OGC Opinion No. 11-02-09

The Office of General Counsel issued the following opinion on February 9, 2011, representing the position of the New York State Insurance Department.

Re: Chamber of Commerce Licensed Subsidiary – “Marketing Fees”

Questions Presented:

1. May a licensed insurance producer that is a wholly-owned subsidiary of a chamber of commerce pay a “marketing fee” to another chamber of commerce based on the number of certificates issued under that chamber’s group policy?

2. May a licensed insurance producer that is a wholly-owned subsidiary of a chamber of commerce pay a “marketing fee” to another chamber based upon the producer’s sale of individual and group policies directly to that chamber’s membership?

Conclusions:

1. No. A licensed insurance producer may not compensate a chamber that is a group policyholder of a life or accident and health insurance policy in the form of a “marketing fee” based on the number of certificates issued under the group policy. However, a producer may reimburse a chamber for actual administrative expenses where the payment is equivalent to the costs of rendering services, and the producer normally would perform those services.

2. No. A licensed insurance producer that is a wholly-owned subsidiary of a chamber of commerce may not pay a “marketing fee” to another chamber based on the producer’s sale of individual and group policies directly to that chamber’s membership. However, the licensed producer may compensate the chamber for a referral where there is no discussion of specific insurance policy terms and conditions, and where the compensation for the referral is not based upon the purchase of insurance.

Facts:

The inquirer reports that ABC, Inc. is a New York-licensed life and accident and health insurance producer and wholly-owned subsidiary of the XYZ Chamber that, among other things, services the XYZ Chamber’s needs with respect to individual and group health insurance plans for its members and their employees. ABC, Inc. also sells insurance to non-affiliated New York chambers, and offers individual and group health insurance plans to the general public.

The inquirer asks whether ABC, Inc. may pay another chamber, which is a non-licensee, a “marketing fee” to reimburse the other chamber for promotional expenses related to the marketing of health insurance programs to the chamber’s membership based on the number of certificates sold. The inquirer has advised the Department that the other chamber’s role would be limited to distribution of informational materials at chamber events, newsletters and “e-blasts” specifically directed toward the chamber’s membership. The other chamber may also distribute the producer’s marketing materials at chamber-sponsored events or seminars focusing on a particular health-care issue, but will not discuss particulars of any insurance, including terms or rates.

Analysis:

1. Compensation to a Chamber as a Group Policyholder

The inquirer has asked whether ABC, Inc. may compensate an unlicensed non-affiliated chamber for marketing and promotional activities related to the sale of group health insurance certificates to the chamber’s membership and whether such compensation may be based on the number of certificates sold.

Insurance Law § 2102(a)(1) prohibits any person, firm, association or corporation from acting as an insurance producer or an insurance adjuster in this state without a license issued by the Department. Insurance Law 2102(a)(1) states as follows:

(a)(1) No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having the authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.

Further, Insurance Law § 2102(e)(1) states that “no person shall accept any commission, service fee, brokerage or other valuable consideration for selling, soliciting or negotiating insurance in this state” without a duly-issued license from the Insurance Department.

Insurance Law § 2101(k), in turn, defines an “insurance producer” as “an insurance agent, insurance broker, reinsurance intermediary, excess line broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.” Further, Insurance Law § 2101(a) defines “insurance agent” in relevant part as follows:

(a) In this article “insurance agent” means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance or organization or annuity contract….

In addition, Insurance Law § 2101(c) defines “insurance broker” in relevant part as follows:

(c) In this article “insurance broker” means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker….

Thus, if a group policyholder engages in any activities that would constitute acting as an insurance producer without a license, the group policyholder is in violation of Insurance Law § 2102, unless an exception applies. Likewise, if the producer compensates the group policyholder for activities that would constitute acting as an insurance producer without a license, the producer runs afoul of the Insurance Law, unless an exception applies.

Two relevant exceptions that permit a group policyholder to assist in the administration of the group policy, such as assisting in the enrollment of new insureds under the group policy, are set forth in Insurance Law § 2101(k)(6) and (7). But those exceptions apply only when the group policyholder or its employees do not receive compensation. Specifically, the exceptions state that they extend to:

(k)(6) a person who secures and furnishes information for the purpose of group life insurance, group property/casualty insurance, group annuities, group or blanket accident and health insurance; or for the purpose of enrolling individuals under plans, issuing certificates under plans or otherwise assisting in administering plans . . . , where no commission is paid to the person for the service; [or]

(7) an employer or association or its officers, directors, employees, or the trustees of an employee trust plan, to the extent that the employers, officers, employees, directors or trustees are engaged in the administration or operation of a program of employee benefits for the employer's or association's own employees or the employees of its subsidiaries or affiliates, which program involves the use of insurance issued by an insurer, fraternal benefit society or health maintenance organization, as long as the employers, associations, officers, directors, employees or trustees are not in any manner compensated, directly or indirectly, by the company issuing the contracts;…

This exception would allow a chamber that is a group policyholder under which its members or their employees may obtain certificates of insurance to bring that group policy to the attention of its members and to direct interested parties to the producer of record on the policy or to assist in enrollment. Further, notwithstanding the prohibition set forth in these statutes against the paying of commissions, a producer may compensate an association for actual administrative expenses to the extent that the fee paid by a producer does not exceed the association’s cost for the program, and as long as those services would normally be performed by the insurer, agent or broker. See Opinion of Office of General Counsel (“OGC Opinion”) No. 06-03-06 (March 9, 2006) and OGC Opinion No. 03-10-09 (October 16, 2003). But the statute would not allow the producer to compensate the chamber based upon sales.

Insurance Law §§ 2114, which proscribes the payment of commissions to unlicensed persons or entities with respect to life and accident and health insurance agents, sets forth a limited exception for referrals. Insurance Law § 2114 states in pertinent part as follows: