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 opinion on January 16, 2003, representing the position of the New York State Insurance Department.

RE: Compensation to Non-Licensees for Referrals.

Question Presented:

May a licensed insurance agent compensate a non-licensee for referrals contingent upon the placement of insurance?

Conclusion:

No. A licensed insurance agent may not compensate a non-licensee for referrals contingent upon the placement of insurance. However, the non-licensee 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 prospective insured.

Facts:

Mr. A states that he is an insurance agent in New York. A non-licensee will purchase a customer list and will make appointments for him with a prospective insured. The non-licensee will merely refer the prospective insured to Mr. A and will not discuss specific insurance policy terms and conditions with the insured. However, the non-licensee may discuss the health of the prospective insured. The non-licensee will be provided with what Mr. A originally called a "consulting fee" per application if the prospective insured purchases long term care insurance.1 In our telephone conversation, however, Mr. A stated that this would be a "finder’s fee." He would like to know if this is permissible under the New York Insurance Law.

Analysis:

It is unclear from the facts the extent that the non-licensee is engaging in conduct that constitutes more than a referral. Discussions regarding the insurance needs of the prospective insured would come within N.Y. Ins. Law § 2102(b)(3)(McKinney 2000) where the non-licensee is compensated by the licensee. That section provides, in relevant part, as follows:

(b)(3) Unless licensed as an insurance agent, insurance broker or insurance consultant with respect to the relevant kinds of insurance, no person, firm, association or corporation shall receive any money, fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, annuity or pension contract, plan or program or shall make recommendations or give advice with regard to any of the above.2

Thus, if the non-licensee is acting as an insurance consultant, it must be licensed as such pursuant to N.Y. Ins. Law § 2102 (2000). Assuming that the non-licensee does not engage in consulting activities, N.Y. Ins. Law § 2114 (McKinney Supp. 2002) is applicable. That section 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, and 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.

N.Y. Ins. Law § 2114(a)(4) (McKinney Supp. 2002) specifically excludes from the services specified therein referrals that do not include a discussion of specific insurance policy terms and conditions and where the compensation for referrals is not based on the purchase of insurance. Therefore, you may provide a non-licensee with compensation for referrals if the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insured and the compensation is not based on the purchase of insurance by such person. However, it appears from the facts presented that the proposed activities are not limited to referrals since the non-licensee is making appointments for the licensee.

Please note that this Department has opined that N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2002) do not prohibit licensees from purchasing lists of customer names from non-licensees that will be used by the licensee for soliciting insurance, because the sale of the list does not constitute a referral or solicitation. Therefore, the compensation payable to non-licensees for providing such lists may be made contingent upon the successful placement of insurance by the licensee and may be a percentage of the insurance commission earned by the licensee. See Circular Letter No. 5 of 2001. In this case, however, it is the non-licensee that is purchasing the list and using it.

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


1 Please note that the Department considers long term care-type insurance policies to be a form of accident and health insurance. See N.Y. Ins. Law § 1117 (McKinney 2000) and N.Y. Comp. Codes R. & Regs. tit. 11, part 52 (2001)(Regulation 62).

2 N.Y. Ins. Law § 2102(b)(4) (McKinney 2000) contains exceptions to this licensing requirement, which are not relevant to this inquiry.