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 June 6, 2003, representing the position of the New York State Insurance Department.

RE: Insurance Law Section 4224 /Inducement to Purchase Insurance

Question Presented:

May a company that is licensed as an insurance broker in New York, which also sells non-insurance related services (such as a "discount" dental and vision program) provide the dental and vision program (1) for free or (2) at cost to its insurance brokerage customers? In either case, the price of the non-insurance product would be discounted from the rate charged to parties not purchasing insurance coverage from the brokerage.

Conclusion:

A company that is licensed as an insurance broker in New York, which also sells non-insurance-related services (such as a discount dental and vision program), may not make a distinction in the fees it charges for its non-insurance-related services based on whether or not the customer also purchases insurance products through the brokerage.

Facts:

A licensed insurance broker, in addition to its insurance brokerage services, markets and sells a non-insurance dental and vision product. The insurance broker sells the non-insurance product to both its insurance brokerage customers and others who do not purchase insurance coverage from the brokerage. In conjunction with the sale of small group medical coverage, the insurance broker is considering offering two different pricing structures for the non-insurance dental and vision product, whereby the brokerage customers purchasing small group medical coverage would be charged less (or not charged at all) for the dental and vision program than customers who only purchase the non-insurance product. The insurance broker asks whether either proposal (discounted or "free" dental and vision program) would be permissible under the New York Insurance Law.

Analysis:

N.Y. Ins. Law § 4224(c) (McKinney 2000), which applies to contracts of life insurance, and accident and health insurance, states: 

No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent,

solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.

Hence, an insurance broker licensed in New York is prohibited from offering or giving as an inducement, or interdependent with any policy, any valuable consideration that is not specified in a policy or contract of life, or accident and health insurance to its insurance brokerage customer. The pricing discount that the subject insurance broker wishes to provide on its non-insurance product to its insurance brokerage customers constitutes an inducement or valuable consideration. The offering of the non-insurance product for free or at a discounted price would act as an inducement to customers to also purchase the insurance brokerage services, which is prohibited under N.Y. Ins. Law § 4224(c) unless it is specified in such policy or contract.

For further information you may contact Associate Attorney Sam Wachtel at the New York City Office.