The Office of General Counsel issued the following opinion on November 5, 2004, representing the position of the New York State Insurance Department.
Re: Free Accident Prevention Course for clients
Question Presented:
May an insurance agency offer a free accident prevention course to its clients and advertise the course to potential insureds?
Conclusion:
No, an insurance agency may not offer and advertise a free accident prevention course as it would constitute an inducement to purchase insurance in violation of N.Y. Ins. Law § 2324 and/or § 4224.
Facts:
An insurance agency sells insurance and would like to offer a free accident prevention course to the agency's clients. To advertise, the agency would like to place a sign outside of the office stating, "Free Accident Prevention Course offered here." Further, the agency would like to know how to respond to potential customers who come in to inquire about the free course. Specifically, the agency would like to know whether or not a representative may respond to an inquiry by stating, "this course is given at no cost if you are a client of this agency. . . I can give you a free quote to see if we can save you money." The agency does not specify what kind of insurance is to be involved, so this response addresses property/casualty insurance, as well as life, accident and health insurance.
Analysis:
With respect to property/casualty insurance, N.Y. Ins. Law § 2324 (a) (McKinney Supp. 2003) provides in 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 make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or 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 . . . . (Emphasis added).
With respect to life, accident and health insurance, N.Y. Ins. Law § 4224 (c) (McKinney Supp. 2003) provides:
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. (Emphasis added).
Thus, a property and casualty insurer is prohibited from offering an inducement or valuable consideration not specified in the insurance policy for the purchase of insurance, other than an article of merchandise not exceeding $15 conspicuously bearing the insurer's advertisement. A life, accident and health insurer is prohibited from offering an inducement or valuable consideration of any kind that is not specified in the insurance policy.
The free accident prevention course provides an inducement for existing clients to continue to insure with the agency. Furthermore, advertising that this free accident prevention course is offered to clients provides an inducement for potential insureds to purchase insurance with the agency. This course does not constitute an article of merchandise not exceeding $15 in value bearing the insurer's advertisement. Accordingly, the offering and advertising of this course constitutes a prohibited inducement to the purchase of insurance under § 2324 and/or § 4224.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.