OGC Op. No. 06-02-13
The Office of General Counsel issued the following opinion on February 16, 2006, representing the position of the New York State Insurance Department.
Re: Raffle in Context of Customer Referrals
What are the parameters and dollar limitations for a raffle established for current customers who provide referrals to an agent?
Under N.Y. Ins. Law §§ 2324 and 4224 (McKinney Supp. 2006) with respect to rebating, as long as the raffle is open to the public and not tied to either the sale or solicitation of a product, then, within the guidelines of N.Y. Ins. Law §§ 2114, 2115, or 2116 (McKinney Supp. 2006) with respect to referrals, a raffle may be held with no dollar limitation.
The inquirer states that their agency would like to start a raffle for current commercial customers who refer potential customers to their agents. The existing customer who makes the referral would be entered into a raffle, but the entry is not contingent on the referred person buying insurance.
The insurance law prohibits unlawful rebates. Specifically, N.Y. Ins. Law § 2324(a) (McKinney Supp. 2006) prohibits the use of rebates in connection with property/casualty insurance. This section states in relevant part:
No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker, or shall give, sell or purchase, or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage
In addition, N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006) sets forth a similar rule in the context of life, accident and health insurance, and annuity contracts. This section states:
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.
An agent or broker for life, accident and health insurance, and annuity contracts is subject to the provision of Section 4224(c), and may not distribute promotional novelties unless it is specified in the policy or contract. An insurance agent or broker for property/casualty insurance is subject to the provisions of Section 2324(a), and may distribute merchandise, which does not exceed $15.00 in value, as long as the companys name is conspicuously stamped thereon. However, neither a raffle ticket nor a raffle prize falls within the exception provided by Section 2324.
Whether a raffle ticket would be considered an unlawful rebate will depend on a number of factors. This Department has opined before that an insurance agent or broker may compensate a nonlicensee who makes a referral to the insurance agent or broker with entries in a raffle run by the insurance agent or broker provided that the raffle meet certain conditions. The conditions are that the raffle is "open", i.e. anyone may enter the raffle, and the raffle is not tied to either the sale or solicitation of insurance. If these conditions are met, a raffle would not be considered an unlawful rebate because there is no prohibited inducement or tie-in to an insurance contract. Opinion of General Counsel No. 03-10-30 (October 31, 2003). As far as dollar limitation, an "open raffle" has no dollar limitation. Opinion of General Counsel No. 05-05-33 (May 31, 2005).
However, a raffle only open to current commercial customers would not be considered an "open raffle." It would be considered an impermissible inducement in violation of N.Y. Ins. Law §§ 2324, 4224 (McKinney Supp. 2006).
The raffle would not be transformed into an "open raffle" by simply stating that anyone could enter it because the target audience would still remain existing commercial customers who provide referrals. The raffle would have to be made public in order for it not to violate anti-rebating law.
Assuming that the compensation for the referral does not constitute an unlawful rebate, any referral must comply with N.Y. Ins. Law §§ 2114, 2115, or 2116 (McKinney Supp. 2006). N.Y. Ins. Law § 2114 (McKinney Supp. 2006) applies to life, accident and health insurance agents,1 and states in relevant part:
(a)(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
(4) [Deemed repealed Sept. 10, 2007, pursuant to L.2000, c. 418, § 12, and L.1997, c. 3, § 7.] Services of the kind specified in this subsection 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.
Pursuant to N.Y. Ins. Law § 2114(a)(1) (McKinney Supp. 2006), an insurer is prohibited from paying commissions or other compensation to a non-licensed person.
However, under N.Y. Ins. Law § 2114(a)(4), non-licensees may make referrals to licensed agents or brokers provided that the non-licensee does not discuss specific policy terms with the referred person, and is not compensated based upon whether a sale is made. The Insurance Law does not limit the compensation that may be paid to a nonlicensee for such referrals. Opinion of General Counsel No. 06-01-14 (January 10, 2006).
For further information please contact Senior Attorney Elizabeth Barrett at the New York City Office.
1 See also N.Y. Ins. Law § 2115 (McKinney Supp. 2006), which applies to property/casualty insurance agents, and N.Y. Ins. Law § 2116 (McKinney Supp. 2006), which applies to insurance brokers.