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Additional Guidance from the New York State Department of Financial Services:
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IIABNY's COMPLIANCE FORMS (Approved by NYSID):
Step One - Mandatory Initial Disclosure:
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Mandatory Initial Disclosure |
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Step Two - Disclosure Upon Request
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Regulation 194 Compliance FAQs
Does the purchaser need to sign the disclosure forms?
Should I include the initial disclosure with the application or when the policy is issued?
Must an out-of-state agent doing business in New York comply with Regulation 194?
What forms are required for the “Step Two” disclosure when a purchaser asks for more information?
Is the Regulation 194 disclosure required for a policy that our agency is taking over on a broker of record letter?
Does the disclosure notice apply just to new business and not renewals?
What disclosure do I need to give to renewal customers?
Do I need to give a disclosure notice on policies that are transferred from one carrier to another?
Rewriting from one carrier to another in the same group?
Rewriting when a new application is not required?
Rewriting with another carrier in my office?
Do I need to disclose company awards such as trips?
Can profit-sharing be estimated from prior year results?
Can we provide the mandatory initial disclosure by displaying it prominently along with an online application?
Does the Step One disclosure document have to be a separate document or can it be included with other paperwork?
Can the initial disclosure be included at the bottom of email messages? Is there a minimum font size that must be used?
Does the purchaser need to sign the disclosure forms?
Regulation 194 does not require that the purchaser sign any of the disclosure notices, however IIABNY is strongly recommending that you get the purchaser’s signature, especially for the Step Two – Disclosure Upon Request to create documentation that you provided the required information. Ideally, you should also consider obtaining a signature for the Step One - Mandatory Initial Disclosure but that may be cumbersome and you will need to make a business decision based on your agency’s workflow. The key is consistency. Be sure to handle all of your customers in a consistent manner and have procedures in place that will provide evidence to the Insurance Department, should you be audited or investigated.
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Should I include the initial disclosure with the application or when the policy is issued?
The regulation requires that the Mandatory Initial Disclosure be provided “at the time of application”. In a November 5, 2010 circular letter the Insurance Department added the words “at the time of application for binding” but IIABNY still has concerns that the exact timing of the notice is unclear. Some policies cannot be bound; therefore IIABNY recommends that you provide the Mandatory Initial Disclosure at the time the purchaser orders the policy. You can provide the notice at anytime as long as it is provided no later than “the time of application for binding”.
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Must an out-of-state agent doing business in New York comply with Regulation 194?
An opinion letter (OGC opinion dated December 15, 2010) from the Insurance Department states that in general, if an insurance producer is required to have a New York license to make a sale, then Regulation 194 applies. Out-of-state producers are required to hold a non-resident New York license when any activity takes place in New York, whether the producer is physically located in New York or talking on the phone to an insured in New York, for the purposes of selling, soliciting or negotiating insurance. However, under NY Ins. Law 2101(k)(9) a person who is not a resident of this state who sells, solicits or negotiates a contract of insurance for commercial property/casualty risks to an insured with risks located in more than one state, including New York, a non-resident license is not required assuming the producer is duly licensed in his home state. The guiding factor as to whether Regulation 194 applies to out-of-state producers is whether a New York license is required for the sale, solicitation or negotiation. If a New York license is not required (resident or non-resident) then Regulation 194 does not apply.
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What forms are required for the “Step Two” disclosure when a purchaser asks for more information?
When a purchaser asks for additional information you will likely need three of the sample forms that IIABNY has developed for Step Two – Disclosure Upon Request. Remember, if the purchaser asks for any information you must provide all of the information listed in Section 30.3 (b) (1-5) of the regulation. The “Statement of Compensation, Rebating, Ownership Interest” form takes care of (1), (3), (4) and (5). You would also choose one of the Alternative Quotes forms, depending on the type of business written, to satisfy (2). Finally, if there is compensation that is not known at the time of policy issuance, you would also use the “Additional Compensation Not Known at Time of Issuance” form. All of IIABNY’s sample forms have been approved by the Insurance Department as fully compliant.
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Is the Regulation 194 disclosure required for a policy that our agency is taking over on a broker of record letter?
Yes. You are required to provide the Mandatory Initial Disclosure notice in this circumstance because the policy is new business to the agency.
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Does the disclosure notice apply just to new business and not renewals?
The Mandatory Initial Disclosure is required for all new policies. “New” also includes any time there is a change of insurer. You are not required to provide a disclosure notice for renewal policies unless the purchaser requests additional information.
