The Ultimate Guide to Producer Compensation Disclosure in 2026

Producer compensation disclosure is the obligation to tell your client - in writing, before or at placement - how you are compensated for placing their insurance. The requirement applies broadly to commercial lines brokers in states that have adopted disclosure mandates. New York Regulation 194 is the strictest, requiring disclosure on every single commercial transaction. Failure to disclose, particularly when you receive contingent commissions or override arrangements, constitutes an unfair-trade-practices violation in adopting states and can trigger both DOI enforcement and private litigation.

Key Takeaways

• Disclosure rules were triggered nationally by the 2004-2005 Spitzer investigations that exposed systematic undisclosed contingent commissions at Marsh, Aon, and Willis.
• New York Regulation 194 (11 NYCRR Part 30), effective January 1, 2011, requires written disclosure of compensation on every transaction with a commercial client - the most complete state rule in the country.
• The NAIC Producer Licensing Model Act (PLMA) contains a disclosure framework adopted in modified form in most states, but PLMA requirements are weaker than NY Reg 194.
• Contingent commissions - bonuses paid by carriers when agencies hit volume or loss ratio targets - require specific disclosure; base commissions have less demanding disclosure requirements in most states.
• Brokers (who represent the buyer) face more stringent disclosure requirements than agents (who represent the carrier) because of the fiduciary and quasi-fiduciary duties courts have applied to brokers.
• The distinction between "broker" and "agent" is legal, not marketing - it depends on who the producer legally represents in the transaction, not what they call themselves.
• workers-compensation placements have additional disclosure requirements in some states (particularly New York) because of the complexity of loss-sensitive rating programs.

The Spitzer Investigation: Why Disclosure Rules Exist

In 2004, New York Attorney General Eliot Spitzer launched an investigation into commercial insurance brokerage practices. The investigation targeted Marsh & McLennan, Aon, and Willis Group - the three largest commercial insurance brokers at the time. The core allegation: these brokers received undisclosed "contingent commissions" (then called "market service agreements" or MSAs) from carriers in exchange for directing client business to those carriers, even when the carriers did not offer the best terms for the client.

Marsh settled with the New York AG in January 2005 for $850 million. Aon settled for $190 million. Willis settled for $51 million without admitting wrongdoing. The investigations revealed that the undisclosed payments created conflicts of interest that cost policyholders billions in excess premiums.

The regulatory response was swift but inconsistent. Several states enacted disclosure requirements in 2004 to 2006. The NAIC adopted amendments to the Producer Licensing Model Act recommending disclosure. New York went furthest, promulgating Regulation 194 in 2010 with an effective date of January 1, 2011. By 2026, New York Regulation 194 remains the model that disclosure advocates point to and the rule that national brokers must comply with for New York placements.

Broker vs. Agent: Why the Distinction Determines Your Disclosure Obligation

The disclosure obligation for a producer depends substantially on whether they are acting as a broker or an agent in the transaction.

An agent is a producer who acts on behalf of the insurer. The agent has authority to bind coverage, represents the carrier's interest in the transaction, and typically receives a commission from the carrier under a pre-negotiated agency agreement. The agency relationship is established by appointment. In most states, agents have more limited disclosure obligations because the client knows the agent represents the carrier.

A broker is a producer who acts on behalf of the insurance buyer. The broker shops the market on the buyer's behalf, presents options, and has no automatic authority to bind coverage - the broker must obtain a binder from the carrier. Courts in New York and California have consistently held that brokers owe quasi-fiduciary duties to their clients by virtue of representing the buyer's interest.

The legal determination of broker vs. agent is not based on title - many "agents" act as brokers in practice and vice versa. It depends on who the producer is legally representing in the transaction and what authority they hold from the carrier. A producer can be an agent for one carrier and a broker for another simultaneously.

For disclosure purposes: if you are acting as a broker for a commercial client, New York Regulation 194 and the California Disclosure Notice requirements apply to every transaction. If you are acting as an agent, the state-by-state rules are more variable.

