New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

The Office of General Counsel issued the following informal opinion on November 20, 2002, representing the position of the New York State Insurance Department.

RE: Sharing Commissions with Unlicensed Individuals for Referrals.

Question Presented

On a life insurance policy obtained in New York, may a licensed life insurance agent in New York share a commission with a referring agent that is licensed as an insurance agent in Canada but not in the United States?

Conclusion

No. On a life insurance policy obtained in New York, a licensed life insurance agent in New York may not share a commission with a referring agent that is licensed in Canada but not in the United States. However, the referring agent may be compensated for the referral if the compensation is not based upon the placement of insurance and the referring agent does not discuss specific insurance policy terms and conditions with the client.

Facts

No specific fact pattern was provided.

Analysis

N.Y. Ins. Law § 2114 (McKinney Supp. 2002) applies to life, accident and health insurance agents and provides, in relevant part, as follows:

(a)(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, an except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.

(2) No agent or other representative of any such life insurer or fraternal benefit society shall pay any commission or other compensation to any person for any services of the kind specified in paragraph one hereof, except to a licensed life insurance agent of such insurer or of such society as the case may be.

(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 or procuring 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.

(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.

N.Y. Ins. Law § 2115 (McKinney Supp. 2002), in regard to property/casualty insurance agents and N.Y. Ins. Law § 2116 (McKinney Supp. 2002), in regard to insurance brokers, contain similar provisions.

In the present case, the inquirer states that the referring insurance agent is licensed as such in Canada, but not in the United States. The inquirer proposes to share commissions with this unlicensed individual for the referral of clients. Since these commissions are, by their very nature, for services in obtaining life insurance in this state, the inquirer may not share them with an unlicensed entity. However, an agent may compensate the referring agent for a referral if it is not based upon the placement of insurance and the referring agent does not discuss specific insurance policy terms and conditions with the client.

N.Y. Ins. Law § 2114 (McKinney Supp. 2002) specifically excludes from the services specified therein referrals that do not include a discussion of specific insurance policy terms and where the compensation for referral is not based on whether a sale is made. Therefore, referrals from non-licensees and the compensation for such referrals are permissible if they fall within the parameters of section 2114(a)(4).

For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.