Litigation

The New York State Insurance Department (Department) has sent draft producer disclosure regulations  to the Governor?s Office of Regulatory Reform (GORR) for review.  GORR is meeting with and getting input from interested parties and could publish proposed regulations by late September, after which there would be a 45-day public comment period.

Similar to a draft released by the Department in July 2009, the proposal sent to GORR includes a ?prompt? requiring insurance producers to notify prospective clients that they can receive information about the producers? compensation and, if purchasers then ask, provide them with the amount of anticipated producers? compensation from the proposed sale and how much producers would have made under alternative quotes the producers obtained.

Click here to review the draft regulations.

Some definitions to start chewing over...

30.2(a) Compensation means anything of value, including money, credits, loans, interest on premium, forgiveness of principal or interest, vacations, prizes, or gifts, whether paid as commission or otherwise. Compensation does not mean tangible goods with the insurer name, logo or other advertisement and having an aggregate value of less than $100 per year per insurer

30.2(b) Purchaser means the person or entity to be charged under an insurance contract or a group policyholder and may include the named insured, policyholder, owner of a life insurance policy or annuity contract, principal under a bond, or other person to be charged, including an applicant for insurance, bond or annuity; but does not include a certificate holder or member under a group or blanket insurance contract unless the insurance producer has direct sales or solicitation contact with the certificate holder or member, and the certificate holder or member pays some or all of the premium.

30.2(c) Insurer means any person or entity doing an insurance business in this State.

30.2(d) Insurance contract means an insurance policy, surety bond, contract of guarantee, or annuity contract.

(30.2 e) Insurance producer means any insurance producer as defined by Insurance Law section 2101(k). Under New York Insurance Law § 2101(k) an insurance producer is "an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance."

Among the proposed requirements

1. a statement whether the insurance producer is prohibited by law from altering the amount of compensation received from the insurer for the sale.
2. a description of any material ownership interest the insurance producer or any parent, subsidiary or affiliate has in the insurer issuing the insurance contract or any parent, subsidiary or affiliate;

Among the Proposed Exceptions

1. An insurance producer that has no direct sales or solicitation contact with the purchaser, which may include wholesale brokers or managing general agents; or
2. The placement of reinsurance;

While my firm and a few others regularly and voluntarily discloses compensation and has done so for many years through structured settlement affidavits or declarations, many others do not. So what does this mean for structured settlement professionals?

The nature of a structured settlement transaction funded with an annuity as "qualified funding asset" typically involves the purchase of the annuity by a qualified assignment company. Generally the structured settlement consultant has no contact with the qualified assignment company and does not solicit such company. The solicitation in the structured settlement sales cycle is to the plaintiff, the defendant or the defendant's insurer,the plaintiff attorney or the defense attorney. Does a plaintiff or an attorney (if structured attorney fees are involved), qualify as a "named insured"  ad therefore count as a "purchaser" under the proposed law, or do they not because they are not the "party to be charged"?

It appears that periodic payment reinsurance is an exception.

There is certainly a lot open for discussion. The AALU and other life insurance trade associations are mounting a serious effort to carve out life insurance from any new regs. The rationale behind their efforts focuses in part on the fact that the bid-rigging that stimulated this legislation emanated from the property and casualty business not the life insurance business.