The Office of General Counsel issued the following opinion on October 31, 2003 representing the position of the New York State Insurance Department.
1. May an insurance agent run a promotional raffle in which a restaurant dinner for two would be the prize for the winner whose name would be entered into the raffle when such person refers a prospective client to the agency?
2. What, if any, impact would there be on the analysis if the raffle was conducted by a third party, unrelated to the insurance agency?
1. As long as the raffle is open to the public, and not tied to either the sale or solicitation of an insurance product, then, within the guidelines of N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2003), a raffle may be held.
2. The analysis described in Conclusion #1 would still apply.
The inquirer wants to know under what circumstances an insurance agent may run a raffle that does not violate New York Insurance Laws. The inquirer posed the following fact pattern.
In a quarterly newsletter mailed to all of an insurance agents existing clients, or to the general public, the insurance agent advertises a promotional raffle inviting these clients to refer prospective clients to the agency. In return, irrespective of whether the referred person purchased insurance, the existing client would be rewarded with his or her name being entered into a raffle where the prize would be a restaurant dinner for two, where the dinners value would exceed $15.00. The inquirer assumes that the dinner would not qualify as an article of merchandise as contemplated by N.Y. Ins. Law § 2324 (McKinney 2000).
N.Y. Ins. Law § 2102(a)(1) (McKinney 2000), concerning the licensing of agents, brokers, reinsurance intermediaries and adjusters, states in the relevant part:
No person, firm, association or corporation shall act as an insurance agent, insurance broker, reinsurance intermediary or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
The inquirer had specifically asked about the impact of N.Y. Ins. Law § 2324(a) (McKinney Supp. 2003) on the raffle. With respect to property/casualty insurance, N.Y. Ins. Law § 2324(a) (McKinney Supp. 2003) states in the relevant part:
No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall . . . give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker, or shall give, sell or purchase or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, . . .
With respect to life, accident and health insurance, N.Y. Ins. Law § 4224(c) (McKinney Supp. 2003) states:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
The above two sections address the issue of unlawful rebates. An agent or broker subject to the provisions of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2003), may not distribute promotional novelties in connection with the sale of insurance unless it is specified in the policy or contract. Section 2324 would allow an insurance agent or broker subject to its provisions to distribute as a "keepsake" an item which does not exceed $15.00 in value, and is designed to keep the name of the insurer or producer before the customer by embossing the insurers or producers name on the item. However, neither a raffle ticket nor the raffle prize falls within the exception provided by Section 2324.
Whether a raffle ticket would be considered as an unlawful rebate will depend on a number of factors. A ticket for a raffle held by either an agent or a broker, or a third party, that meets the following conditions, would not be considered as an unlawful rebate. If the raffle is "open", meaning anyone may enter this raffle, and entry into the raffle is not tied to the purchase or solicitation of an insurance product, then a ticket for such a raffle would not be considered an unlawful rebate because there is no prohibited inducement or tie-in to an insurance contract.
Since the proposed referral would only be advertised in a quarterly newsletter mailed to all of an insurance agents existing clients, this would not be an "open raffle" as that term is defined in the November 22, 1991 opinion to which the inquirer referred in the inquiry. The proposed raffle would be tantamount to only inviting existing clients to participate. The raffle would not be transformed into an "open raffle" by simply stating in the proposed advertisement that anyone could enter because the target audience still remains only the insurance agents existing clients.
Assuming that the compensation for the referral does not constitute an unlawful rebate, any referral must comply with N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2003). N.Y. Ins. Law § 2114(a) (McKinney Supp. 2003) prohibits payment of commissions or other compensation by an insurer to a person not licensed to sell life or health (long term care) insurance. However, referrals to a licensed insurance agent or broker may be allowed if such referrals comply with N.Y. Ins. Law § 2114(a) (McKinney Supp. 2003). N.Y. Ins. Law § 2114 (McKinney Supp. 2003) states in the relevant part:
(a)(1) No insurer . . . doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer . . . or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
. . . .
(4) . . . Services of the kind specified in this subsection shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.1
Accordingly, a non-licensee may be compensated for referrals provided that the non-licensee does not discuss specific policy terms with the referred person, and the non-licensee is not compensated based upon the purchase of insurance by the referred person.
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.
1 N.Y. Ins. Law. § 2115 (McKinney Supp. 2003) applies to property/casualty insurance agents; N.Y. Ins. Law.
§ 2116 (McKinney Supp. 2003) applies to insurance brokers.