OGC Op. No. 06-09-13
The Office of General Counsel issued the following opinion on September 21, 2006 representing the position of the New York State Insurance Department.
Re: Insurance Consultant Fees
May a licensed consultant, offering consulting services only, reduce or increase its fee for consulting services based on the extent of savings to the insured?
Yes, a licensed consultant, offering consulting services only, and not selling insurance, may reduce or increase its fee for consulting services based on the extent of savings to the insured.
A consultant, purporting to offer consulting services only, has told an insured that his property/casualty insurance is unnecessarily costly. The consultant says that he can bring the insureds cost down if his consulting services are utilized. The consultant says that he will reduce his fee to the extent that savings are not fully realized, but his fee will increase if the savings are greater than expected.
N.Y. Ins. Law § 2119 (McKinney 2006) states:
(a)(1) No person licensed as an insurance agent, broker or consultant may receive 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.
(2) A copy of every such memorandum or contract shall be retained by the licensee for not less than three years after such services have been fully performed.
N.Y. Ins. Law § 2119(a) (McKinney 2006) permits a licensed insurance agent, broker or consultant to receive a fee for consulting services provided that the compensation in question is based upon a written memorandum signed by the party to be charged and clearly defines that amount or extent of such compensation. The agent, broker or consultant must retain such memorandum for at least three years after performance of the consulting services in question. At the time the consultation amount is actually billed, the billing should clearly indicate the dollar amount and how it was arrived, consistent with the original agreement.
An agent, broker or consultant, acting in a consulting capacity only and not selling the insurance, may receive a consulting fee based on the extent of the insureds savings; or, in other words, a contingent fee based on a percentage of any cost reduction affected.
In this case, there is nothing improper per se for a consultant, who is offering consulting services only and not also selling the insurance, to say that he will reduce his fee to the extent that savings are not fully realized, but his fee will increase if the savings are greater than expected.
For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.