Insurance Circular Letter No. 10 (2019)
September 11, 2019
All Life Insurers and Insurance Producers Doing Business in New York
Soliciting, Negotiating, Selling, and Servicing Group Annuity Contracts Issued by Unauthorized Insurers
The purpose of this circular letter is to remind all life insurers and insurance producers doing business in New York that an unauthorized life insurer’s employees or other representatives may not solicit, negotiate, sell, or service group annuity contracts, including terminal funding or close-out contracts, through in-person meetings, telephone calls, mail, emails, access to web portals or in any other manner from an office or any other location in New York. In addition, an insurance producer and any other person, whether licensed by the Department of Financial Services (“Department”) or otherwise, may not aid or call attention to an unauthorized life insurer in New York. This circular letter is intended to supplement other related guidance, such as Insurance Circular Letter No. 6 (2011).
It has been brought to the Department’s attention that unauthorized life insurers, licensed insurance producers, and unlicensed persons have been soliciting, negotiating, selling, and servicing group annuity terminal funding or close-out contracts in New York as part of pension risk transfer business. Some of these contracts cover New York residents and others do not. The Department has learned that unauthorized insurers, licensed insurance producers, and unlicensed persons representing the employers or plan sponsors have offices in New York and from these offices are soliciting, negotiating, selling, and servicing the group annuity contracts through in-person meetings, telephone calls, mail, emails, and access to web portals.
Insurance Law § 1102(a) prohibits any person, firm, association, corporation or joint-stock company from doing an insurance business in New York unless authorized by a license in force pursuant to the Insurance Law or explicitly exempted by the Insurance Law. Insurance Law § 1101(b)(1) states that certain acts in New York, effected by mail from outside New York or otherwise, by any person or entity, constitute doing an insurance business in New York. These acts include: (1) making, or proposing to make, as insurer, any insurance contract, including either issuance or delivery of a policy or contract of insurance to a resident of New York or to any firm, association, or corporation authorized to do business in New York, or solicitation of applications for any such policies or contracts; and (2) collecting any premium, membership fee, assessment or other consideration for any policy or contract of insurance.
Insurance Law § 1101(b)(2)(B) provides a limited exception that an unauthorized insurer engaging in a transaction with respect to a group annuity contract issued to a group as described in Insurance Law § 4238(b) (except paragraphs 6 and 7 thereof) will not be doing an insurance business in New York when the master contract has been lawfully issued outside of New York in a jurisdiction where the insurer is authorized to do an insurance business and all subsequent acts or transactions (including ongoing servicing of the contract or certificates) are effected by mail (including email) from outside New York. However, the unauthorized insurer may not make telephone calls, provide access to web portals (except in the limited circumstances described in Insurance Law § 1101(b)(8)), or engage in any other manner of communication with any person in New York from outside New York.
An unauthorized life insurer in no event may solicit, negotiate, sell, or service group annuity contracts through in-person meetings, telephone calls, mail, emails, access to web portals or otherwise from an office or any other location in New York. Nor may the insurer collect or receive any premium or other fees in New York.
In addition, Insurance Law § 2117(a), in pertinent part, prohibits any person, firm, association or corporation (including an insurer’s officers or employees) from acting as an agent for an unauthorized insurer or as a broker in soliciting, negotiating or effectuating any insurance or annuity contract. This section also prohibits a person or entity from aiding in any way or manner an unauthorized insurer in effecting any insurance or annuity contract. Insurance Law § 2122(b) further prohibits an insurance producer or other person from calling attention to any unauthorized insurer by any advertisement or public announcement in New York. Any person or entity who acts an agent in this state for an unauthorized insurer would also be in violation of Insurance Law § 2102(a), which prohibits a person or entity from acting as an insurance producer without a license.
An unauthorized insurer, however, may conduct certain limited activities in New York that constitute “back office” functions. These “back office” functions are extremely limited in scope and include gathering information about the insurance industry; assembling policies on non-New York risks; and mailing completed applications on non-New York risks to the placing agent out of state. See OGC Opinion No. 09-11-04 (Nov. 23, 2009); OGC Opinion dated January 28, 1985; and OGC Opinion dated May 17, 1983. The insurer or its employees may not have any contact with the public and any such services must be primarily ministerial in nature and may not involve the solicitation or sale of insurance. See OGC Opinion No. 09-11-04. The insurer may not have its name on any sign or have a New York mailing address. See id.
As discussed above, the Department has learned that one or more unauthorized life insurers have been soliciting, negotiating, selling, and servicing group annuity terminal funding or close-out contracts from their New York offices through in-person meetings, telephone calls, mail, emails, and other communications. This conduct violates New York law. Insurance Law § 1102(a) imposes a penalty of $1,000 for the first violation and $2,500 for each subsequent violation on any insurer doing an insurance business in New York without a license. Each meeting, telephone call, piece of mail, email, or other communication originating from a New York office or from outside New York into New York would be a separate violation under § 1102(a).
To ensure that New York residents receive the protection of New York law in connection with the issuance and administration of a group annuity terminal funding or close-out contract that is part of a pension risk transfer transaction involving New York residents, the group contract and certificates should be delivered or issued for delivery in New York by a New York-authorized insurer and administered by that insurer. Although an unauthorized insurer affiliated with the authorized insurer can be used to issue and administer a group contract and certificates issued or delivered outside of New York to non-New York residents, the unauthorized insurer may not solicit, negotiate, sell, or service the out-of-state group contract or certificates from an office or any other location in New York.
Unauthorized life insurers have been soliciting, negotiating, selling, and servicing group annuity terminal funding or close-out contracts from their New York offices. Any unauthorized insurer engaging in such activities is subject to a penalty for each telephone call, piece of mail, email, or other communication originating from a New York office or from outside New York into New York under § 1102(a). Any insurance producer or other person, whether licensed by the Department or otherwise, aiding or calling attention to an unauthorized life insurer in New York violates Insurance Law §§ 2117(a) and 2122(b) and is subject to a penalty, which may include a monetary penalty or license suspension or revocation.
Please direct any questions regarding this circular letter to Joana Lucashuk, Supervising Attorney, by mail at New York State Department of Financial Services, Office of General Counsel, One State Street, 20th Floor, New York, New York 10004 or by email at [email protected].
Kevin J. Bishop
Acting General Counsel