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 August 4, 2003, representing the position of the New York State Insurance Department.

Re: "Finders fees" for non-licensed entities

Question Presented

May a licensed property/casualty insurer that sells surety bonds pay "finders fees" to a non-licensed party that refers persons to the property/casualty insurer, if such referred persons buy surety bonds from the property/casualty insurer?

Conclusion

Pursuant to N.Y. Ins. Law § 2115 and § 2116 (McKinney Supp. 2003), compensation of non-licensed persons or entities for referrals to licensed insurance agents or brokers with regard to surety bonds is permitted, so long as the referral does not include a discussion of the specific insurance policy terms and conditions and where the compensation is not dependent upon the sale of a surety bond.

Facts

The inquirer is a "third party administrator." In New York, there is no license for a "third party administrator." Any license that the inquirer may require would depend upon what work the inquirer is doing. For purposes of this letter, the Department assumes that the inquirer is not currently licensed by the Department. The inquirer wants to know whether, as a non-licensed entity, the inquirer can accept "finders fees" from a property/casualty insurer if the inquirer’s company refers business to the property/casualty insurer. The inquirer further states that such compensation would only be paid if the referral resulted in the sale of a surety bond.

Analysis

N.Y. Ins. Law § 2102(a)(1) (McKinney 2000), concerning the licensing of agents, brokers, reinsurance intermediaries and adjusters, states:

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 pursuant to the provisions of this chapter.

Currently, N.Y. Ins. Law § 2115 (a)(1) (McKinney Supp. 2003) states:

No insurer dong 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 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.1

There is an exception to the general prohibition of referrals from non-licensees as stated in N.Y. Ins. Law § 2115(a)(1) (McKinney Supp. 2003) and N.Y. Ins. Law § 2116 (McKinney Supp. 2003). Non-licensees may be compensated for referrals so long as it does not include a discussion of the specific insurance policy terms and conditions and where the compensation is not dependent upon the sale of a surety bond. The law was due to expire on September 10, 2003, but was recently extended until September 10, 2007.

For further information one may contact Senior Attorney Susan Dess at the New York City Office.


1N.Y. Ins. Law § 2116 (Mcknney Supp. 2003) prohibits such activities by insurance brokers.