The Office of General Counsel issued the following opinion on April 15, 2005, representing the position of the New York State Insurance Department.
Re: Flexible Spending Accounts Administration and Rebating
May an insurance broker who offers administration of flexible spending accounts ("FSA") charge differing fees based on 1) the size of the group, or 2) whether or not the group is currently an insurance customer of the broker?
The New York Insurance Law does not prohibit a broker who offers administration of FSAs from charging differing fees based on the size of the group. However, if such broker charges fees based on whether or not the group is a current accident and health insurance customer, the broker would be violating N.Y. Ins. Law § 4224, which prohibits rebating.
The inquirer is an insurance broker who is thinking of offering administration services for flexible spending accounts. The inquirer would like to charge fees based on the size of the group for whom he is offering administrative services. In addition, the inquirer would like to charge different fees for those groups who are his current accident and health insurance customers.
It is the long-standing position of the Insurance Department that an insurance broker may represent and sell a non-insurance product provided he does not do so in his capacity as an insurance broker or ties the solicitation to the sale of an insurance product. His activities as an insurance broker must not be connected to or associated with his activities as the solicitor of the non-insurance product. He must act independently in each capacity.
The FSA administration business that the inquirer is planning to engage in is a separate business that is not regulated under the N.Y. Ins. Law. Therefore, N.Y. Ins. Law § 2119 (McKinney Supp. 2005), which prohibits any person licensed as an insurance agent, broker or consultant from receiving any fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, bond, annuity or pension or profit-sharing contract, plan or program or for making recommendations or giving advice with regard to any of the above, unless such compensation is based upon a written memorandum signed by the party to be charged and specifying or clearly defining the amount or extent of such compensation, is not implicated. However, the inquirer would be in violation of N.Y. Ins. Law § 4224 by charging different amounts for the FSA to his insurance customers.
N.Y. Ins. Law § 4224(c) (McKinney Supp. 2005) 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).
An insurance broker subject to the provisions of N.Y. Ins. Law § 4224(c) may not pay, allow, or give 'directly or indirectly, as an inducement to any person to insure' any valuable consideration or inducement whatever not specified in such policy or contract. The Office of General Counsel has previously issued Opinion 04-10-14 (October 15th 2004)1 stating that an insurance broker in New York, who sells administrative health services and human resource services (such as payroll and benefits administration services), may not make a distinction in the fees charged for these services based on whether the client also purchases the insurance brokerage service. If the services are offered at no cost or at a reduced cost to insurance clients, then such services would constitute a valuable consideration or an inducement in violation of N.Y. Ins. Law § 4224. However, such insurance broker in its capacity as an administrative service provider, is not prohibited from making a distinction in the type and amount of such services provided to a particular client, independent of whether the client has insurance or how much insurance.
The inquirer may charge differing fees to his FSA customers insofar as the basis for doing so is not related to whether they purchase insurance or are otherwise his insurance customers. The Insurance Law does not prohibit the inquirer from adjusting his fee schedule based on the size of the group for whom he is providing FSA administrative services.
For further information please contact Principal Attorney Paul Zuckerman at the New York City Office.
1 Office of General Counsel Opinion 04-10-14 (October 15, 2004) can be viewed at the Department's website at www.ins.state.ny.us.