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What disclosure do I need to give to renewal customers?
The Mandatory Initial Disclosure is required for all new policies. “New” also includes any time there is a change of insurer. You are not required to provide a disclosure notice for renewal policies unless the purchaser requests additional information.
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Do I need to give a disclosure notice on policies that are transferred from one carrier to another?
The Mandatory Initial Disclosure is required for all new policies. “New” also includes any time there is a change of insurer.
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Since the law applies to "NEW" policies, I know this means new business, and when we move coverage from one insurance carrier to another. Does this also include when we rewrite coverage from one insurance carrier’s writing company to the same carrier’s other writing company, such as Travelers rewriting from Charter Oak into Travelers Indemnity?
The regulation is not clear on this point but one of the primary reasons for Regulation 194 is to compare the compensation received by the producer for different policies. In the example above, if the compensation differs from one of the insurer’s companies to the other then it is IIABNY’s recommendation that you treat this as new business and you do provide the Mandatory Initial Disclosure notice.
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If you re-write an existing piece of business from one company to another company, you need to send along the first disclosure form. What about if you have a piece of business, say an auto with Travelers, and you re-write to another program (Quantum) where they do NOT require us to do an app, do you still need to use the first disclosure form on that type of a re-write?
As stated in the answer to the previous question, if the compensation differs from one of the insurer’s companies to the other then it is IIABNY’s recommendation that you treat this as new business and you do provide the Mandatory Initial Disclosure notice.
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As I understand it, if you are writing a new client, or a new line of business for an existing client, you need to provide the mandatory letter. But what if you have a line of business for an existing client already, they ask you to shop it, and you rewrite that same line of business with another company in your office? Do we still have to provide the mandatory letter in that situation?
A change of carrier, regardless of the reason for the change, is considered “new” business and therefore would require the Mandatory Initial Disclosure.
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Do I need to disclose company awards such as trips?
The definition of “compensation” that must be reported is very broad and includes “anything of value, including money, credits, loans interest on premium, forgiveness of principal or interest, trips, prizes, or gifts, whether paid as commission or otherwise.”
Since some policies (such as commercial policies) require an updated application every year, do I need to provide the initial disclosure with each new application?
You are not required to provide the Mandatory Initial Disclosure notice on renewals, unless there is a change of insurer, at which time the policy would be considered “new” business thus requiring the notice.
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Can profit-sharing be estimated from prior year results?
Yes. In a November 5, 2010 circular letter the Insurance Department stated that a producer may estimate the unknown compensation as a reasonable range of dollar amounts or percentage of premium based on the amount of such compensation the producer has received on the sale of similar policies in prior years.
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If we offer a policy that can be purchased at our website via an on-line application process. Can we provide the mandatory initial disclosure by displaying it prominently along with the application?
The regulation does not specifically address on-line applications. It does however state that the disclosure must be provided in a “prominent writing”. It would appear that the scenario above would be acceptable.
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Does the Step One disclosure document have to be a separate document or can it be included with other paperwork?
The only requirement is that it be a “prominent writing”. In a November 5, 2010 circular letter the Insurance Department stated that a producer may combine all disclosures required by Regulation 194 into one document provided to the purchaser at or prior to the time of application for an insurance contract.
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Can the initial disclosure be included at the bottom of email messages? Is there a minimum font size that must be used?
Section 30.3 of Regulation 194 states, “…an insurance producer selling an insurance contract shall disclose the following information to the purchaser orally or in a prominent writing…” (It further states that if the disclosure is given orally it must be followed up in a “prominent writing”.) In a 1999 circular letter, the Insurance Department said, “Statutes that utilize the words ‘writing’, ‘certificate’, or ‘memorandum’, or the like, permit electronic documents.” The regulation makes no requirement as to font size; in order to be “prominent”. It must be readable for the average insured. N.Y. Vehicle and Traffic Law Sect. 313(1)(a) requires all notices of cancellation pertaining to auto insurance to include a warning about the consequences of an insurance lapse; the law requires this warning to be in 12-point type. That’s probably as good a benchmark as any.
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This fall, IIABNY representatives traveled around the state - from Buffalo to Wading River, Henrietta, Great Neck, Albany, Tarrytown, Rochester, Binghamton, DeWitt, Brooklyn, to Melville - educating over 2,000 agents and brokers on disclosure compliance.
IIABNY also hosted a free compliance webinar in November for those agents who were not able to attend a live meeting. On Demand Compliance Webinar
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