OGC Opinion No. 08-03-16
The Office of General Counsel issued the following opinion on March 21, 2008 representing the position of the New York State Insurance Department.
RE: Expense allowance limitations for life insurance agents and brokers
Questions Presented:
1. With respect to premiums and considerations recorded within twelve consecutive months on business written by an agent or broker, may a life insurance company pay the agent or broker a maximum of 91% in expense allowances based on all qualifying first year premiums, pursuant to Insurance Law § 4228(d)(5)?
2. With respect to premiums and considerations recorded within twelve consecutive months on business written by an agent or broker on behalf of a general agent, may the general agent pay an agent or broker expense allowances in excess of the amount that a life insurance company may pay a general agent pursuant to Insurance Law § 4228(d)(5)?
Conclusions:
1. Yes. Under Insurance Law § 4228(d)(5)(A), a life insurance company may pay an agent or broker expense allowances a maximum of 91% of the premiums and considerations recorded within twelve consecutive months on individual life insurance business written by the agent or broker.
2. Yes. The amount of expense allowances that a general agent may pay an agent or broker is subject to any agreement between the parties. Only life insurance companies engaged in the direct sale of individual life insurance policies or annuity contracts are subject to the expense allowance limitations prescribed in Insurance Law § 4228.
Facts:
The inquiry is of a general nature, without reference to particular facts.
Analysis:
Insurance Law § 4228(d) sets forth the limitations on the amount of commissions and expense allowances that a life insurance company may pay general agents and insurance agents or brokers with respect to any individual life insurance policies or individual annuity contracts that the general agent, agent or broker writes on behalf of the life insurance company. With respect to expense allowances, Insurance Law § 4228(d)(5) reads in relevant part as follows:
With respect to premiums and considerations recorded within a period of twelve consecutive months on business written by any agent or broker, no company shall pay or permit to be paid to an agent or broker expense allowance greater than the excess, if any, of the sum of:
(A) ninety-one percent of all qualifying first year premiums; and . . .
(B) with respect to qualified annuity contracts, fourteen and one-half percent of periodic considerations incurred in the first contract year; and
(C) seven percent of any excess premiums, single considerations and periodic considerations, other than those addressed in subparagraph (B) of this paragraph, incurred in the first four contract years, over the sum of commissions paid pursuant to paragraphs one, two and four of this subsection, and the value of any goods and services provided to such agent or broker by the company. With respect to premiums and considerations recorded within a period of twelve consecutive months on business written under the supervision of any general agent, no company shall pay or permit to be paid to a general agent on business not personally produced by such general agent, expense allowances greater than the excess, if any, of the sum of
(D) ninety-nine percent of all qualifying first year premiums; . . . .
Accordingly, a life insurance company may pay an agent or broker a maximum of 91% in expense allowances based on premiums and considerations recorded within a period of twelve consecutive months on business written by an agent or broker. Additionally, a life insurance company may pay a general agent a maximum of 99% of all qualifying first year premiums with respect to business written under a general agent’s supervision but not personally produced by such general agent.
Although Insurance Law § 4228(d) restricts the amount of expense allowances that a life insurance company may pay a general agent, agent or broker, the statute does not require the insurer to limit the amount of expense allowances that a general agent may in turn pay to a sub-agent or broker.
Further, a general agent is not bound by the limitations prescribed in Insurance Law § 4228(d) with respect to the amount of any expense allowances that a general agent may pay to a sub-agent or broker, because the statute specifically applies to life insurance companies. See Ins. Law § 4228(a) (“the provisions of this section shall apply to all domestic life insurance companies and to all foreign and alien life insurance companies doing business in this state, . . . engaged in the direct sale of individual life insurance policies or individual annuity contracts”). Instead, a general agent’s payment of commissions and expense allowances to a sub-agent or broker typically is governed by a contractual arrangement between the parties.
For further information, you may contact Senior Attorney Camielle A. Campbell, at the New York City office.