The Office of General Counsel issued the following opinion on June 10, 2003 representing the position of the New York State Insurance Department.
Re: Compensating Non-licensees for Providing Insurance Quotes.
May a non-licensee establish a relationship with several insurance companies/agents whereby the non-licensee would request personal information from a prospective insured regarding their insurance needs; obtain insurance quotes from the insurers/agents; provide such prospective insured with these insurance quotes; affirmatively recommend that insurance should be placed through a specific insurance agent; aid the prospective insured in canceling their insurance policies with their present insurers; receive a percentage of the agents commission and an additional $25 fee from the prospective insured.
No. A non-licensee may not establish such a relationship, without becoming licensed as an insurance agent or broker.
The inquirer states that he would like to set up a business relationship with five different insurance companies and their agents in which he would request personal information from prospective insureds regarding their insurance needs, obtain insurance quotes from the insurers/agents and provide them to these prospective insureds and recommend that insurance should be placed through a specific insurance agent. He would also do all the necessary service work to change the person to the insurance company. Specifically, he would send a cancellation form to the prospective insured for their signature and forward it to the prospective insureds current insurer notifying them of the cancellation of the insurance policy. In return, the insurance agent would provide him with a percentage of its initial commission and renewal commission. He would also charge the prospective insured a $25 fee. In connection with the above, he provided the following scenario:
Joe Smith contacts the inquirer to find better automobile or home insurance rates. The inquirer finds him the best rates and advises him that for a $25 fee the inquirer can save him "X amount of dollars." The inquirer takes the fee under the inquirers business name (to be determined) and refers him to the agent and company. The inquirer receives 8% of the commission and then 2% upon each renewal.
Pursuant to N.Y. Ins. Law § 2102(a)(1) (McKinney 2000), no person, firm, association or corporation may act as an insurance agent or broker in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of Article 21 of the Insurance Law.
N.Y. Ins. Law § 2101(a) (McKinney 2000), defines the term "insurance agent" as:
(a) [A]ny authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker . . . (emphasis supplied) 1
N.Y. Ins. Law § 2101(c) (McKinney 2000), defines the term "insurance broker" as:
(c) [A]ny person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself or itself or on behalf of any licensed insurance broker . . . (emphasis supplied)2
Thus, an unlicensed person, who does not fall within the exceptions contained in Sections 2101(a) or (c), is precluded from engaging in the solicitation, negotiation or procurement of insurance without becoming licensed as an insurance agent or broker. Here, as part of the relationship with the insurers/agents the inquirer would request personal information from the prospective insured regarding their insurance needs; obtain insurance quotes from the insurers/agents with whom he has established a financial relationship; provide the prospective insureds with these insurance quotes and recommend that insurance should be placed through an insurance agent with whom he has entered into a financial arrangement. The inquirer would also aid the prospective insured in canceling their insurance policies with their present insurance companies. In return, he would receive a share of the agents insurance commission and the renewals thereof and an additional $25 fee from the prospective insured.
The Department considers this relationship to be acting as an insurance agent or broker without a license in violation of N.Y. Ins. Law §§ 2101 and 2102 (McKinney 2000). Thus, in order to perform these activities, the inquirer must become licensed as an insurance agent or broker pursuant to Article 21 of the New York Insurance Law. See Office of General Counsel Opinion dated February 12, 2001, copy enclosed.
Please note that the proposed activities would not come within the referral exception contained in N.Y. Ins. Law §§ 2115 and 2116 (McKinney Supp. 2003), since they are not limited to referrals as these sections permit. Section 2115 applies to property/casualty insurance agents and provides as follows:
(a)(1) No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as insurance agent" 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 § 2114 (McKinney Supp. 2003), in regard to life, accident and health insurance agents and brokers and N.Y. Ins. Law § 2116 (McKinney Supp. 2003), in regard to insurance brokers contain similar provisions.
Pursuant to the above provisions, insurers or agents are expressly prohibited from paying or sharing any commissions or other compensation to or with a non-licensee for acting as an insurance agent or broker. However, a non-licensee may be compensated 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. Accordingly, it appears from the facts presented that the proposed activities are not limited to merely providing referrals to insurance agents, as the non-licensed person is discussing the terms of the insurance policy and is being compensated based on the purchase of insurance. Consequently, the exception for referrals contained in Sections 2114, 2115 and 2116 is not applicable to this inquiry.
For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.
1Although the statute lists exemptions from this licensing requirement, none of them are applicable to this inquiry.
2Although the statute lists exemptions from this licensing requirement, none of them are applicable to this inquiry.