The Office of General Counsel issued the following opinion on March 17, 2005, representing the position of the New York State Insurance Department.
Re: Licensing Requirement for Risk Management Consultant
Is there a violation of the Insurance Law if a Risk Management Consultant ("RMC") acts on behalf of an association of health professionals ("the Association") by seeking out and selecting insurance agents in an effort to obtain the best property/casualty liability insurance and is compensated by the Association based on a percentage of any premium paid?
Yes. The RMC would have to become licensed as an insurance agent or broker.
The inquirer states that he represents a Risk Management Consultant ("RMC") that proposes to enter into a consulting relationship with an association of health professionals ("the Association"). The Association will hire the RMC, who is not licensed with the Department in any capacity, to meet with insurance agents (on behalf of the Association) in an effort to find the best property/casualty liability insurance and to create what the inquirer terms as a "consolidated property insurance program." The inquirer states that a "consolidated property insurance program" is aimed at providing a joint purchase of property insurance for all the members from a single insurer, which the inquirer claims is consistent with other group purchasing activities of the Association.
Although the primary purpose of the Association is to provide group purchasing activities, attempts would be made to use the strength of the combined values of the members to reduce the premium expense that the individual members are presently paying. The group's members, which are licensed health care providers, currently have property/casualty insurance.1
The RMC will seek out and select an insurance agent who will discuss the specific policy terms and conditions with the Association and the RMC. The insurance agent will be paid his/her usual commissions by the insurer who writes the policy. The RMC will be paid, by the Association, an amount that is based on a percentage of the premium.
In the inquiry, the inquirer stated that the RMC will be acting as an insurance consultant whereby it will seek out, select and meet with insurance agents in an effort to find the best property/casualty liability insurance for the members of the Association. Please note that if, in fact, the RMC engages in activities, such as appraising, reviewing, evaluating, making recommendations or giving advice regarding insurance policies, that constitute consulting pursuant to N.Y. Ins. Law 2102(b)(3) (McKinney Supp. 2005), the RMC would have to be licensed as an insurance consultant.
However, based on the information the inquirer supplied, the RMC would not only be providing consulting services on behalf of the Association. The RMC will, in fact, seek out, select and meet with insurance agents who will offer insurance to the Association and be paid a percentage of the premium, by the Association. While the inquirer states that the insurance agent, not the RMC, will discuss the specific policy terms and conditions with the Association, the RMC's action in seeking out and selecting insurance agents on behalf of the Association constitutes, at the very least, solicitation of insurance on behalf of an insured. These are activities that may only be engaged in by a licensed insurance agent (acting for the insurer) or broker (acting for the insured).
N.Y. Ins. Law 2102(a)(1) (McKinney Supp. 2005), prohibits any person, firm, association or corporation from acting as an insurance agent or broker in this state without the authority to do so by virtue of a license issued and in force pursuant to Article 21 of the Insurance Law. In this instance, because the RMC would be acting on behalf of the insured in soliciting insurance, an insurance brokers license pursuant to N.Y. Ins. Law § 2101(a)(1) (McKinney Supp. 2005), would be required.2
N.Y. Ins. Law § 2101(c) (McKinney Supp. 2005) defines an insurance broker and provides, 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.3
As a result, the RMC must be licensed as an insurance agent or broker to seek out and select insurance, as well as to engage in other activities such as negotiation and/or sale of insurance on behalf of the Association. On a final note, it is important to note that licensed insurance agents and brokers are not required to be separately licensed as insurance consultants to provide consulting services. Such agent or broker may charge a consulting fee for such consultation, pursuant to N.Y. Ins. Law § 2119 (McKinney Supp. 2005), and subject to the limitations therein.
This opinion is limited to an interpretation of the Insurance Law.
For further information please contact Associate Attorney D. Monica Marsh at the New York City Office.
1 Please note that property/casualty or liability insurance generally may be issued or renewed in New York on a group or quasi-group basis only in compliance with N.Y. Comp. Codes R. & Reg. tit. 11, Part 153 (1995) (Regulation 135). See also N.Y. Ins. Law 3435 and Article 59. The inquirer has not provided us with sufficient information to address the issue regarding group purchase of insurance.
2 The RMC may also become licensed as an insurance agent to do similar solicitation activities but may not procure insurance or receive a commission from an insurer of which he/she is not an agent.
3 The statute has a list of exemptions from this licensing requirement, none of which appears to apply in this situation.