Question from an IIABNY member: Regarding Regulation 194 and producer compensation disclosure, do we need to send the mandatory initial disclosure letter to a client for a New York State Insurance Fund Workers' Compensation policy even though they pay us no commission? We may charge a service fee and we do get the service charge agreement signed by the insured.
Answer: Yes, you must make the initial disclosure. Section 30.3(a) 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 at or prior to the time of application for the insurance contract:
(1) a description of the role of the insurance producer in the sale;
(2) whether the insurance producer will receive compensation from the selling insurer or other third party based in whole or in part on the insurance contract the producer sells; (emphasis added)
(3) that the compensation paid to the insurance producer may vary depending on a number of factors, including (if applicable) the insurance contract and the insurer that the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the insurance contracts that the producer provides to the insurer; and
(4) that the purchaser may obtain information about the compensation expected to be received by the producer based in whole or in part on the sale, and the compensation expected to be received based in whole or in part on any alternative quotes presented by the producer, by requesting such information from the producer.
The rule requires you to tell the insured whether you will receive compensation for the sale. It does not limit the requirement only to those situations where you actually are receiving compensation from the insurer or third party.