifts or payments from auto repair shops, including glass repair shops, is illegal. Unless you want to fund the Insurance Department over and above what you pay in licensing fees, not to mention the hassle of reporting the action to every other state in which you hold a license, you and your staff should decline any gift offers from repair shops.

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Big 'I' Pumps Up Grassroots Efforts during August Congressional Recess
Over the next few days, members of Congress will arrive back in their congressional districts and states for the August recess. During this annual month-long exodus from Washington, most legislators work from their state or district offices, making it the perfect time to get their attention at home and make a difference in the health care reform debate.

The future of health care reform and the role of independent agencies in the delivery of health insurance will be largely shaped by the feedback lawmakers receive from their constituents this August. IIABA and IIABNY are calling on all their members to participate in the grassroots campaign:

Schedule meetings with your representative in the House of Representatives and your state’s two U.S. senators.
Attend town hall meetings with your representatives in the House and Senate.
Engage your clients, local chamber of commerce, rotary and civic organizations in the grassroots campaign.
Write a letter to the editor of your local newspaper.

For additional information and tips on executing these four grassroots efforts, go online. For additional information on the health care debate, view the Big "I" health care reform packet. Please note that you must be logged in to www.independentagent.com to view the information.

For more information or guidance, contact the IIABA Capitol Hill Office staff at (202) 863-7000. Send questions via e-mail to John Prible, Joe Wall or Jen McPhillips.

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St. John's University Announces its Fall Insurance Education Schedule
Insurance classes of all shapes, sizes and subjects are on St. John's University new fall schedule. Not only are there seminars and certificate programs, St. John's also offers the pre-licensing exam preparation courses for New York agents and brokers and for national actuarial science and CPCU/IIA exam candidates.

More information about St. John's insurance degree program can be found on the InVEST page of the IIABNY Web site.

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Insurance Dept. OKs Comp Rating Board’s Revised Factors
The state Insurance Department has approved revised tables of Excess Loss Pure Premium Factors, State Hazard Group Differentials and Retrospective Rating Pure Premium Development Factors that go into effect Oct. 1 for new and renewal business. These revisions also apply to policies under Three-Year Plans and Long-Term Construction Projects as of the first normal anniversary date on or after Oct. 1.

Furthermore, with respect to the Retrospective Rating Plan, the Rating Board calculated Loss Conversion Factor is 1.184, the derivation of which can be found on Exhibit F of the recently approved loss cost filing.

In addition, revised Small Deductible Loss Elimination Ratios, which are dependent on the excess ratios underlying the excess loss pure premium factor calculation, have also been approved to be consistent with the calculation of the excess loss pure premium factors.

The revisions can be viewed online at the New York Compensation Insurance Rating Board Web site.

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Does Your Agency Have the Right Stuff to be a Best Practices Agency?
Does your agency have the right stuff to be a Best Practices agency? A comprehensive study conducted every three years (along with annual updates), the Best Practices Study provides important analysis and benchmarking data that helps independent agency managers hone in on key performance areas. It’s these key metrics that drive the success of the select group of Best Practices agencies. These are agencies of all sizes, located all across the U.S., writing all types of coverage for a wide variety of clients. Agencies that vie for the distinction are judged on a series of qualities that define Best Practices: a history of consistent growth and profitability; strong professional management; sound financial practices; customer service excellence; and positive carrier relationships.

Want to learn what it means to be a Best Practices Agency, how the process works and how your agency can be nominated? Listen to the recently recorded Webinar "How to Become a Best Practices Agency," featuring Shirley Lukens of Reagan Consulting, who was instrumental in the creation of the Best Practices program in the early 1990s. Lukens provides an overview of the program, highlights the data required and how that data is used in the process. This Webinar provides an inside track to achieve the much coveted honor. For more information about the Best Practices Program, visit the IIABA Web site and click on "Member Resources" and then "Best Practices," or e-mail Madelyn Flannagan.

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Stay Cool with the August Issue of IA
As the summer swelter continues, take a break from the heat with the August issue of Independent Agent magazine. This month’s issue features a variety of articles to keep you and your agency cool, including: "Preserving a Life Line," a look at how you can help your insureds protect income with disability coverage; "Real Time in the Real World," an update on why agencies, carriers and now the E&S market are taking the Real Time leap; "Green Goes Mainstream," the story of an agency that’s embracing the green movement; and much more. Visit IAmagazine.com for more information.

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