Update on New York Regulation 194

In a March 8, 2012 decision, the State of New York Supreme Court, Appellate Division, Third Judicial Department ruled that New York’s Regulation 194 is a reasonable exercise of the New York Insurance Superintendent’s broad power to implement New York insurance law. The purpose of this notification is to ensure NAPSLO members are aware of the court's ruling and the available resources regarding Regulation 194.

Since 2005, several states have adopted laws requiring all producers to disclose the amount of compensation they receive from an insurer and to obtain the customer’s acknowledgement concerning such compensation. New York Regulation 194 goes further in requiring all producers to disclose their role in the transaction as well as the factors that determine or may alter their compensation.

During its development, NAPSLO and other associations representing wholesale brokers and MGAs suggested that Regulation 194 should not apply to wholesalers. As a result, New York agreed to exempt certain producers, such that Regulation 194 would not apply to a producer who does not have direct sales or solicitation contact with the purchaser. This exemption has been maintained throughout the debate of Regulation 194, which became effective January 1, 2011.

Answers to Frequently Asked Questions regarding Regulation 194 can be found on the New York Department of Insurance website. Circular letter No. 18, released on November 5, 2010, sets forth the Department's expectations regarding compliance by insurance producers, and authorized insurers with Regulation 194. While the FAQs state that Regulation 194 applies to excess lines brokers, the FAQ material subsequently states that regulation’s disclosure requirements do not apply to “a wholesaler or managing general agent, whose primary contact is with the selling agent or broker, and who has no contact with the purchaser that involves sales or solicitation.”   However, if the wholesale producer or MGA has direct sales or solicitation contact with the buyer, then the wholesaler or MGA must provide the disclosures required by the Regulation.

Further, the regulation does not apply to (1) the placement of reinsurance; (2) the placement of insurance with a captive insurance company pursuant to Article 70 of the New York Insurance Law; or (3) 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 must disclose to the purchaser in a prominent writing the required disclosures within five business days.