OGC Opinion No. 06-01-14
The Office of General Counsel issued the following opinion on January 10, 2006 representing the position of the New York State Insurance Department.
Re: Limits on Compensation for Referrals
Question Presented:
Does the Insurance Law place a limit on the amount of compensation that may be paid to a non-licensee for referrals?
Conclusion:
Pursuant to N.Y. Ins. Law §§ 2114, 2115 & 2116 (McKinney Supp. 2006), an insurance agent or broker may compensate an unlicensed person for a referral provided that compensation is not based upon whether a sale is made and the referral does not include a discussion of specific insurance policy terms and conditions. The Insurance Law does not limit the amount of compensation that may be paid to a non-licensee for such referrals.
Facts:
No facts were provided. The inquiry is of a general nature.
Analysis:
N.Y. Ins. Law § 2115 (McKinney Supp. 2006), is applicable to property/casualty insurance agents and provides, in relevant part, as follows:
(a) (1) No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as insurance agent" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.(emphasis added)
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N.Y. Ins. Law §§ 2114 & 2116 (McKinney Supp. 2006) provide similar exceptions for referrals to life, accident and health insurance agents, and insurance brokers, respectively.
Thus, there is a limited exemption for certain referrals from the prohibition against a non-licensee acting as an insurance agent or broker. Pursuant to the exemption, an agent or broker may compensate an unlicensed person for an insurance referral if the referral does not include a discussion of specific insurance policy terms and conditions, and compensation for the referral is not based on whether a sale is made. The Insurance Law does not limit the amount of compensation that may be paid to non-licensees for such referrals.
However, federal banking laws place limits on the amount of compensation that an employee of a bank may receive for an insurance referral. Section 305 of the federal Gramm-Leach-Bliley Act, codified at 12 U.S.C.S. § 1831x (Lexis 2006), requires federal banking agencies1 to promulgate joint regulations that provide, among other things, standards in regard to referrals of insurance made by employees of banks. In accordance with this statutory mandate, the Board of Governors of the Federal Reserve System promulgated 12 C.F.R. § 208.85 (Regulation H) (Lexis 2006)2 which provides, in relevant part, as follows:
(b) Referrals. Any person who accepts deposits from the public in an area where such transactions are routinely conducted in the bank may refer a consumer who seeks to purchase an insurance product or annuity to a qualified person who sells that product only if the person making the referral receives no more than a one-time, nominal fee of a fixed dollar amount for each referral that does not depend on whether the referral results in a transaction.
For further information you may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.
1 Pursuant to 12 U.S.C.S. § 1813(z) (Lexis 2006), the term federal banking agency means the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.
2 C.F.R. §§ 14.50, 343.50, 536.50 (LEXIS 2006) contain similar provisions.