The Office of General Counsel issued the following informal opinion on January 7, 2002, representing the position of the New York State Insurance Department.
Re: Bonus Compensation Paid to Employees of Insurers
Question Presented:
Does the N.Y. Ins. Law § 2101(a) (McKinney 2000) require a regularly salaried employee of a life and accident and health insurer to be licensed as an insurance agent in order to receive bonus compensation from the insurer when the bonus compensation is determined as a percentage of premium produced by the licensed insurance agents to whom the employee provides marketing information about the insurer and its products to?
Conclusion:
No. N.Y. Ins. Law § 2101(a) (McKinney 2000) does not require a regularly salaried employee of a life and accident and health insurer to be licensed as an insurance agent in order to receive bonus compensation from the insurer when the bonus compensation is determined as a percentage of premium produced by the licensed insurance agents to whom the employee provides marketing information about the insurer and its products, where the employee is not engaged, directly or indirectly, in the solicitation, negotiation, procurement or the making of any insurance.
Facts:
An employee of a life and accident and health insurer provides marketing information about the insurer and its products to licensed insurance agents as well as promotes the development of an agency force. The employee suggests that agents place coverage for their potential insureds with the insurer, however, the employee "does not negotiate, procure or make insurance contracts for, and has no contact at all with, the ultimate insured." We are assuming that this means that there is no involvement in any way, either directly or indirectly, with any transaction regarding any insureds policy.
The insurer would like to pay the employee bonus compensation, in addition to the employees regular salary, that is determined by a percentage of the premium produced by those agents serviced by the employee.
Analysis:
N.Y. Ins. Law § 2101(a) (McKinney 2000) states in relevant part:
In this article, "insurance agent" means any authorized or acknowledged agent of an insurer . . . who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance . . . or annuity contract, other than as a licensed insurance broker . . . .
Thus, an insurance agent acts in the solicitation of, negotiation for, or procurement or making of, an insurance contract, whether conducted by dealing directly with a potential insured, or with a potential insureds insurance broker or agent, which acts on behalf and as the representative, of the potential insured. However, a sales representative or other employee of an insurer that is not licensed as an insurance agent and that merely markets his/her employers products to insurance brokers or insurance agents in a general manner does not violate the Insurance Law because such marketing is not geared toward a particular potential insured and thus does not constitute solicitation of insurance.
The Insurance Law also includes exemptions from the definition of insurance agent. However, this employee is not considered an insurance agent and thus need not fit within any of the exemptions set forth in N.Y. Ins. Law § 2101(a)(1) and (2) (McKinney 2000).
Since the employee is not acting as an agent, the compensation received by the employee from the insurer is not prohibited by N.Y. Ins. Law § 2114 (McKinney 2000), and the insurer may pay the employee based upon a percentage of the business.
For further information, you may contact Senior Attorney Meredith S. Kaufer at the New York City Office.