The Office of General Counsel issued the following opinion on May 9, 2006, representing the position of the New York State Insurance Department.
Re: Furriers Block Insurance Referrals of Potential Insureds by Non-Licensees to an Insurance Agency
1) May a furrier that is not licensed as an insurance producer solicit, negotiate, and sell furriers block policies to its fur customers?
2) May an insurance company issue a master policy to insure furs of various insureds on a group basis?
3) May a furrier or other non-licensee charge the insured an administrative fee in addition to the insurers premium?
4) May an insurance producer compensate a non-licensee for a referral of a potential insured if such compensation is contingent upon the purchase of insurance by the referred party?
5) May a non-licensee refer its customers to an insurer?
1) No. The furriers who would issue what was described as certificates of protection to New York insureds would be soliciting and selling furriers block coverage, although they are not licensed by the Department, in violation of N.Y. Ins. Law § 2102(a) (McKinney Supp. 2006).
2) Furriers block insurance policies may not be issued on a group insurance basis.
3) Only a licensed insurance broker may charge and receive a fee in connection with issuing insurance subject to a written memorandum signed by the insured pursuant to N.Y. Ins. Law § 2119 (McKinney Supp. 2006).
4) No. Pursuant to N.Y. Ins. Law §§ 2114, 2115, and 2116 (McKinney Supp. 2006), a non-licensee may not be compensated for referrals contingent upon the sale of insurance to the persons referred.
5) No. Although the Insurance Law permits an unlicensed person to make a referral to a licensed insurance agent or broker, provided that there is no discussion of specific insurance policy terms and conditions, and the compensation to the unlicensed person for the referral is not based upon the purchase of insurance by the referred person, direct referrals to insurers are prohibited.
An insurance agent specializing in selling property/casualty insurance is licensed in New York State as a non-resident insurance agent. The agent intends to create a national furriers block program under which a furrier would solicit, quote rates, and sell garment protection to its customers. The furrier would not be licensed as an insurance agent or broker in this state. It would collect the premiums from its customers and remit the premiums to the insurer under a master policy issued to the furrier. The furrier would give the insureds what the agent referred to as a "certificate of protection." The furrier would charge the insureds a fee for its involvement in addition to the insurance premium.
Section 2102 prohibits any person or entity from acting as an insurance producer without being licensed.
N.Y. Ins. Law § 2101(a) (McKinney Supp. 2006) defines an insurance agent as "any authorized or acknowledged agent of an insurer or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of an insurance. . . contract," with exceptions inapplicable here. N.Y. Ins. Law § 2101(c) (McKinney Supp. 2006) defines an insurance broker as "any person, firm, association or corporation who or which for compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance. . . on behalf of an insured . . .," with exceptions inapplicable here. N.Y. Ins. Law § 2101(k) (McKinney Supp. 2006) defines an insurance producer as "an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance." The exceptions are inapplicable here.
Even if the proposed program were restructured so that the non-licensees would not solicit or sell insurance but merely refer their customers to the agency, such modification would still be unlawful if compensation was to be based on the placement of business. N.Y. Ins. Law § 2115(a)(1) (McKinney Supp. 2006), 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.)
Sections 2114 and 2116 have similar provisions with respect to life and accident and health insurance agents and brokers.
Under the proposal, the non-licensees fee would be contingent upon the purchase of insurance by the potential insured(s), and would thus be an improper referral and would violate Insurance Law § 2102. In addition, any direct referral by a non-licensee to an insurer would not fall within the statutory exception highlighted above, whether or not the fee is contingent on the sale. The referral may only be made to a licensed insurance agent or broker.
Furthermore, the proposed program would constitute impermissible group insurance in New York pursuant to N.Y. Comp. Codes R. & Regs. tit. 11, § 153.3 (1995) (Regulation 135) and N.Y. Ins. Law § 3435(b) (McKinney 2000). First, a legitimate homogeneous group must be formed for purposes other than obtaining insurance on a group insurance basis pursuant to Regulation 135 (§ 153.3(c)) and Insurance Law § 3435(b), which would not be the case here. Moreover, the group insurance allowable under the statute and regulation cited is limited to not-for-profit entities, which would also not be the case with respect to the customers in question. While there are some other types of property/casualty group insurance permitted in New York, none of them would permit a group like this one.
Therefore, the proposed program may not be marketed and implemented on a group insurance basis in New York for the aforementioned reasons.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.