New York insurance brokers have taken legal action to halt a new state regulation requiring them to disclose to clients how insurance companies compensate them.

The Independent Insurance Agents and Brokers of New York and the Council of Insurance Brokers of Greater New York have jointly filed a legal action against the New York Insurance Department to prevent the introduction of the new regime.

Regulation 194 requires insurance producers to disclose to all clients their role in the transaction, and whether they will receive compensation from an insurer based on the sale.

Clients can also discover the amount of commission a broker is paid and access alternative quotes and compensation – provided they request the information.

The regulation was adopted by the Insurance Department earlier this year and is due to come into effect on January 1 next year. It will not apply to reinsurance placements, placements within a captive insurer, wholesale brokers, managing general agents or renewals.

In 2004 the Independent Insurance Agents and Brokers of New York called on agents and brokers to voluntarily disclose to clients the existence and nature of their compensation, but CEO Richard Poppa says the association objects to mandatory disclosure on the grounds it is “burdensome for producers and of little benefit to consumers”.

Mr Poppa told insuranceNEWS.com.au the new regulation will introduce significant cost, confusion and complexity into the insurance process.

“Most consumers simply don’t want or need information on compensation,” he said. “For those that do, we believe the producer should provide it, but we don’t believe a mandatory requirement serves anyone.

“Insurance sales are extremely competitive and if a consumer does not get the information (they) seek from their producer, there are dozens of other out there which will accommodate their needs.

“In addition, we believe this will focus the consumer away from the really important parts of the transaction which are the coverages, terms, limits, deductibles etc.”

In their legal action, the two associations challenge the authority of the state’s Insurance Department to mandate compensation disclosure, alleging the regulation is an attempt to rewrite existing laws and that it imposes “massive and unwarranted costs of compliance on brokers so as to constitute an arbitrary exercise of regulatory power”.