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

The Office of General Counsel issued the following informal opinion on May 8, 2002, representing the position of the New York State Insurance Department.

Re: Insurers payment of bonuses to agents, general agents, and brokers for the sale of group insurance.

Questions Presented:

(1) Is incentive compensation or bonus over commission to agents, general agents, and brokers for the sale of group life insurance and group annuities permissible?

(2) Is incentive compensation or bonus over commission to agents, general agents, and brokers for the sale of group accident insurance, group health insurance, and group accident and health insurance permissible?

Conclusions:

(1) Yes. The New York State Insurance Law does not prohibit insurers from paying incentive compensation or bonus over commission to agents, general agents, and brokers (hereinafter "incentive compensation") for the sale of group life insurance and group annuities. However, incentive compensation for the sale of group life insurance must be filed with the Department pursuant to N.Y. Ins. Law § 4216(e) (McKinney 2000), as amended by Chapter 13 of the Laws of 2002. There is no filing requirement under the New York State Insurance Law for incentive compensation for the sale of group annuities.

(2) Yes. The New York State Insurance Law does not prohibit for-profit insurers from paying incentive compensation for the sale of group accident insurance, group health insurance, and group accident and health insurance. However, that compensation must be filed with the Department pursuant to N.Y. Ins. Law § 4235(h)(1)-(3) (McKinney 2001-2002 Interim Pocket Part) and N.Y. Comp. Codes R. & Regs. tit. 11, § 52.40(j) (1996) (Regulation 62).

Facts:

The inquirer requested a response to the questions presented. The inquirer’s letter stated that the proposed incentive compensation would apply to all lines of group insurance and the inquirer cited to the following examples: life, health, short term disability, long term disability, and dental. The office of the inquirer informed me that the response should be addressed to only for-profit insurers. The inquirer’s letter stated that the proposed incentive compensation would be payable to: "those agents, brokers and general agents who have at least three groups in force with at least one new in-force group each year, and the incentive compensation would be based on a percentage of commissions."

Analysis:

Pursuant to N.Y. Ins. Law § 4216(e) (McKinney 2000), as amended by Chapter 13 of the Laws of 2002, incentive compensation for the sale of group life insurance underwritten by domestic, foreign, or alien insurers doing business in New York State must be filed with the Department. Section 4216(e) states:

(e) Each domestic insurer and each foreign or alien insurer doing business in this state shall file with the superintendent its schedule of rates of commissions, compensation and other fees or allowances to agents and brokers pertaining to the solicitation or sale of group life insurance and of fees or allowances, exclusive of amounts payable to persons who are in the regular employ of the insurer other than as agent, to any individuals, firms or corporations pertaining to the service or administration of group life insurance, whether transacted within or without this state. An insurer may revise such schedules from time to time, and shall file such revised schedules with the superintendent. No insurer shall pay to an agent, agents, broker or brokers or any combination of licensees for the solicitation or sale of a policy of group life insurance or for any other purpose related to such group insurance any commission, compensation or other fees or allowances in excess of that determined on the basis of the schedules of such insurer as then on file with the superintendent; nor shall such insurer pay for services pertaining to the service or administration thereof to any individual, firm or corporation any fees, commissions or allowances in excess of that determined on the basis of the schedules of such insurer as then on file with the superintendent or for such services except such as are rendered in behalf of such insurer, provided, however, nothing contained herein shall apply to or affect the computation of dividends or experience rating credits.

In addition, please see the New York State Insurance Department's website (http://www.ins.state.ny.us) for product outlines that provide guidance on the filing of group life insurance products.

Pursuant to N.Y. Ins. Law § 4235(h)(1)-(3) (McKinney 2001-2002 Interim Pocket Part) incentive compensation for the sale of all group accident insurance, group health insurance, and group accident and health insurance underwritten by domestic, foreign, or alien insurers doing business in New York State must be filed with the Department as part of the insurer's rate filings. Section 4235(h)(1)-(3) states:

(h)(1) Each domestic insurer and each foreign or alien insurer doing business in this state shall file with the superintendent its schedules of premium rates, rules and classification of risks for use in connection with the issuance of its policies of group accident, group health or group accident and health insurance, and of its rates of commissions, compensation or other fees or allowances to agents and brokers pertaining to the solicitation or sale of such insurance and of such fees or allowances, exclusive of amounts payable to persons who are in the regular employ of the insurer, other than as agent or broker to any individuals, firms or corporations pertaining to such class of business, whether transacted within or without the state.

(2) An insurer may revise such schedules from time to time, and shall file such revised schedules with the superintendent.

(3) No insurer shall issue any policy of group accident, group health or group accident and health insurance the premium rate under which for the first policy year is less than that determined by the schedules of such insurer as then on file with the superintendent; nor shall it pay to the agent or agents or to a broker or brokers for the solicitation or sale of such policy or for any other purpose related to such policy any commission, compensation or other fees or allowances in excess of that determined on the basis of the schedules of such insurer as then on file with the superintendent; nor shall such insurer pay for services pertaining to the service or administration thereof to any individual, firm or corporation any fees, commissions or allowances in excess of that determined on the basis of the schedules of such insurer as then on file with the superintendent or for such services not rendered in behalf of such insurer; provided, however, that nothing contained herein shall apply to or affect the computation of dividends or experience rating credits.

N.Y. Comp. Codes R. & Regs. tit. 11, § 52.40(j) (1996) (Regulation 62) implements Section 4235(h) and pursuant to that provision incentive compensation for the sale of group accident insurance, group health insurance, and group accident and health insurance must be filed with the Department as part of the group rate manual.

For further information you may contact Senior Attorney Robert Freedman at the New York City Office.