The Office of General Counsel issued the following opinion on July 15, 2005, representing the position of the New York State Insurance Department.
Broker Compensation
Questions Presented
1) May an insurance broker or agent charge a service fee to its clients?
2) If so, does the New York Insurance Law specify the percentage or amount that may be charged?
Conclusion
1) Pursuant to New York Insurance Law § 2119(c) (McKinney 2005), a licensed insurance broker may charge insureds service fees in addition to receiving commissions from the insurer. However, an insurance agent may not charge such a fee.
2) No. There is no provision under New York State law that specifies the amount or percentage that a broker may charge for a service fee. However, any fee should be reasonable in relation to the service provided.
Facts
Since this was a general inquiry, no additional facts were furnished.
Analysis
N.Y. Insurance Law § 2119(c) (McKinney 2005) in pertinent part, states:
(c)(1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the sale, solicitation or negotiation of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, 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.
(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.
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(d) No insurance broker shall, in connection with the sale, solicitation or negotiation, issuance, delivery or transfer in this state of any contract of insurance made or negotiated in this state, directly or indirectly charge, or receive from, the insured or prospective insured therein any greater sum than the rate of premium fixed therefor by the insurer obligated as such therein, unless such broker has a right to compensation for services created in the manner specified in subsection (c) of this section.
Further, 11 NYCRR § 20.6 (2005) (Regulation 29), in pertinent part states:
Where a fee is permitted, no licensee shall stipulate, charge or accept any fee that is not fully disclosed or the basis for which is not fully disclosed prior to the service being rendered; by executing a signed memorandum by the client which contains the term of the agreement, the date and the amount of such fee. . . .
Unlike an insurance agent, who represents the insurer and may only receive compensation from the insurer,1 an insurance broker represents the insured and is allowed to charge the insured additional fees as well as receive commissions from the insurer. Therefore, under N.Y. Ins. Law § 2119(c)(1), an insurance broker may, in addition to the commission, collect a service fee from the insured provided that the party charged signs a written memorandum that clearly specifies the amount of the compensation. Fees charged must be fully disclosed prior to the service being provided and the memorandum must be retained by the broker for at least three years after the performance of the services.
Furthermore, New York State law does not specify the percentage or amount that an insurance broker may charge as a service fee. This Department has stated that any charge of fees made to the insured should be reasonable in relation to the services rendered. An insurance broker that charges an unreasonable service fee in relation to the services the broker provides may be considered to have acted in an untrustworthy manner. Pursuant to N.Y. Ins. Law § 2110(a)(4) (McKinney 2005), the Superintendent may, among other things, revoke or suspend the insurance license of a broker acting in an untrustworthy manner. Office of General Counsel Opinion No. 04-08-02 (2004).
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City office.
1 An insurance agent may receive consulting fees, however, see N.Y. Ins. Law § 2119(a) & (b) (McKinney 2005).