December 15, 1992
Circular Letter No. 13 (1992)
TO: ALL INSURERS LICENSED TO WRITE LIFE INSURANCE OR ANNUITIES IN NEW YORK STATE
RE: TRAINING ALLOWANCE PLANS
Subdivision (c) of the preamble to Regulation No. 50 (11 NYCRR 12) reads in part as follows:
"Subsection 13 of Section 213 (formerly subsection 15) of the New York Law enables a life insurance company to provide new soliciting agents with a training allowance during the period in which such an agent is undergoing training and could not be expected to earn an adequate income solely on the basis of commissions on business produced by him. The statute provides that no agent shall be eligible to receive training allowances unless he qualifies under rules acceptable to the Superintendent."
Under the 1984 remodification of the Insurance Law, subsection 213(13) became subsection 4228(m).
Suggested Range of Maximula Subsidies
Insurers submit proposed training allowance plans, for approval under subparagraph 4228(m)(1)(A) of the Insurance Law, to the Life Insurance and Companies Bureau of the Department. They will expedite review by including, with other characteristics of their proposed plan, a schedule of cumulative maximum subsidies by contract year. An example forming part of one approved plan is:
End of Year Per Agent
Cumulative Maximum Subsidy
This example illustrates a decrease in the increment as the successful agent approaches unsubsidized performance, in accordance with Section 12.2(g) of 11 NYCRR 12 (Regulation 50).
Maximum subsidy is only one of the elements considered in evaluating a proposed training allowance plan. Other important elements are the validation requirements, the expected amounts and incidence of trainee earnings - both during and immediately following the financing period - and the costs of producing a "successful" career agent.
The "guidelines for the cumulative maximum subsidy per agent", set forth in Circular Letter No. 10 (1983), are no longer to be considered effective.
Distinguishing New Agents From Experienced Agents
Regulation 50 specifies minimum qualification rules for an agent to be eligible for financing under the provisions of subsection (m) of Section 4228. Section 12.2(h) of Regulation 50 sets forth rules intended to distinguish new agents from experienced agents. New agents are eligible to have the commissions earned under the company's standard agent's contract supplemented by training allowances. Experienced agents are not eligible to receive training allowance.
There has been some misunderstanding of the minimum eligibility requirements under Section 12.2(h). Section 12.2(h) lists four rules, all of which have to be met for an agent to qualify as a new agent and thereby he eligible for training allowances. As provided in Regulation 50:
An agent may be considered a new agent provided he qualifies under all of the following minimum rules:
(1) He was appointed as an agent by the company subsequent to the effective date of this Part.
(2) He has not acted as a life insurance agent prior to his appointment by the company, or he acted as a life insurance agent for a period of less than one year immediately prior to such appointment.
(3) He acted as a life insurance agent at no time within five years prior to his appointment by
the company or he acted in such capacity for a total of less than two years in the five years
immediately prior to such appointment. This rule shall not apply to any person appointed as an
agent within six months after his release from active duty in the armed forces 'of the
(4) He received no training allowances from any other company for a period of more than six months immediately prior to his appointment.
No questions have arisen with respect to the first of the four rules. However, the Department has responded to frequent inquiries as to the meaning of the other three. These rules have consistently been interpreted by the Department to mean that an agent will not be considered a new agent if any one of the following is true:
(a) During the thirteen months prior to the agent's appointment by the company, the agent acted as a life insurance agent for a total of twelve months or more;
(b) During the sixty months prior to the agent's appointment by the company, the agent acted as a life insurance agent for a total of 24 months or more;
(c) At any time within the six months prior to the agent's appointment by the company, the agent received any training allowances from any other company
The Department has also responded to other related in Ties. If, during any month a person possessed an agent's license to sell life insurance or annuities from any jurisdiction, that person will be presumed to have acted as a life insurance agent for that entire month, whether or not any business was written. A person who sold life insurance or annuities for a company in a jurisdiction where no license was required will be presumed to have acted as a life insurance agent from the month that person first sold a policy, to the month that person last sold a policy for that company. "Acted as a life insurance agent" in items (a) and (b) above, and received any training allowances" in item (c), apply to actions for or by any company, whether or not admitted to New York. To qualify for training allowance from a particular company, the agent should be licensed with that company exclusively on a full time basis.
Plans of Compensation Other Than Commissions
Section 12.2(c) of Regulation 50 indicates that plans submitted under subsection 4228(m) are to provide for allowances solely for training new agents and are to be distinguished from salary plans wider former subsection 213(4) [remodified as subsection 42213(d)]. A plan, or any provision thereof, which does not conform with the provisions of subsection (m) of Section 4228 as well as the principles set forth in Regulation 50, would have to be acceptable under the provisions of subsection (d) of said section.
Subsection 4228(d) provides that any company may compensate its agents in whole or in part, upon any plan other than commissions, provided that the plan, including its basis of allocation, is submitted to and approved by the Superintendent and the company's Schedule Q total field expense and first year field expense limits are not exceeded when the allocated payments made under the plans are included in the corresponding total field expenses and first year field expenses.
The part of subsection (d) that provides for plans other than commissions was added to the law primarily to enable companies to introduce salary plans in lieu of commission plans. The legal authorization for salary plans was required in view of the limitations on commission rates in subsections (d) and (h). The limitations imply that, without this explicit authorization of other plans, agents may be compensated only by commissions.
Many years ago a number of companies filed compensation plans involving temporary subsidies under subsection (d) instead of subsection (m). In some cases, the plans were identical to corresponding plans that had been filed and approved under subsection tin). If the purpose of plans developed under paragraph (d)(4) was avoidance of the restrictions applicable to plans filed under subsection (m), this is an undesirable use of paragraph (dXii) which should not be perpetuated:
In view of these considerations it was concluded some time ago that paragraph (d) (4) was intended to provide only for compensation plans that permanently consist, in whole or in part, of elements other than commissions, such as salaries. A plan is acceptable under paragraph (d) (4) only if the salary (or other element that can be distinguished from commissions) is presumably permanent. For example, a salary plan that is to be effective for a temporary period, such as a new agent's first two or three years with the company, following which it would convert automatically to the company's regular contract, would not be acceptable under subsection (d). Such a plan would be accepted only under subsection (in) and Regulation 50.
New agent financing may be made a part of a compensation plan filed and approved under subsection (d); however, if any part of that plan includes temporary new agent financing, it must be consistent with subsection (m), Regulation 50, and this Circular Letter.
Very truly yours,
SALVATORE R. CURIALE
Superintendent of Insurance