Reaction to Producer Disclosure Requirement Starts As New York Joins Other States

A new regulation in New York that will require producers to disclose commissions to consumers is receiving initial feedback from different segments of the life insurance industry.

The regulation, announced on Feb. 9, requires agents and brokers to disclose how much commission is being paid and by whom it is being paid, if New Yorkers contemplating an insurance policy requests the information.

“Our members remain concerned about the effect this regulation could have on the marketplace but the Superintendent has agreed to work on interpretive guidance and we look for to working with him on that process,” says Whit Cornman, a spokesperson for the American Council of Life Insurers, Washington.

Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla., says that the requirements for life settlement providers and brokers are much stricter than for insurance producers.

For instance, according to Head, a separate disclosure document must be signed by the seller and provider at the time of application and again at closing but for life insurance producers oral disclosure is initially permitted and must then be disclosed in writing at the issuance of the contract. And, he continues, for life settlements, all compensated parties must make disclosures while for life insurance sales, only those who have direct contact with the buyer must make disclosures. For life settlement companies, Head continues, requirements are immediate but for life insurance sales, the effective date is Jan. 1, 2011.

Currently, all but eight states have some sort of compensation disclosure requirements, according to data compiled as of Aug. 8, 2009 by the National Association of Insurance Commissioners, Kansas City, Mo. The compiled data includes New York which was anticipating a regulation when the information was put together. The District of Columbia and the Virgin Islands also did not have requirements as of Aug. 8, 2009, the data indicated.

The eight states are: Alabama, Delaware, Michigan, Mississippi, Massachusetts, South Carolina, South Dakota and Wyoming.

The requirements among states vary but in general there is a requirement for life insurance producers to disclose fees other than those deducted from premium and in some cases commissions, the data compiled by the NAIC indicates. In California, the disclosure requirement is specific to premium financing, with agents and brokers required to disclose the amount received from the premium financier, the data states. And, in Hawaii, the law is specific to life settlement contracts, requiring disclosure of “anything of value given in relation to a life settlement contract.”

A number of states and jurisdictions have provisions based on the NAIC’s Viatical Settlement Model Act which requires viatical settlement producers and brokers must disclose the amount and method of calculation of the broker’s compensation and separate requirements for life insurance producers and brokers. Those states and jurisdictions according to the NAIC, are Iowa, Kansas, Maryland, Nebraska, North Carolina, North Dakota, Ohio, Pennsylvania, Puerto Rico, Tennessee and Utah.

Requirements for insurance producers vary among these states.

In Iowa and Kansas, insurance producers must respectively disclose that the producer is representing the insurer and, in Kansas, the compensation received if a fee other than commission is going to be received.

In Maryland, licensed advisors must disclose fees and services to be performed, according to the data. Nebraska requires that consultants can only charge fees only if there is a separate written agreement signed by the client while North Carolina requires that insurer-controlled brokers disclose the relationship between the insurer and the broker, the data culled from state laws suggests. North Dakota requires consultants to disclose fees and services, and, in Ohio, licensed agents must disclose fees that are separate from the premium and agreed to by the consumer as well as the fact that the fee is not refundable.

In Oklahoma, however, the insurance consultant must disclose fees and services rendered while the viatical settlement producer must disclose that the broker solely represents the viator.

Pennsylvania requires that producer fees be reasonable in relation to services provided and in Texas, agents must provide a description of the methods and factors utilized for calculating the compensation to be received from the insurer or other third party while viatical providers and brokers must disclose who receives the compensation, its amount and the terms of compensation. And, in Virginia, viatical settlement brokers and providers will disclose all interests in the contract while licensed consultants have to disclose fees and other forms of compensations and the service for which they are charged.