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Two Minutes With Tim - COVID-19 Q&A #1

​I answer some of the questions I'm frequently receiving from Big I New York members about the insurace and regulatory implications of the coronavirus, in the company of an exceptionally itchy dog.

Two Minutes With Tim: NY Reg 187 - February 1, 2020 Compliance Date

​The new "best interest" standard for l​ife insurance in New York Insurance Regulation 187 takes effect tomorrow. While Big I New York proceeds with its legal action​ against this change, insurance agents must comply. 

 

Big I NY ​​​Regulation 187 page​

Two Minutes With Tim: Best Interest Standard (NYS Reg 187) - Do You Have To Take a Course?

​Starting on February 1, 2020, New York licensed life insurance producers must meet a "best interest" standard when making recommendations to clients. The good news: They aren't required to take a course for it. However, we believe they should anyway. Watch:

 

NYS Department of Financial Services post

Free Big I NY webinar registration

Two Minutes With Tim - NY Cyber Regulation - Do You Have To File the Notice of Exemption Each Year?

​Probably not. ​

 

​Do you need to submit a new "notice of exemption?"

Two Minutes With Tim - NY Cyber Regulation - Certification of Compliance Deadline Changed

​The New York State Department of Financial Services is giving you more time to make your annual filing.

 

DFS announcement​​

Big I NY report​

Two Minutes With Tim: NY Cyber Reg - Certification of Compliance Reminders

​If you received an email from the New York State Department of Financial Services about the certification of compliance, here's what you need to know.​

​

 

Premium Trust Accounts and Commissions

Question from an IIABNY member: I’ve had a chance to read Regulation 29 a couple of times now and I was wondering if you could just let me know if I understand it completely.  From the way I read it, it sounds like as agents we are not allowed to mix our earned commission with money we’re holding in trust in the same account, except in the instance where the commission hasn’t been taken from that customers payment yet.  And the only time we can make transfers out of that trust account is to pay a company or a customer, or to transfer our earned commission to our operating account. 

So basically, if we’re getting our direct billed commissions directly deposited into a checking account, to comply with this regulation they would have to go directly into our operating account, correct?  And I assume that would also refer to any profit sharing as well?  Does this sound like I’m understanding this? 

Also, do you see a lot of agents getting caught violating this regulation?

Answer: Basically, you can transfer money out of the premium account to: 

• Pay premiums to carriers
• Pay return premiums to clients
• Transfer earned interest to your operating account (assuming you have your carriers’ and clients’ permission to keep it)
• Transfer commissions to your operating account
• Transfer back to your operating account any deposits you made to the premium account voluntarily to maintain a minimum balance.

You are correct in that holding commission in the premium account does not violate the regulation. If your direct-billed commissions are going straight to your checking account, I really can’t think of a reason to move them to the premium account. The premium account is supposed to be only to hold premiums that you’ve received but not yet forwarded on to your carriers and clients. Since your direct-billed commissions aren’t intended for someone else, there’s no reason to put them in the premium account. Ditto for profit-sharing payments.

It’s common for agencies to get fined or worse for mixing up premium and operating funds. To get a feel, check out an of the Disciplinary Actions reports on the Financial Services Department’s Web site (reports issued since last October are here.) Open up one of the reports and do a text search for the word “commingled”. The latest report listed four agencies that were disciplined for that infraction.

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Referral Fees From a Public Adjuster To An Insurance Producer

Question from an IIABNY member: I have a few questions relating to disclosure of compensation. 

1. Does Regulation 194 relate to insurance broker (or insurance agent) compensation only from insurance companies, or does it also apply to compensation from outside vendors such as public adjuster fees?

2. Is it still legal for the broker of record to receive compensation from a public adjuster?

3. Is there a requirement for the broker to disclose the compensation received from the public adjuster to their insured? 

I just heard of a broker that received a letter from the New York Department of Financial Services asking for proof of the compensation disclosure they provided to their insured relating to the public adjuster fee.

Answer: In order -- 

1. It applies to compensation from any party. Section 30.2(a) of Regulation 194 defines producer compensation as:

(A)nything of value, including money, credits, loans, interest on premium, forgiveness of principal or interest, trips, prizes, or gifts, whether paid as  commission or otherwise.

