OGC Op. No. 07-07-10
The Office of General Counsel issued the following opinion on July 18, 2007 representing the position of the New York State Insurance Department.
Are the following three advertisements and promotions permissible?
1) An insurance company advertisement that says: “If you let us give you a quote, you can earn $50.”
2) An insurance agent advertisement that says: “If we can’t save you $100 or more, we will buy you lunch.”
3) In connection with an offer to a group consisting of an airline’s frequent flyer program members, the airline offers 500 free miles to a member for requesting an auto insurance quote.
No. Advertisements such as these, that offer inducements to potential customers in connection with the purchase of insurance, run afoul of N.Y. Ins. Law § 2324 (McKinney 2006).
A trade association of professional independent property/casualty insurance agents asks whether three advertising proposals pass muster under the Insurance Law. Two of the proposals contemplate offering a cash prize or 500 free miles in exchange for the customer requesting an insurance quote. The third offers the customer “lunch” if the company’s self-imposed savings threshold of $100 is not realized.
Insurance Law § 2324(a) prohibits the offering of inducements in connection with the purchase of most kinds of insurance, including property/casualty insurance. That statute reads in pertinent part as follows:
(a) 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 make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration of inducement of any kind directly or indirectly, which is not specified in such policy or contract, other than any article or merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon, the advertisement of the insurer, agent or broker. (emphasis added) N.Y. Ins. Law § 2324(a) (McKinney 2006)
Thus, the express language of § 2324 precludes insurers, brokers, agents and their employees and representatives from directly or indirectly offering inducements or valuable consideration (other than an article of merchandise, or “keepsake”, not exceeding $15 in value), in connection with the offer of insurance, unless such inducement or valuable consideration is specified in the insurance policy.1
The proposal to offer $50 to a customer who requests an insurance quote is impermissible because it constitutes an inducement to prospective insureds to purchase insurance by providing them with the benefit of $50 that is not set forth in the insurance policy. See O.G.C. Opinion No. 06-12-07 (December 7, 2006) ($10 coupon offered by insurance company to potential insured requesting an insurance quote an impermissible inducement.)
Likewise, an offer to buy lunch for a potential insured if the company cannot save the potential insured at least $100 serves as an unlawful inducement for potential insureds to purchase insurance. Moreover, it does not come within the meaning of the “keepsake” exception of §2324, which contemplates an article of merchandise that conspicuously bears the insurance company’s name and is intended to keep the name of the agency before the customer.
Finally, the proposal to offer 500 free miles to members of an airline’s frequent flyer group who request an auto insurance quote is impermissible. Although in this circumstance the offer is being made by the airline rather than the insurance company, the Department considers the airline to be acting on behalf of the insurance company. See O.G.C. Opinion No. 04-12-13 (December 13, 2004) (non-insurance entity in partnership with insurance company acting on its behalf in violation of § 2324 when offering discount for services to potential insured for choosing insurance company). In addition, by acting on behalf of an insurance company in offering an inducement in connection with the purchase of insurance, the airline may be soliciting insurance and acting as an agent or broker in violation of Insurance Law § 2102, which prohibits acting as an insurance producer or insurance adjuster in this state without a license.
For further information contact Supervising Attorney Michael Campanelli at the New York City Office.
1 Insurance Law § 4224(c) extends substantially similar restrictions with respect to life and health insurance policies. However, there is no “keepsake” exception under §4224(c).