The Office of General Counsel issued the following informal opinion on January 20, 2005 representing the position of the New York State Insurance Department.
Re: Incentive Bonuses for Unlicensed Employees of a Licensed Broker or Agent for the Sale of Insurance Products
Question Presented:
May a licensed broker or a licensed agent provide incentive bonuses to unlicensed employees for the sale of additional coverage to the licensees clients?
Conclusion:
No. N.Y. Ins. Law § 2102 (McKinney Supp. 2005) prohibits a person or firm from acting as an insurance producer without a license. Pursuant to N.Y. Ins. Law § 2101(c) (McKinney Supp. 2005), an unlicensed employee of a licensed insurance broker that sells, solicits or negotiates insurance would be acting as an insurance broker and would need to be licensed as such. Pursuant to N.Y. Ins. Law § 2101(a)(1) (McKinney Supp. 2005) an unlicensed employee of an insurance agent that sells, solicits, or negotiates insurance would be acting as an insurance agent and would need to be licensed as such except if such activity was engaged in only from within the agents office and only if the ". . . employee does not receive a commission or other compensation which is directly dependent upon the amount of business done . . ." These statutes prohibit the inquirer's proposal of paying incentive bonuses based on the sale of additional coverage.
Facts:
The inquirer forwarded a question to the Department from one of its members, a firm which is both a New York licensed broker and agent. The firm has asked whether it may provide small incentive bonuses to unlicensed employees who sell additional insurance coverage to the firms clients. Such bonuses would be awarded in flat amounts for each coverage or policy sold and would not be percentage based.
Analysis:
N.Y. Ins. Law § 2102(a)(1) (McKinney Supp. 2005) provides as follows:
(a)(1) No person, firm, association or corporation shall act as an insurance producer 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.
An insurance producer is defined in N.Y. Ins. Law § 2101(k) (McKinney Supp. 2005) as "an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance."
An insurance broker is defined in N.Y. Ins. Law § 2101(c), in relevant part, as follows:
(c) In this article, "insurance broker" means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker except that such term shall not include:
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(2) an officer, director or employee of a licensed insurance producer, provided that the officer, director or employee does not receive any commission on policies written or sold to insure risks residing, located or to be performed in this state and:
(A) the officer, director or employee's activities are executive, administrative, managerial, clerical or a combination of these, and are only indirectly related to the sale, solicitation or negotiation of insurance; or
(B) the officer, director or employee's function relates to underwriting, loss control, inspection or the processing, adjusting, investigating or settling of a claim on a contract of insurance; or
(C) the officer, director or employee is acting in the capacity of a special agent or agency supervisor assisting licensed insurance producers where the person's activities are limited to providing technical advice and assistance to licensed insurance producers and do not include the sale, solicitation or negotiation of insurance; (emphasis added)
Therefore, an unlicensed employee of a licensed insurance broker that sells, solicits or negotiates insurance would be acting as an insurance broker and would need to be licensed as such. Furthermore, a licensed broker who allows an unlicensed employee to sell, solicit or negotiate insurance could be found by the Superintendent to be acting in an untrustworthy manner pursuant to N.Y. Ins. Law § 2110.
With regard to insurance agents, N.Y. Ins. Law § 2101(a) (McKinney Supp. 2005), provides, in relevant part, as follows:
(a) In this article, "insurance agent" means any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker, except that such term shall not include:
(1) any regular salaried officer or employee of a licensed insurer, fraternal benefit society or health maintenance organization or of a licensed insurance agent, who does not solicit or accept from the public, outside of an office of such insurer, health maintenance organization or agent, applications or orders for any such contract, if such officer or employee does not receive a commission or other compensation for his services which commission or other compensation is directly dependent upon the amount of business done; (emphasis added)
A bonus for each coverage or policy sold regardless of whether it is a flat amount or based upon a percentage is compensation directly dependent upon the amount of business done. Therefore, the exemption contained within N.Y. Ins. Law § 2101(a)(1) would also be inapplicable. An insurance agent who allows an unlicensed employee to solicit, sell or negotiate insurance for a commission or other compensation directly dependent on the amount of business done could be found by the Superintendent to be acting in an untrustworthy manner pursuant to N.Y. Ins. Law § 2110.
Subsection (k) also contains exemptions from licensing. To the extent that the exemptions in subsection (k) differ from those in amended subsections (a) and (c), the specific exemptions that are contained in amended subsections (a) and (c), for agents and brokers respectively, will govern.
For further information you may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.