The Office of General Counsel issued the following opinion on June 19, 2003, representing the position of the New York State Insurance Department.
Re: Bonus Fee Paid by Licensed Agent to Unlicensed Telemarketers
A New York corporation licensed as an insurance agent wishes to pay a flat bonus fee to unlicensed telemarketers for each "qualified" prospect provided to the licensed agent by telephoning prospects from a list and asking them questions from a submitted script to determine whether they are potential prospects for the sale of Medicare supplement insurance. If the licensed agent then is successful in meeting with the prospect and the prospect has a need for and is financially able to purchase the insurance, then the prospect is deemed "qualified," even if the prospect does not purchase the insurance. Is such proposal permissible?
No. A New York corporation licensed as an insurance agent may not pay a flat bonus fee to unlicensed telemarketers for each "qualified" prospect provided to the licensed agent by telephoning prospects from a list and asking them questions from a submitted script to determine whether they may be potential prospects for the sale of Medicare supplement insurance, because the script as submitted is in violation of N.Y. Comp. Codes R. & Regs. tit. 11, § § 52.22(f)(1), 52.22(i)(2)(iii), 52.22(k) (2002) (Regulation 62) and N.Y. Comp. Codes R. & Regs. tit. 11, § 360.5(a)(7) (1998) (Regulation 145).
A New York corporation ("ABC, Inc.") is licensed as an insurance agent to sell life and health insurance in New York. ABC, Inc. has a sublicensee ("SL"), a person, who is also licensed as an insurance agent in New York to sell life and health insurance. SL is President of ABC, Inc. In addition, SL owns a non-licensed corporation ("XYZ, Inc.") that employs telemarketers.
ABC, Inc. wishes to purchase lists of potential insurance prospects from list brokers. ABC, Inc. would then give the names and telephone numbers to non-licensed telemarketers employed by XYZ, Inc. The telemarketers would then telephone the prospects on the list and ask the prospects questions to determine whether they may be potential prospects for the sale of Medicare supplement insurance. These questions are listed on a script that each telemarketer would use. Some of the questions included in the script are as follows: "Are you on Medicare?; How long have you been on Medicare?; Have you had to use Medicare for anything serious in the past year or so?; Were you happy with what Medicare has paid on your bills?; So far do you have to use any prescriptions? If so do you have any help with the costs? Do you carry any other insurance to cover what Medicare doesnt?; If so, which insurance do you have?; Do you have to pay for your insurance or is it a retirement benefit?; How much does it cost you?; If not, is there any reason why you do not have insurance to supplement your Medicare?" The telemarketers would not discuss the specific terms and conditions of the insurance policy with the prospect.
Upon completion of the telephone call, the telemarketer would make a judgment as to whether or not the interviewed prospect could be a potential customer. If yes, then the telemarketer would put the potential customers name, address and phone number on a list that would end up at ABC, Inc. ABC, Inc. would then provide its own licensed insurance agents with the names, addresses and telephone numbers of the potential customers on the list.
ABC, Inc.s licensed agents would then contact the potential prospect in order to set up an appointment to meet and present a policy. The inquirer states that, "[I]f the agent is successful in meeting with the prospect and the prospect has a need for and is financially able to purchase the insurance, then the prospect is deemed by the agent to be qualified, even is the prospect does not purchase the insurance. All other prospects are deemed nonqualified."
ABC, Inc. proposes the following:
[T]o pay a fixed bonus to each non-licensed telemarketer employed by XYZ, Inc. who provides the name of a qualified prospect to ABC, Inc. The bonus will be a fixed dollar amount for each qualified prospect. The amount of the bonus will be the same in all cases and will not be contingent upon whether an insurance policy was sold or not. Furthermore, in the event a policy was sold, the bonus will not be based upon the amount of the policy, the amount of commission, nor will the bonus be a percentage of the commission.
"Insurance agent" is defined in pertinent part in N.Y. Ins. Law § 2101(a) (McKinney 2000) as: "any authorized or acknowledged agent of any insurer . . . and any sub-agent or other representative of such agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract . . . ." "Insurance broker" is defined in N.Y. Ins. Law § 2101(c) (McKinney 2000) as: "any 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 . . . ."
Solicitation by an unlicensed entity or person is a violation of N.Y. Ins. Law § 2102(a)(1) (McKinney 2000), which states in part: "No person, firm, association or corporation shall act as an insurance agent, insurance broker, reinsurance intermediary or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force . . . ."
However, N.Y. Ins. Law § § 2114, 2115 and 2116 specifically excludes from acting as an insurance agent or broker referrals to a licensed insurance agent or broker that do not include a discussion of specific insurance policy terms where the compensation for the referrals of the person is not based upon the purchase of insurance by that person. Therefore, referrals from non-licensees and the compensation for such referrals are permissible if they fall within the parameters of sections 2114, 2115 and 2116. Please be advised that these exceptions are due to expire on September 10, 2003, unless the Legislature extends these provisions.
This inquiry specifically deals with Medicare supplement insurance and therefore Regulations 62 and 145 apply. N.Y. Comp. Codes R. & Regs. tit. 11, § 52.22(i)(2)(iii) states, in relevant part, that cold lead advertising is prohibited. This section forbids "[m]aking use directly or indirectly of any method of marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company." In addition, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.22(f)(1) discusses applications for Medicare supplement insurance and states that, "[a]pplications may not contain any questions dealing with the health or health history of the applicant . . . ." Furthermore, N.Y. Comp. Codes R. & Regs. tit. 11, § 52.22(k)(1) requires that policies must be issued at any time without regard to the health status or claims experience of the individual. Finally, N.Y. Comp. Codes R. & Regs. tit. 11, § 360.5(a)(7) states that the underwriting practice of using medical underwriting information obtained from other sources is prohibited in regards to an insurers decision whether or not to offer or accept health insurance applications.
The types of questions contained in the telemarketing script may be used by the telemarketer to do health screenings that are prohibited by the above regulations.
For further information, you may contact Associate Attorney Meredith S. Kaufer at the New York City Office.