FAQs about Circular Letter No. 20 (2017) and Supplement No. 1 to Circular Letter No. 20 (2017)
Q-1. What types of insurance policies and contracts are addressed by Supplement No. 1 to Circular Letter No. 20 (2017) (the “Supplement”)?
- The Supplement applies to all forms of accident and health insurance policies and contracts, and contracts written by Article 43 corporations and health maintenance organizations (collectively “issuers”).
Q-2. May compensation to an insurance agent or broker from an issuer or to a broker from a policyholder vary based on differences in the services provided to experience rated large groups?
- Amounts paid or charged for insurance agent or broker services for experience rated large group policies must be in accordance with the schedules filed with the Department of Financial Services and an issuer may not deviate from the filed schedules. As stated in the Supplement, an issuer may pay an insurance agent or broker different commission amounts where the agent or broker has provided differing levels of services on behalf of the issuer relating to the sale or servicing of a policy in accordance with specific factors articulated in the issuer’s filed rates and applied on a consistent basis for that policy form. Schedules of rates of commissions, compensation and other fees or allowances to agents and brokers for group accident and health insurance must be filed with the Department. Different insurance agents and brokers should receive the same compensation from an issuer for the same services associated with the same policy or contract.
An insurance broker (but not an insurance agent) may charge the insured a service fee in accordance with Insurance Law section 2119 (“2119 Agreement”). The broker must treat like policyholders or potential policyholders in a fair and nondiscriminatory manner by charging like policyholders the same amount for the same services associated with the same product.
Q-3. May compensation from an issuer to an insurance agent or broker related to the sale of comprehensive medical insurance vary by group size?
- Compensation may not increase as group size increases for community rated insurance. Variation in compensation due to group size for experience-rated insurance must be evaluated to assure compliance with federal guaranteed availability requirements.
Q-4. May compensation from an issuer to an insurance agent or broker related to the sale of accident and health insurance other than community rated insurance vary by group size?
- Yes, compensation may vary by group size for non-community rated accident and health insurance in accordance with the schedules filed by issuer. However, federal guaranteed availability requirements may still apply for comprehensive medical policies and contracts.
Q-5. Is an arrangement paying a range on commissions (+/-2, allowing for commissions of 0% to 4%) for services provided to a policyholder by an insurance agent or broker permissible under an experience rated group policy?
- No. Differing compensation for services provided to a policyholder by an insurance agent or broker related to an experience rated group policy may only be expressed in terms of clearly defined variables that are articulated in the issuer’s filed rates and uniformly applied.
“Single case” arrangements that result in different agent or broker compensation amounts being paid on substantially similar cases are not permissible.
Q-6. What obligation does the Supplement place on an issuer when brokers are paid pursuant to a 2119 Agreement?
- A 2119 Agreement is strictly between a broker and the party to be charged and sets forth the fees for services rendered.
Issuers are not required to handle funds paid under 2119 Agreements and there is no obligation for the issuer or broker to provide a copy of the 2119 Agreement to DFS. However, if an issuer elects to handle these funds, then the issuer must be able to demonstrate that collected funds were identified apart from premium, were associated with a 2119 Agreement, and were handled accordingly, as discussed in the Supplement.
Q-7. Are amounts collected on behalf of insurance brokers pursuant to a 2119 Agreement a component of premium (e.g., administrative expense) subject to premium tax requirements or in minimum loss ratio (“MLR”) calculation?
- Broker funds collected under a 2119 Agreement are not a component of the insurance premium and are not considered an administrative expense of the insurer, and thus are not subject to premium tax or included in the MLR calculation.
Q-8 Are bonuses and rewards paid by issuers to insurance agents and brokers permitted in the community and non-community rated markets?
- As stated in Circular Letter 20 (2017), bonuses, rewards or similar compensation providing differing compensation from an issuer to an insurance agent or broker for the sale of the same product will not comply with the community rating rules set forth in Insurance Regulation 145 and are not permitted.
Compensation that includes bonuses and rewards, are permitted with non-community rated products, but issuers must include all variables used to determine the relevant amounts in filed rates. All variables must be clearly defined and consistently applied so that two different evaluations of the same case will result in the same agent or broker compensation.
Q-9. Are different commissions by product type (such as student blanket vs. comprehensive medical) permitted?
- Yes. However, there should be consistency within a product.
Q-10. Are certificate holders party to a 2119 Agreement?
- Insurance Law § 2119(c) requires the party to be charged to sign the 2119 Agreement. If a certificate holder is paying any portion of the service fee, directly or indirectly, then the certificate holder must sign the 2119 Agreement and would be a party to the agreement.
Q-11. May issuers pay insurance agents and brokers amounts that deviate from filed commissions, such as in cases where multiple agents or brokers are involved?
- No. The total amount of commission paid may not deviate from the filed commission rates. A licensed insurance agent or broker generally may share with another agent or broker the commission received for the placement of an insurance policy if both agents and brokers are licensed to sell that kind of insurance, and as long as the receiving agent is a licensed agent of the issuer that wrote the policy.
Regarding insurance issued to New York State, its agencies and departments, public benefit corporations, municipalities and other governmental subdivision in New York State (collectively, “governmental units”), Insurance Law § 2128 and 11 NYCRR 29 (Insurance Regulation 87) prohibit commission sharing between agents and brokers, unless the agent or broker actually placed the insurance coverage on behalf of, or rendered insurance services to the governmental unit.