OGC Opinion No. 06-06-11
The Office of General Counsel issued the following opinion on June 28, 2006, representing the position of the New York Sate Insurance Department
Re: Insurance Agent Donating Profits to Charities
Questions Presented:
1) May an insurance agent or broker donate to a charity a percentage of its commissions earned from the sale of an insurance policy?
2) May a non-licensee be compensated by an insurance agent for referrals based on a percentage of gross premiums generated by the referrals of the non-licensee?
Conclusions:
1) An insurance agent or broker may donate to charity a portion of its commissions earned from the sale of life insurance policies only if: (1) prospective clients and insureds have no direct or indirect influence over which charities receive donations; (2) no donations are made in the name of an insured or prospective client or are otherwise made on behalf of an insured or prospective client; and (3) no applicable tax deductions for the charitable contributions, or any other benefits - whether tangible or intangible, direct or indirect - stemming from such donations, inure to an insured or prospective client.
2) No. Referrals to an insurance broker or agent from a non-licensee, and compensation for such referrals, are permissible only 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.
Facts:
The inquirer is an insurance agent who would like to provide financial seminars to religious organizations such as churches. The inquirer asks whether he may make a charitable contribution, which would be a percentage of any insurance business that resulted from the seminars, to the church in question. No contribution will be made to any individual. The inquirer states that he offers insurance through ABC Life Insurance Company.
Analysis:
N.Y. Ins. Law § 4224(c)1 (McKinney Supp. 2006), entitled Life, Accident and Health Insurance; Discrimination and Rebating; Prohibited Inducements and Interdependent Sales, provides as follows:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract. (emphasis supplied).
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006), among other things, prohibits insurers and insurance brokers and agents from directly or indirectly paying, allowing or giving, or offering to pay, allow or give any valuable consideration or inducement in connection with life insurance policies when the valuable consideration or inducement is not specified in such insurance policies.
An agent or broker's donation to a charity, which is selected by the agent or broker's prospective client, confers an intangible benefit or consideration to the prospective client, and acts as an inducement for the prospective client to place insurance through the agent or broker in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006). See, e.g., Office of General Counsel Opinions 06-02-06 and 00-03-12.
However, a New York licensed insurance agent or broker may donate to a charity a portion of its commissions earned from the sale of life insurance policies if: (1) prospective clients and insureds have no direct or indirect influence over the choice of which charity receive donations; (2) no donations are made in the name of an insured or prospective client or are otherwise made on behalf of an insured or prospective client; and (3) no applicable tax deductions for the charitable contributions, or any other benefits - whether tangible or intangible, direct or indirect - stemming from such donations, inure to an insured or prospective client.
It is not clear from the facts presented what role, if any, that the church, a non-licensee will have in the referral process.
N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2006) prohibit an insurer or any agent of an insurer from compensating an unlicensed person or entity for acting as an insurance agent or insurance broker. However an insurer, its agents or an insurance broker may compensate an unlicensed person for a referral to the agent or broker provided that there is no discussion by the unlicensed person of specific insurance policy terms and conditions, and the compensation to the non-licensee for the referral is not based upon the purchase of insurance by the referred person. Since the proposed transactions involve life insurance, N.Y. Ins. Law § 2114 is the relevant section. If there is a discussion of specific policy terms and conditions or if compensation is based upon sale, then a non-licensee would be acting as an insurance agent or broker without a license in violation of § 2102(a)(1). For example, if a church in its newsletter recommended the agents to its members, the church would be making a referral and could not be compensated based upon the businesses being generated.
Under the circumstances presented, the inquirer has not provided us with enough information to ascertain whether the proposal would be acceptable. Accordingly, it is unclear whether the proposal would be violative of Section § 4224 or 2114.
For further information please contact Principal Attorney Paul A. Zuckerman at the New York City Office.
1 See also N.Y. Ins. Law § 2324, which addresses rebating and discrimination for property/casualty Insurance generally.