Note that the definition makes no reference to the source of the compensation. Also, Section 30.3(a) states:

(A)n 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:…

(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]

2. Yes, assuming the producer is acting as a broker and not an agent. New York Insurance Regulation 10, Public Adjusters, states in Section 25.3(b): 

(b) No (licensed public adjuster) shall divide any fee or give any fee, commission or other compensation to any person, firm or corporation for procuring, or assisting in procuring, the adjustment of any such loss for any such licensee or sublicensee, unless the person, firm or corporation to whom such fee, commission or other compensation is given or paid had at the time when the loss occurred:

(1) a public adjuster’s license issued and in force pursuant to section 123 of the Insurance Law, or

(2) an insurance broker’s license issued and in force and such licensee either was the broker of record in placing the insurance which was involved in the adjustment of the loss, whether or not designated in writing to act for the insured, or was designated to act for the insured in writing before a loss occurred. 

The Insurance Department issued an advisory legal opinion in 2007 stating that a public adjuster may not compensate an insurance agent for a referral. 

3. Yes. The department said in another 2007 opinion,

(T)he insurance broker must disclose the receipt of the compensation (from the public adjuster) to the insured pursuant to a written memorandum executed in accordance with the provisions of Insurance Law § 2119(c)(1).

This is the same provision in the law that requires a written memorandum to document brokers’ service fees. 

Follow-up question:  Just so I am clear… 

1. Is a broker required to disclose a PA fee at time of loss?

2. Is a producer NOT permitted to receive a PA fee if they are acting as an agent or does this section only pertain to the license held rather than the contract with the insurance company?

3. If a producer has policies renewing and has not sent a Reg194 letter, are they in violation of the law? (understanding is a producer only needs to provide a Reg 194 letter as new policies are written)

Answer: 

1. Section 2119(c)(1) does not specify a timeframe for providing the written memorandum, but the department has said over the years that the amount of a service fee should be reasonable in relation to the service provided. Thus, they are drawing a direct connection between the fee and the service. I think it’s logical to provide the disclosure at the time of the service, which in this case would be the time you arrange the marriage between the claimant and the PA.

2. As I interpret this, the prohibition applies to those policies for which you have acted as an agent. To illustrate, assume you’re a Company X agent. Your client owns a frame two-story office building 400 feet from Long Island Sound. Company X is willing to write the General Liability and Umbrella policies, but they don’t want any part of the property. You submit the property to a wholesaler who obtains a policy that provides better coverage than the New York Property Insurance Underwriting Association would, and the insured agrees to buy it.

The insured has two claims. A hailstorm damages one side of the building; the insured and the carrier get into a dispute about whether the settlement should include an amount to make the undamaged sides match the color and shade of the newly repaired side. You refer the insured to a PA. It would be legal for the PA to pay you a fee in this situation because you are acting as a broker with regard to the property coverage – you’re not an appointed agent of the carrier that wrote the insurance.

The second claim is a disputed liability claim. Again, you refer the insured to a PA. It would be illegal for the PA to pay you a fee because you are an appointed agent of the carrier that wrote the relevant policy (the GL.)

3. No. Section 30.5 of Regulation 194 states,

This (regulation) shall not apply…to renewals, except that if the purchaser requests more information about the producer's compensation less than 30 days prior to a renewal or less than 30 days after a renewal, the insurance producer shall disclose to the purchaser in a prominent writing the information required by subsection 30.3(b) of this Part within five business days.

Therefore, you have no legal obligation to provide a compensation disclosure with regard to a renewal policy unless the insured requests the information. 

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No-Faullt Reimbursement and Trust Clause

Question from an IIABNY member:Can you please explain the Reimbursement and Trust clause of the NY Basic PIP endorsement.  We have a client who was involved in an auto accident and was injured along with two children.  There is an argument between her carrier and the claimants carrier as to who should provide PIP benefits ( a story for another time)  Right now her carrier is providing the PIP benefits with the intent to go to arbitration against the claimant carrier.  In the meantime the liability department of the claimant carrier wants to negogiate a BI settlement and secure a release.  This will be for a nominal amount in the $3,000 range. It is my understanding that the carrier paying the PIP benefits has a right to be reimbursed for the first $50K of benefits.  The claimant's carrier says I'm wrong, it is everything over the first $50K.  I don't see that in the policy form unless I misunderstand it. My end goal (if the PIP carrier has a right to reimbursement) is to ask them to waive the right so the nominal settlement amount to secure the release goes to our client.