New York Regulation 194: The Most complete Rule

New York Regulation 194 (11 NYCRR Part 30) applies to all insurance producers - agents and brokers - operating in New York for commercial lines, personal lines, and life insurance. It requires written disclosure of compensation on every transaction.

What Must Be Disclosed Under NY Reg 194?

Compensation types. The regulation requires disclosure of all forms of compensation the producer expects to receive: base commissions (a percentage of premium), fees charged directly to the client, contingent commissions (bonuses based on volume, profitability, or loss ratios), and override commissions (additional percentage paid on top of base commissions as a carrier incentive).

Timing. Disclosure must be made prior to the time the application for insurance is submitted, or prior to the time the coverage is bound. For renewals, the disclosure must be made prior to renewal.

Format. The disclosure must be in writing. Regulation 194 permits the disclosure to be included in a cover letter, a standalone disclosure form, or incorporated into a service agreement. It cannot be given verbally and cannot be buried in footnotes.

Contingent commission detail. NY Reg 194 goes further than any other state rule on contingent commissions. If the producer receives contingent commissions from the carrier placing the coverage, the disclosure must: (1) identify that contingent compensation exists, (2) describe the general nature of the contingent arrangement (volume bonus, loss ratio bonus, or both), and (3) state that the amount cannot be determined at the time of placement because it depends on future performance.

What the NY Reg 194 Disclosure Looks Like in Practice

A compliant disclosure notice for a commercial property placement in New York includes:

• Producer's name, firm name, and license number
• Statement that the producer is compensated by the insurer (commission), by the client (fee), or both
• Base commission range as a percentage of premium, or the specific percentage if known
• Disclosure of any contingent compensation arrangement: "Our firm participates in contingent compensation programs with carriers including [Carrier Name]. These programs pay bonuses based on factors including premium volume, policy retention, and claims performance. We cannot determine the exact amount of contingent compensation, if any, that will be earned on this placement at this time."
• Statement of any fees charged directly to the client for placement services

The New York DFS has issued guidance that a producer satisfies the regulation by providing a disclosure form before binding, even if the client does not acknowledge receipt. Best practice is to obtain a signed acknowledgment.

The NAIC Producer Licensing Model Act Framework

The NAIC Producer Licensing Model Act (PLMA), Section 20, creates a framework for producer compensation disclosure that most states have adopted in some form. The PLMA requirements are less demanding than NY Reg 194.

Under the NAIC PLMA framework, a producer must disclose:

• Whether the producer is being compensated by the insurer, the applicant, or both
• The general nature of the compensation (commission, fee, or contingent)
• The amount of compensation, if requested by the applicant

The critical difference: the PLMA requires disclosure of the amount only "if requested." NY Regulation 194 requires proactive disclosure of contingent arrangements without the client asking. For most states that have adopted the PLMA framework without the NY enhancement, a producer who discloses the general compensation structure satisfies the rule - unless the client asks for more specifics.

California's Disclosure Requirements

California does not have a single regulation equivalent to NY Regulation 194. California's disclosure framework is derived from California Insurance Code §§ 1731, 1732, and the CDI's Guidance on Broker Compensation Disclosure published in 2006 following the Spitzer investigations.

California requires brokers to disclose compensation that the client may not know about and that could affect the broker's objectivity. The CDI's 2006 guidance specifically targets contingent commissions: when a broker receives a contingent commission from a carrier and recommends that carrier to a client, the broker must disclose the contingent relationship. The California rule does not require the broker to disclose base commissions unless the client asks.

California Insurance Code § 1732 requires that any fee charged directly to a client (a "broker fee") be disclosed in writing and agreed to before the service is rendered. The agreement must specify the fee amount or basis. CDI has fined agents for charging undisclosed broker fees - the fines have ranged from $5,000 to $25,000 per violation.

Contingent Commissions vs. Base Commissions: The Disclosure Difference

The disclosure distinction between contingent commissions and base commissions is not intuitive. Here is how it breaks down:

Base commissions are a set percentage of premium paid by the carrier to the producer for each policy placed. They are consistent and deterministic - if the carrier pays 12% on commercial general liability, you receive 12% of the premium amount. Most state disclosure rules require that the existence of base commissions be disclosed, but not necessarily the percentage unless the client asks (PLMA standard) or in New York where the range must be provided.

