The Office of General Counsel issued the following opinion on August 30, 2005, representing the position of the New York State Insurance Department.
Re: Referrals of Potential Insureds by Non-licensees to an Insurance Agency
Question Presented:
May an insurance agency compensate a non-licensee for a referral of a potential insured if such compensation is not contingent upon the purchase of insurance by the referred party?
Conclusion:
Yes. Pursuant to N.Y. Ins. Law §§ 2114, 2115, and 2116 (McKinney Supp. 2005) a non-licensee may not be compensated for referrals contingent upon the sale of insurance to the persons referred.
Facts:
The inquirer is an agent who wishes to give away vacation certificates (that have no cash value and that need not be used) to any non-licensee who makes a referral of a prospective insured that may solicit to purchase insurance. The gift is not contingent on there being an actual sale.
Analysis:
N.Y. Ins. Law § 2115(a)(1) (McKinney Supp. 2005), in regard to property/ casualty insurance agents, states in relevant part:
No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as insurance agent" shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person. (Emphasis added.)
N.Y. Ins. Law § 2116 (McKinney Supp. 2005), as to insurance brokers, and N.Y. Ins. Law § 2114 (McKinney Supp. 2005), as to life, accident and health insurance agents and brokers, contain similar provisions.
Under this proposal, the gift to the non-licensee would not be contingent upon the purchase of insurance by the potential insured(s). It is also assumed that the non-licensee would not be discussing specific insurance policy terms and conditions with the insured. Accordingly, the inquirers proposed course of action as of now does not violate the Insurance Law.
Please note, however, that the exceptions cited above are scheduled to be repealed effective September 10, 2007. If such exceptions are not renewed, the proposal would then be in violation of the Insurance Law.
For further information please contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.