The Office of General issued the following informal opinion on June 19, 2001, representing the position of the New York State Insurance Department.

Re: Bank Insurance Sales Activity.

Questions Presented:

1. What is the Department's position regarding arrangements under which a licensed insurance agency rents space from a bank where the bank receives lease payments which may consist in part of referral fees based upon the business it refers to the agency?

2. Has the Department set any parameters for the amount of compensation a bank may receive in the situation described in question 1?

3. May a bank employee who is a licensed agent simultaneously serve as an employee of a bank subsidiary that is a licensed agency and receive commissions for the account of the subsidiary agency?


1. The agency may lease space from the bank, but the rent paid may not be a function of the sales resulting from referrals from the bank. The rental may be based upon the amount of other business done at the location.

2. The Department has not opined on the level of compensation that would be appropriate in such a rental situation.

3. An employee of the bank who is also a licensed agent may be simultaneously employed by the bank and the agency.


The inquirer represents a New York State chartered bank that is considering engaging in insurance sales activities, and the inquirer is inquiring about such potential activities. The inquirer suggests that these activities may take the following form. A licensed insurance agency, which may be a subsidiary of the bank, would rent space from a bank and the bank would receive compensation in the form of lease payments, or referral fees based upon the amount of business generated from referrals to the agency by the bank. The agency may employ licensed agents who are also employees of the bank.


Rental of Space by the Agency

The Department has previously addressed the situation of the rental of space by an insurance agency within the premises of another business. Based upon the holding of 1947 Op. Atty. Gen. 210 and subsequent opinions based thereon, an insurance agency may lease space from the bank, and the rental amount may be calculated as a function of the level of sales the agency makes at the location. N.Y. Ins. Law § 2102 (McKinney 2000), which prohibits an unlicensed person from acting as an agent, precludes the calculation of the rent on the basis of sales resulting from referrals made by the bank. Were such an arrangement used, the bank would effectively be functioning as an agent of the insurer under N.Y. Ins. Law § 2101(a) (McKinney 2000), and the rental payments would in part represent the improper payment of commissions to an unlicensed person. Such improper payment of commissions is prohibited by N.Y. Ins. Law § 2114 (McKinney 2000).

Note that § 2114 was recently amended to liberalize the laws dealing with referrals in light of the federal Gramm Leach Bliley Act. As amended by Ch. 418, L.2000, § 2114 now allows nonlicensed persons to receive compensation for referrals provided that the referral does not include a discussion of specific insurance policy terms and conditions and where the compensation is not based upon the purchase of insurance by the referred party. This exception would not cover the arrangement described in this inquiry in that the proposal envisions compensation based upon the amount of business resulting from the referrals, and not simply the overall number of referrals. Section 2114 now allows nonlicensees to receive compensation for referrals, but any such compensation must not be predicated on the actual sale of insurance to the person referred.

The Department has not set parameters regarding the level of compensation (rent) that a host facility such as the bank in the instant case may receive from the agency. As stated above, however, the base upon which such compensation is calculated may not consist of or be linked to the purchase of insurance by referrals received from the bank.

The question of whether an employee of the host location may also be an employee of the agency has been addressed by the Department in several previous opinion letters. In general, the employees of the host location may not also be employees of the agency or broker. See Informal Opinion, Monthly Bulletin - New York State Insurance Department (January 1973). This prohibition was based upon the view that the business in the host location would be improperly acting as an unlicensed agent if its employees were to simultaneously work for the agency. However, this rule does not apply where the proposed dual employees are individually licensed insurance agents. In such a case, these agents are free to solicit for their own account at any place and at any time. In addition, any such individually licensed employees could also act as the sublicensees of the agency.

Note that the N.Y. Banking Law and other statutes may be implicated by the scenario the inquirer describes. This office makes no comment on any such issues.

For further information, you may contact Supervising Attorney Michael Campanelli at the New York City office.