The Office of General Counsel issued the following informal opinion on December 27, 2002, representing the position of the New York State Insurance Department.
Re: Broker Commissions and other Compensation
This is in response to your recent request for an opinion.
1. Is there a standard rate of commission charged by an insurance broker?
2. What information must be included in a written memorandum under N.Y. Ins. Law § 2119 (McKinney 2000)?
1. Commission rates are established contractually between the insurer and the broker. The Department does not require the filing of individual commission amounts that the insurer has agreed to pay each of its insurance agents or insurance brokers.
2. N.Y. Ins. Law § 2119(c)(1) (McKinney 2000) requires that the written memorandum must be signed by the party to be charged, and must specify or clearly define the amount or extent of such compensation.
No facts were provided. The inquiry is general in nature.
Commissions are part of an insurers expenses. Although the Department does not require an insurer to file the individual commission amounts that it has contractually agreed to pay each of its insurance agents or insurance brokers, the expense portion of an insurers rate must be included in support of its rate filings made with the Department.
In accordance with N.Y. Ins. Law § 2119(c)(1) (McKinney 2000), an insurance broker, unlike an insurance agent may, in addition to the commission it collects from the insurer, receive compensation directly from an insured that it represents for services in connection with negotiating or procuring an insurance policy. There must be a written memorandum signed by the party to be charged, which specifies or clearly defines the amount or extent of such compensation. The parameters for receiving such compensation are provided by N.Y. Ins. Law § 2119(c) and (d) (McKinney 2000), which state:
(c) (1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the negotiation or procurement of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.
(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.
(3) This subsection shall not affect the right of any such broker to recover from the insured the amount of any premium or premiums for insurance effectuated by or through such broker.
(4) This subsection shall not affect the requirements of subsection (a) or (b) hereof, subsection (g) of section two thousand one hundred one or section two thousand one hundred eight of this article.
(d) No insurance broker shall, in connection with the negotiation, procurement, issuance, delivery or transfer in this state of any contract of insurance made or negotiated in this state, directly or indirectly charge, or receive from, the insured or prospective insured therein any greater sum than the rate of premium fixed therefor by the insurer obligated as such therein, unless such broker has a right to compensation for services created in the manner specified in subsection (c) hereof.
I trust this is responsive to your inquiry. You may wish to review the Departments opinions on its web site at www.ins.state.ny.us.
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.