Mandatory Commission Disclosure Required in New York State

Here is a quick rundown of the regulation:

Regulation 194 states that unless the purchaser asks for additional information, only the following information is required at or prior to application for an insurance contract:

A description of the role the producer.
Example: I am an agent of the company.
Whether the producer will receive compensation from the insurer or other third party.
That the producer’s compensation may vary depending upon a number of factors, and,
That the purchaser may obtain additional information by requesting it from the producer regarding compensation expected to be received by the producer on the sale.

This is the only type of information required to be provided unless further requested by the purchaser.

The circular letter states that no particular format is required for initial disclosure.

If the purchaser requests additional disclosure, the compensation MUST be disclosed in writing prior to the issuance of the insurance contract or within five business days. Also, if the purchaser requests this disclosure thirty days prior to or thirty days after a renewal, the disclosure must also be made within five business days. A copy of the disclosure given to the purchaser must be kept by the producer for a minimum of three years.

The Circular Letter No. 18 adds that the disclosure of the amount of compensation may be stated in a number of different ways (for the purposes of this regulation the definition of compensation is very broad including anything of value, (money, credits, trips, prizes, gifts, etc., usually anything over $100 in value):

A flat dollar amount,
A percentage of first year premium, or,
A dollar amount or percentage of premium, amortized using an expected duration of the contract and indicating when most of the compensation will be paid.

EXAMPLE: “I expect to receive from the Insurer 8% of the total premium paid on this policy if you keep the policy in force for 13 years, which is the expected duration for this type of policy. Most of this compensation will be paid in the first year.” would satisfy the requirement.