Welcome to part one of my new series of blog posts titled What's the Rule? (best title I could think of on the spur of the moment.) In this series, I'll review certain New York insurance regulations and hopefully give you a clearer understanding of what they require. Some regulations are so long and complex that they will require multiple postings for an adequate explanation, others I'll be able to cover in one post. Either way, fasten your seatbelts, place your trays and seatbacks in the upright position, and get ready for take-off. We're going to rule school.
Up first: Part 29 of Title 11 of the Rules and Regulations of the State of New York (also shown as 11 NYCRR 29), also known as Regulation 87, Special Prohibitions. This regulation is in the chapter pertaining to agents, brokers and adjusters. It's purpose is to keep agents, brokers and adjusters from receiving commissions and fees for placing coverage for governmental units when they didn't actually do anything. It applies to any licensee who receives fees or commissions from governmental units, insurers or other licensees for insurance services rendered to the governmental units. It defines "governmental unit" as, "the State, an agency or department of the State, public authority, public benefit corporation, county, city, town, village, or any subdivision thereof."
The "special prohibition" referred to in the title is quite simple:
No licensee shall share in or receive any fee or commission in connection with any insurance service rendered to, or insurance coverage placed on behalf of, a governmental unit unless such licensee actually rendered insurance services to, or placed or serviced insurance coverages on behalf of, such governmental unit, for which said fees and/or commissions were paid.
The public policy behind this is that no vendor of insurance services should receive tax dollars unless he or she actually did something to earn them.
The regulation requires all licensees who receive fees or commissions for governmental unit business to file a "Governmental Insurance Disclosure Statement" with the Insurance Department. The report, which covers the previous calendar year, is due at the department's Albany office no later than April 15 each year (like you don't have enough other forms due on April 15.) If you wrote or renewed any of this type of business in 2009, this would be a good time to complete that statement and mail it in. A full copy of the regulation, along with a copy of the required statement, is available for download from the Market Conduct Rules & Regulations page in the Research section of the IIABNY Web site.
Interestingly, the department has cited N.Y. Insurance Law Sect. 2324 as its basis for issuing this regulation. Sect. 2324 applies to rebating and discrimination. I'm curious: What do you, as both insurance professionals and taxpayers, think of this regulation? Is it necessary? Too burdensome? Not tough enough? Sound off in the comments.