In a letter to New York Insurance Superintendent James J. Wrynn and signed by association counsel James C. Keidel, New York’s oldest insurance producer trade organization said that it believes the superintendent does not have legal authority to compel compensation disclosure. It also cited what it said were serious problems with the proposal’s extent. IIABNY sent the letter to comply with state law for initiating legal action.
The rule stems from charges then New York Attorney General Eliot Spitzer filed against Marsh, Inc. and other large brokers in 2004 over alleged bid rigging and steering of business to insurers that paid contingent commissions. Marsh eventually paid a large settlement to its clients, and two Marsh executives were convicted of restraint of trade. However, in the last two months a court acquitted three Marsh executives and, at the request of current Attorney General Andrew Cuomo, dropped charges against two others and an insurance company executive.
The rule’s publication follows months of work led by IIABNY to try to make the proposal reasonable. Although the group has argued that a compensation disclosure rule is unwarranted, it has nevertheless worked with the department to mold it. According to IIABNY President and Chief Executive Officer Richard A. Poppa, “We ultimately believe this rule is not necessary. However, we have worked with the department on it throughout this year. We continue to seek a reasonable approach that, should a regulation take effect, gives consumers value while minimizing the burdens on producers.”
“Throughout this process,” Poppa added, “IIABNY has worked with other insurance industry groups, and we will continue to do so on any legal challenge.”
IIABNY’s letter denounced a mandate that a producer disclose to the insurance buyer whether he is acting as a legal representative of the buyer or of the insurance company. “This provision of the Proposed Regulation,” the letter said, “requires that producers evaluate complex legal concepts and then make legal conclusions that even the judiciary has struggled with.” It also faulted the rule for assuming that all agents and brokers have incentives to place clients with unsuitable companies, despite the possibility of punishment under existing law. It noted that some groups with the same potential conflicts of interest are exempt from the rule. It also warned that the rule would result in higher costs, may promote illegal rebating of premiums to clients, and improperly focus buyers’ attention on payments to producers rather than the quality and price of their coverage.
“Unfortunately,” the letter concluded, “unless the Proposed Regulation is withdrawn, we will have no alternative but to seek redress in the court system to challenge the Proposed Regulation and any efforts to adopt a similar regulation.”
The rule’s publication in the New York State Register opens a 45-day period during which members of the public may send comments to the department. IIABNY intends to submit its formal comments to the department in a separate communication.