Answer: New York Insurance Law Sect. 5104(b) states:

In any action by or on behalf of a covered person, against a non-covered person, where damages for personal injuries arising out of the use or operation of a motor vehicle or a motorcycle may be recovered, an insurer which paid or is liable for first party benefits on account of such injuries has a lien against any recovery to the extent of benefits paid or payable by it to the covered person. No such action may be compromised by the covered person except with the written consent of the insurer, or with the approval of the court, or where the amount of such settlement exceeds fifty thousand dollars. The failure of such person to commence such action within two years after accrual gives the insurer a cause of action for the amount of first party benefits paid or payable against any person who may be liable to the covered person for his personal injuries. The insurer's cause of action shall be in addition to the cause of action of the covered person except that in any action subsequently commenced by the covered person for such injuries, the amount of his basic economic loss shall not be recoverable.

If an injured person can sue for non-economic damages, the no-fault insurer has a lien against the settlement equal to whatever it paid for no-fault first party benefits. The injured person may not “compromise” the action (which I take to mean settle separately with the other party) unless one of the following is true:

• The insurer has given written consent
• The court has approved the settlement
• The amount of the settlement exceeds $50,000 

If none of these is true, the injured person cannot do anything to impede the insurer’s right to recovery. The key amount is the amount of the settlement, not the amount of first party benefits paid. The insurer’s right to recovery is not limited to $50,000, nor does it have a $50,000 “deductible” (which is what it sounds like the claimant’s carrier is saying.) I’m not sure where they’re getting that.

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Can't We Waive the Auto Photo Inspection?

Question from an IIABNY member: A carrier advises that when we submit new business that has a prior automobile photo inspection, they are prohibited from accessing the information that is in the inspection company's database, and in most cases we need to do a new photo inspection. The exception is if the insured has a copy of their inspection or if the agent has one. 

Now they are telling me that the law changed and under Regulation 79 they are not permitted to accept the Bill of Sale and window sticker that we had on file for another carrier when we first added a new unused vehicle. My understanding was the agency has the ability (not required), at their discretion, to waive photo inspection when coverage is transferred, in an independent agency, from one of our carriers to another. Which is correct?

Answer: The waiver section of Reg 79 has not changed since 1997. Here’s the relevant text:

(b) An insurer may waive or dispense with a mandatory inspection under any of the following circumstances:…

(2) Where a new, unused automobile is purchased or leased from a franchised automobile dealership and the insurer is provided with either a copy of the bill of sale which contains a full description of such automobile, including all options and accessories, or a copy of the lease or MV-50 form, provided by the Department of Motor Vehicles, which establishes transfer of ownership from the dealer to the customer and a copy of the window sticker or advanced dealer shipping notice (invoice) showing the itemized options and equipment in addition to the total retail price of the vehicle on which will be added any dealer installed options installed on the vehicle at the time of sale or lease. The physical damage coverage on such new, unused automobile shall not be suspended during the term of the policy due to the insured's failure to provide the required document(s). Payment of a claim shall be conditioned upon receipt by the insurer of such document(s) and no physical damage loss occurring after the effective date of coverage shall be payable until the document(s) are provided to the insurer. If the above document(s) are not submitted by the insured 60 days prior to the annual renewal date, the insurer upon renewal of the automobile physical damage insurance must require a physical inspection, pursuant to the provisions of section 67.7 of this Part…

(6) Where a producer is transferring a book of business from one insurer to other insurer(s).

(7) When an individual insured's coverage is being transferred by an independent insurance agent (as defined in section 2101(b) of the Insurance Law) to a new insurer and said agent provides the new insurer with a copy of the inspection report completed on behalf of the previous insurer, provided the independent agent represents both insurers, and the insured vehicle was physically inspected by the previous insurer.

Based on paragraph (7), I’d say that the new insurer cannot waive the physical inspection if the prior insurer only had the bill of sale and sticker and did not inspect.

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