“But that doesn't mean we are in favor of—and in fact, we are opposed to—a mandatory rule that's going to mean more paperwork, more notices that consumers don't necessarily want, more record keeping.”(See http://www.property-casualty.com/News/2010/5/Pages/NY-Agent-Group-Fires-Back-At-Dept-Over-Producer-Comp-Suit.aspx for Caroline's complete story about IIABNY's reaction.)

It's no surprise that New York has become the biggest battleground over broker compensation disclosure. After all, it was the state's former attorney general (and former governor), Eliot Spitzer, who exposed bid-rigging and contingency fee abuse on the part of some of the biggest brokers in the state–and the world.

But does that mean the status quo is so damaging to the integrity of the insurance placement process that a whole new set of legal requirements are necessary? The New York Insurance Department obviously thinks so. And the Risk and Insurance Management Society agrees–in fact, they don't believe the New York regulations go far enough.

The question before the court is whether the department has the authority to issue these disclosure regulations, whether the regulations “impose massive and unwarranted costs of compliance on brokers so as to constitute an arbitrary exercise of regulatory power,” and whether the regulation violates producers' rights to due process and equal protection under the U.S. and New York State Constitutions.

Those are some heavy duty legal challenges.

I am no lawyer, but somehow I don't believe the agents' arguments will carry the day in court. But in any case, even though I sympathize with the concerns of producers, I can't help but wonder if the damage to the industry's already sullied reputation won't be exacerbated regardless of the suit's outcome.

IIABNY was right to go back at the New York Department's disparagment of its motives in filing the suit. But even if you take their explanation at face value, which I do, consumer groups–especially RIMS–will not. It looks like a stall at best, and perhaps a coverup at worst.

The Professional Insurance Agents of New York State, which declined to participate in the suit, has continued to negotiate with the department about compliance. The group says its “commitment against mandatory disclosure is unwavering,” yet is proceeding as if the regulation is a done deal, hoping to craft an acceptable compromise in terms of implementation.

This may have been the better way to approach this regulation, because producers might face a no-win situation with their lawsuit. Even if their arguments carry the day, it will look like producers don't want to disclose how they are paid to their clients. That's not a good perception.

Producers would prefer a “Don't Ask, Don't Tell” policy when it comes to compensation, but to sue to keep mandatory disclosure off the table could be a losing proposition in the long run, no matter how the court rules.

What do you you folks think?