OGC Op. No. 06-04-15
The Office of General Counsel issued the following opinion on April 25, 2006, representing the position of the New York State Insurance Department.
Referrals and promotions
Question Presented:
1) Does the Insurance Law place a limit on the amount of compensation that may be paid to a non-licensed credit union employee for referring credit union members to an agency for insurance quotes?
2) Is there a dollar limit cap on what may be offered as an incentive or promotional premium for receiving an insurance quote from an insurance agency?
Conclusion:
1) Referrals from non-licensees, and compensation for such referrals, are permissible if the referrals do not include a discussion of specific insurance policy terms and conditions and the compensation for referrals is not based on whether a sale is made. The Insurance Law does not limit the amount of such compensation; however, the Gramm-Leach-Bliley Act provides that any person accepting deposits from the public in an area where such transactions are routinely conducted in a depository institution who refers a customer seeking to purchase insurance to a qualified person who sells product may not receive 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.
2) Pursuant to § 2324 (McKinney Supp. 2006), insurers, insurance agents, brokers and employees or other representatives thereof are prohibited from directly or indirectly offering rebates, inducements, or valuable consideration, not specified in the policy or contract of insurance, other than an article of merchandise not exceeding fifteen dollars in value, in connection with the sale of insurance or after the insurance has been purchased.
Facts:
Your property/ casualty insurance agency is planning to offer incentives to a credit union's employees for referring credit union members to the agency for insurance quotes. You also plan to run a promotion for giveaways to members who request and receive an insurance quote.
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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Also note that § 2114 and § 2116 have similar provisions for life insurance agents and insurance brokers.
Thus, there is a limited exemption for 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 such referrals is not based on whether a sale is made.
In addition, Section 305 of the Gramm-Leach-Bliley Act ("GLBA") (12 USCS § 1831x(d)(2)(B)) provides that any person accepting deposits from the public in an area where such transactions are routinely conducted in a depository institution who refers a customer seeking to purchase insurance to a qualified person who sells such may not receive 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.
With regard to your inquiry about promotional premiums, N.Y. Ins. Law § 2324 (McKinney Supp. 2006), is applicable to property/casualty insurance and provides, in relevant part, as follows:
No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker . . . (emphasis added)
The article of merchandise that Section 2324(a) contemplates is a "keepsake", for example, a pen, not exceeding $15 in retail value, that is designed to keep the name of the insurer or producer before the consumer through the embossing of the insurer's or producer's name.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.