The Office of General Counsel issued the following opinion on August 23, 2004, representing the position of the New York State Insurance Department.
Re: Offering free administrative services in connection with the sale of health insurance
Questions Presented
1. May an insurance broker provide free administrative services beyond what an insurance broker normally provides in connection with the sale of health insurance?
2. Regarding the services that an insurance broker may lawfully provide to its clients, may an insurance broker that is too small to provide any additional services pay other businesses to provide such additional services?
Conclusions
1. Pursuant to N.Y. Ins. Law § 4224(c) (McKinney Supp. 2003), an insurance broker may not provide any free administrative services beyond those normally provided by an insurance broker in connection with the sale of health insurance.
2. The analysis described in Conclusion Number One would still apply.
Facts
The inquirer represents a county that is shopping the market for health insurance. The inquirer wants to know what, if any administrative services, an insurance broker may lawfully provide, for no additional cost above the insurance premium, in connection with the purchase of the health insurance. The inquirer also wants to know if a person purchases health insurance from a small insurance brokerage firm that is not able to provide the administrative services in question, may the firm contract with another firm to provide such services.
Analysis
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004) 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.
An insurance agent or broker subject to the provisions of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004), may not provide " . . . as an inducement to any person . . . any valuable consideration or inducement whatever not specified in such policy or contract; . . . " in connection with the sale of health insurance. Therefore, an insurance agent or broker selling health insurance may not personally, or through a third party, provide any administrative services beyond those that are normally provided by brokers, that are not specified in the contract, to an insured because this service would constitute valuable consideration and would be an unlawful inducement in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2004), except if the insurance broker charges an additional fee for the service pursuant to a compensation agreement, in accordance with N.Y. Ins. Law § 2119 (McKinney's 2000).
For further information one may contact Susan A. Dess, Senior Attorney at the New York City Office.