Contingent commissions (also called supplemental commissions or profit-sharing) are bonuses paid annually by carriers when a producer's aggregate business with the carrier meets certain targets. The most common structures are:

• Volume bonus: paid when total premium placed with the carrier exceeds a threshold
• Profit/loss ratio bonus: paid when the aggregate claims ratio on the producer's book falls below a threshold
• Growth bonus: paid when premium volume grows by a specified percentage year-over-year

Contingent commissions are problematic for disclosure because: (a) they are unknown at the time of placement, (b) they can create incentives to steer clients to carriers where the producer is close to a volume or profit threshold, and (c) the client has no way to evaluate the conflict without disclosure.

Under NY Reg 194, every contingent arrangement must be disclosed on every transaction with the affected carrier, even though the exact amount is unknown. Under the PLMA standard, the contingent arrangement must be disclosed if the client asks or if the arrangement could reasonably be expected to affect the producer's recommendation.

Workers' Compensation and Special Disclosure Rules

workers-compensation placements have additional considerations in some states. New York's loss-sensitive rating plans - large deductible programs, retros, captives - involve complex compensation structures where producers may receive service fees, loss control fees, or claims administration fees in addition to commission.

New York DFS has taken the position that all fees and compensation related to a workers' compensation placement must be disclosed, including fees for services that occur after placement (like claims review services or loss control consulting billed as separate line items). The disclosure must specify each fee type and basis - hourly, flat, or percentage of premium.

The practical issue: agencies that provide "bundled" services for large workers' compensation accounts often receive compensation from multiple sources (carrier commission, third-party administrator fees, risk management software fees). Each component requires separate disclosure under NY Reg 194.

How to Structure Compliant Disclosure Notices

A compliant disclosure notice system for commercial lines includes three documents:

1. Initial placement disclosure. Delivered before binding. Covers all carriers being quoted and the compensation structure for each. For contingent commissions, the notice identifies the carrier programs by name and discloses the general structure.

2. Annual renewal disclosure. Delivered before each renewal binding. Updated to reflect any changes in compensation arrangements since the prior year's disclosure.

3. Material change notice. Delivered within a reasonable time (best practice: 10 business days) when a material change in compensation arrangements occurs mid-term - such as entering a new carrier profit-sharing program that covers the client's existing policy.

Template language for contingent commissions:

"[Agency Name] receives compensation from insurers in the form of commissions based on the premium you pay. We also participate in supplemental compensation programs with certain carriers. These programs pay additional amounts based on factors such as our total premium volume with the carrier, claims experience on our book of business, and policy retention rates. Because these amounts depend on factors not determined at the time of your placement, we cannot calculate the exact amount at this time. You may request specific information about these programs at any time."

This language satisfies NY Regulation 194 for the contingent commission element. Add base commission percentage or range for full NY compliance.

Hidden Compensation Arrangements That Require Disclosure

Beyond standard commissions, these less-obvious arrangements require disclosure:

Premium finance company arrangements. If your agency refers clients to a premium finance company in which you have an ownership interest or receive referral fees, this compensation must be disclosed. Both the nature of the arrangement and the fee or ownership stake must be identified.

Third-party administrator fees. For self-insured and captive clients, producers often earn fees from TPAs for claims administration. These fees must be disclosed to the insured - they represent compensation related to the insurance program.

Risk management software licensing. Some producers receive override fees or referral commissions from risk management software vendors when they recommend the software to clients. If the recommendation is related to the client's insurance program, this compensation requires disclosure.

Carrier-funded training and travel. Carrier-funded travel to conferences and training events does not typically require individual transaction disclosure, but some states (California in guidance, New York in informal DFS positions) suggest that systematic carrier-funded perks should be disclosed generally as part of the compensation relationship description.

Practical Compliance Workflow

1. Identify your contingent commission programs. Request a written summary of every contingent or supplemental compensation program you participate in from each carrier. Maintain this list current as of each January 1.

