The office of General Counsel issued the following informal opinion on February 26, 2001, representing the position of the New York State Insurance Department.
Re: Improper Inducements and N.Y. Ins. Law §4224 (McKinney 2000)
May an agent or broker provide human resource services to its clients through a vendor that charges approximately $3- $6 per employee per month for the use of its system?
No. This arrangement violates N.Y. Ins. Law §4224 (McKinney 2000), which prohibits the giving of inducements or valuable consideration, which are not specified in the insurance policy.
XYZ Agent is a licensed life and health insurance agent and also an "administrative partner" with a vendor that offers human resources systems accessed via the internet. Pursuant to XYZ Agents contract with the vendor, it pays a monthly access fee for this service in the amount of $3-$6 per employee per month, which is debited directly out of its bank account. As a licensed life and health insurance agent, XYZ Agent has the ability to put its clients on this system and maintain all human resource related information for the client via this system. In some cases XYZ Agent would pass the cost of the service along to its clients and in other cases it would absorb the cost.
N.Y. Ins. Law §4224 (McKinney 2000), is applicable to life, accident and health insurance and provides in relevant part as follows:
(c) No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing business in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract . . . (emphasis added).
The arrangement described violates N.Y. Ins. Law §4224 (McKinney 2000) because it offers an inducement or valuable consideration, which is not specified in the insurance policy. It constitutes an unlawful inducement because XYZ Agents clients would be persuaded to remain with it because of the added benefit of receiving the human resources service. It also constitutes valuable consideration because services which cost $3- $6 per employee per month can not be perceived as being negligible in value. Accordingly, it is the position of this Department that this arrangement violates the Insurance Law.
For further information you may contact Attorney Pascale Joasil at the New York City Office.