Applicability of Regulation 194

The Insurance Department continues to address inquiries regarding the parameters and application of Regulation 194.

In OGC Op. No. 10-11-01, the Department opined that a producer that is a business entity, such as a corporation or partnership, is the producer “selling an insurance contract” for purposes of § 30.3(a) of Regulation 194, even though the producer sells and insurance through its employees or sublicensees. Thus, while Regulation 194 requires the producer to disclose the compensation it receives, the producer is not required to disclose the compensation it pays to its individual employees (whether licensed or not) or its sublicensees.

The Department also pointed out in OGC Op. No. 10-12-12 that Regulation 194 does not apply to an insurance producer that has no direct sales or solicitation contact with the purchaser, such as a wholesale broker or a managing general agent. (There may be an exception however, where an insurer has specifically contracted with one of those entities to maintain the records).

Another issue that the Department has addressed with respect to Regulation 194 is the exception for “renewals.” In OGC Op. No. 10-12-12, the Department opined that Regulation 194 does not apply if a policy renews with the same insurer, limits, and coverage during the first year in which the Regulation is in effect, unless the insured timely requests more information about the producer’s compensation. Notably, Regulation 194 does apply if a producer procures insurance for identical coverage and limits with a different insurer. As a practical matter, insurers and agents may operate pursuant to an agreement that requires the parties to keep confidential information about their compensation arrangement. Given Regulation 194, an agreement with such a confidentiality provision should be amended.

In sum, the most recent Office of General Counsel Opinions interpreting Regulation 194 make clear that a producer has no obligation to separately disclose the compensation it pays to its individual employees or sublicensees. Additionally, while producers can assume obligations under Regulation 194 by contract, such as requiring a wholesale broker to maintain records, producers cannot by contract or otherwise require one another to maintain compensation arrangements as confidential. The parameters and application of Regulation 194 continue to be defined and there will undoubtedly be more to come from the Department in this area.