The Office of General Counsel issued the following opinion on August 17, 2004, representing the position of the New York State Insurance Department.
Re: Referrals by Bank Tellers
Pursuant to the New York State Insurance Law, may an insurance agency, which is owned by a bank, give the tellers at the bank $1.00 for each referral made if the tellers do not discuss specific insurance policy terms and conditions with the potential customers and the payment is not based upon whether an insurance policy is ultimately placed with the banks agency?
Yes, the insurance agency may give the bank tellers $1.00 for each referral made, since there will be no discussion of specific insurance policy terms and conditions and the fee for referral is not based upon whether an insurance policy is ultimately placed with the banks insurance agency. Please note that the New York State Insurance Law does not place a monetary limit on the amount of the compensation that a non-licensee can receive for each referral.
A State-chartered bank owns an insurance agency. We will assume that this is a New York State chartered bank. The bank is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation ("FDIC") insures its deposits. The tellers at the bank would create awareness of the insurance agency by saying the following to potential customers:
Did you know that our bank has its own insurance agency? The agency is owned by the bank and offers all types of insurance products for individuals and businesses, like automobile and home insurance. We would be glad to have someone from the insurance agency contact you if you are interested.
No other product information would be given, and the customer would fill out his or her name and number on a slip that would be forwarded to the insurance agency. For each referral of interest received, the agency would pay the bank teller $1.00. The inquirer would like to know whether this is permissible under the Insurance Law.
N.Y. Ins. Law § 2115(a)(1)(McKinney Supp. 2004), in regard to property/casualty insurance agents, provides, in relevant part, as follows:
(a)(1) No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as an insurance agent" 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. (Emphasis supplied)
N.Y. Ins. Law § 2116 (McKinney Supp. 2004), as to insurance brokers, and N.Y. Ins. Law § 2114 (McKinney Supp. 2004), as to life and accident and health insurance agents and brokers, contain similar provisions.
Pursuant to the above provisions, insurers or agents are expressly prohibited from paying or sharing any commissions or other compensation to or with a non-licensee for acting as an insurance agent or broker. However, a non-licensee may be compensated for referrals if the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insured and the compensation is not based on the purchase of insurance.
The Department has opined that the term "referral" encompasses the act of a non-licensee initiating contact with prospective insureds to determine their interest in speaking to a licensed insurance agent or broker about insurance products, so long as the referral falls within the parameters of 2114, 2115 and 2116.1
Therefore, in the present case, the activity that the inquirer described would constitute a referral and the insurance agency may pay the bank teller $1.00 for each referral made, since there will be no discussion of specific insurance policy terms and conditions and the fee for referral is not based upon whether an insurance policy is ultimately placed with the banks insurance agency. The New York State Insurance Law does not place a monetary limit on the amount of the compensation that a non-licensee can receive for each referral.
However, since the bank is a State-chartered bank and a member of the Federal Reserve System, federal law is also applicable to this inquiry. Section 305 of the federal Gramm-Leach-Bliley Act (codified at 12 U.S.C.A § 1831x) required the federal banking agencies2 to promulgate joint regulations that provided, among other things, standards in regard to referrals of insurance made by employees of banks. In accordance with this statutory mandate, the Board of Governors of the Federal Reserve System promulgated 12 C.F.R. § 208.85 (Regulation H), which states, in relevant part, as follows:
(b) Referrals. Any person who accepts deposits from the public in an area where such transactions are routinely conducted in the bank3 may refer a consumer who seeks to purchase an insurance product or annuity to a qualified person who sells that product only if the person making the referral receives no more than a one-time, nominal fee of a fixed dollar amount for each referral that does not depend on whether the referral results in a transaction. (emphasis supplied)
The inquirer was directed to contact the Federal Reserve System and the New York State Banking Department for further guidance.
For further information you may contact Senior Attorney Pascale Jean-Baptiste at the New York City Office.
1See OGC Opinion dated April 22, 2004 for further details.
2 Pursuant to 12 U.S.C §1813(z), the term "federal banking agency" means the Comptroller of the Currency, the Director of the Office of Thrift Supervision, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation.
3 Pursuant to 12 CFR § 208.82(b), the term "bank" means a state member bank.