2. Create carrier-specific disclosure inserts. For each carrier with a contingent program, create a one-paragraph disclosure insert naming the program type.

3. Build the notice into your quoting workflow. Every commercial lines quote letter should include the disclosure notice before the client can authorize binding. The disclosure must precede binding - not accompany it.

4. Track acknowledgment. Obtain client signature or email confirmation that the disclosure was received. Store in the client file.

5. Audit annually. Before renewal season, review your carrier compensation agreements. Update your disclosure notices to reflect any new programs or changes to existing programs.

BrokerageAudit's policy checker maintains a documented record of every placement, supporting the disclosure documentation you need when state DOIs or private litigation reviews your compensation disclosures. For related topics, see #507 on broker fee compliance and #508 on carrier compensation agreements.

Frequently Asked Questions

What is producer compensation disclosure and who does it apply to?

Producer compensation disclosure is the legal requirement for insurance producers - agents and brokers - to tell their clients in writing how they are compensated for placing insurance. It applies to all licensed producers in states that have enacted disclosure requirements, which includes all states under the NAIC PLMA framework and specifically to every commercial transaction in New York under Regulation 194. The most stringent requirements apply to brokers (producers who represent the buyer) because of the quasi-fiduciary duties courts have recognized in the broker relationship.

Do I have to disclose my exact commission percentage?

In most states under the NAIC PLMA framework, you must disclose the existence and general nature of your compensation, and the amount only if the client asks. Under New York Regulation 194, you must proactively disclose the commission range or percentage for base commissions and describe the nature of any contingent commission programs - but the exact contingent dollar amount (which is unknowable at placement) is not required to be stated. California requires disclosure of the commission amount only if the client requests it, but requires automatic disclosure of any contingent commission relationships.

What is a contingent commission and why is it problematic?

A contingent commission is a bonus paid annually by a carrier to a producer when the producer's aggregate book of business meets defined targets - such as premium volume thresholds, profitable loss ratios, or year-over-year growth. Contingent commissions are problematic because they create an incentive to steer clients toward carriers where the producer is close to a threshold, even if a competing carrier offers better coverage or price. The 2004-2005 Spitzer investigations found Marsh, Aon, and Willis systematically directing business based on undisclosed contingent payments, resulting in combined settlements of over $1 billion.

What happens if I fail to make required compensation disclosures?

In New York, failure to comply with Regulation 194 is a violation of Insurance Law § 2110, which authorizes the DFS to suspend or revoke a producer license. The DFS can also impose civil monetary penalties. In California, failure to disclose broker fees as required by Insurance Code § 1732 carries fines of $5,000 to $25,000 per violation. Beyond regulatory penalties, undisclosed compensation creates private litigation exposure - policyholders who discover undisclosed contingent commissions have brought breach of fiduciary duty claims, with settlements in the millions on large commercial accounts.

Is there a difference in disclosure requirements between personal lines and commercial lines?

Yes. NY Regulation 194 applies to both personal and commercial lines, but the most active enforcement has been in commercial lines where the stakes are higher and the compensation arrangements more complex. In most other states, disclosure requirements under the PLMA framework are triggered when the client "requests" information about compensation - a trigger more likely to be exercised by sophisticated commercial buyers than personal lines consumers. California's CDI guidance on contingent compensation disclosure was directed primarily at commercial lines.

How often must compensation disclosures be made?

Under NY Regulation 194, disclosure must be made prior to each transaction - new placements and renewals each require a fresh disclosure. Annual disclosures are not sufficient if you place new coverages or renew existing ones mid-year. The most practical approach is to include the disclosure form as a standard attachment to every quote letter or coverage proposal, so the timing requirement is automatically satisfied every time you present options to the client.

Written by Javier Sanz, Founder of BrokerageAudit. Last updated April 2026.

Maintain a documented record of every disclosure delivered. BrokerageAudit's Policy Checker tracks placements and stores the supporting documentation that proves your compensation disclosures were made on time. Explore Policy Checker