OGC Opinion No. 06-11-12
The Office of General counsel issued the following opinion on November 15, 2006 representing the position of the New York State Insurance Department
Paying for leads and endorsements.
Questions Presented
1. May an insurance agent make a contribution to an organization that recommends the agent to its members?
2. May an insurance agent pay fees, on a per-policy sold basis, to an organization that recommends the agent to its members?
3. If such referral fees are permissible is there a limit as to the amount the agent may give?
Conclusions
1. Pursuant to N.Y. Ins. Law §§ 2114, 2115 and 2116 if there is no discussion of particular policy provisions and the compensation is not based on whether a sale was made, the agent may compensate the referring party.
2. No, an agent may not pay an organization on a per-policy sold basis as this would violate N.Y. Ins. Law
§§ 2114, 2115 or 2116.
3. The agent is not limited as to the amount of the referral fees paid as permitted under §§ 2114, 2115 and 2116.
Facts
An insurance agent who sells long term care insurance was endorsed by several not-for-profit organizations that send out newsletters and flyers recommending the agent as an insurance agent to their members for their long term care insurance needs. The agent inquired whether a contribution could be made to these organizations and whether that contribution may be based on the number of policies sold through the organizations' endorsements.
Analysis
N.Y. Ins. Law § 2102 (McKinney 2006) states in pertinent part:
(a)(1) No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter. 1
Long term care insurance is a type of accident and health insurance. N.Y. Ins. Law § 2114(a) (McKinney 2006) applies to life and accident and health insurance and annuity contracts and states in relevant part:
(3) No insurer, fraternal benefit society or health maintenance organization doing business in this state and no agent or other representative thereof shall pay any commission or other compensation to any person, firm, association or corporation for services in soliciting, negotiating or selling in this state any new contract of accident or health insurance or any new health maintenance organization contract, except to a licensed accident and health insurance agent of such insurer, such society or health maintenance organization, or to a licensed insurance broker of this state, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.2
(4) 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.3
Generally, only a licensed insurance agent or broker may be compensated for soliciting, negotiating or selling insurance as provided in § 2102. However, an exception exists whereby a licensed insurance agent or broker may compensate a referring party if the referral to the agent or broker does not include a discussion of the insurance policy terms and conditions. Further, the referral fee with respect to a long term care policy may not be based on whether insurance was sold. Paying a referral fee based on a per-policy sold basis would violate § 2114(a)(4) and the referring party would be in violation of § 2102.
Referral fees under §§ 2114, 2115 and 2116 are not limited to a maximum dollar amount.
For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.
1 "Insurance producer" as defined in N.Y. Ins. Law § 2101 (McKinney's 2006), includes insurance agent or broker.
2 See also N.Y. Insurance law § 2115, which applies to property/casualty insurance agents, and § 2116, which applies to insurance brokers.
3 This provision is effective until September 10, 2007 pending further extension by the legislature. Similar provisions in § 2115 and § 2116 are also effective until September 10, 2007 pending extension by the legislature.