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 October 15, 2003 representing the position of the New York State Insurance Department.

RE: Non-Licensee Compensation.

Question Presented:

May an insurance broker compensate a non-licensee for contacting prospective insureds, making them aware of a particular type of insurance and arranging appointments between the prospective insured and the insurance broker?

Conclusion:

Under the facts presented the activities described may exceed a referral, as that term is used in N.Y. Ins. Law § 2116 (McKinney 2003).

Facts:

A licensed property/casualty insurance broker proposes to compensate a non-licensee for identifying certain business operations that might benefit from a particular insurance product, contacting them by telephone, ascertaining whether the prospective insured already had this product or was aware of the existence of the product and how it might be beneficial, arranging meetings between the licensee and the prospect and, on occasion, attending such meetings. The non-licensee would be compensated on a monthly retainer that would be evaluated periodically to reflect the licensee’s satisfaction with the non-licensee’s past performance.

Analysis:

N.Y. Ins. Law § 2101(a) (McKinney 2000) defines an insurance agent as:

(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, except that such term shall not include:

The statute enumerates certain exceptions, none of which are applicable to the facts presented.

N.Y. Ins. Law § 2101(c) defines an 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, except that such term shall not include:

The statute enumerates certain exceptions, none of which are applicable to the facts presented.

N. Y. Ins. Law § 2115(a)(1) (McKinney Supp. 2003) provides:

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. (Emphasis supplied).

N.Y. Ins. Law § 2116 (McKinney Supp. 2003) provides:

No insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article. For the purposes of this section, "acting as insurance broker" 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. (Emphasis supplied).

The Department, in determining whether a transaction constitutes a referral or whether licensing is required, looks at the totality of the conduct. The Department defines solicitation as "to ask for the purpose of receiving' and 'to move to action, to endeavor to obtain by asking, and implies personal petition to a particular individual to do a particular thing." As a general approach, the Department's analysis of the solicitation issue centers upon whether the non-licensee does an affirmative act, not defined as a referral under law, suggesting that insurance be obtained from an individual or entity. The Department has historically taken the position that what constitutes a solicitation must be determined by the facts and circumstances of each particular case.

In order for the transaction to be a referral, a non-licensee may not engage the prospect in a discussion of his or her specific insurance needs, other than in a purely cursory or superficial manner, so that the conversation does not lead into a discussion of specific policy terms and conditions. Thus, the non-licensee may say that he or she is calling on behalf of Mr. Smith, a licensed insurance broker, who is selling x type of insurance and ask whether the prospect would like to make an appointment to speak or meet with Mr. Smith. The non-licensee may not give advice or compare various products or policies.

In the inquirer’s letter, he stated that there would be no discussion of specific policy terms and conditions, a fact that would put this within the parameters of a referral. However, he also stated that this is not a widely known product. Thus, it is likely that a conversation with a prospect who is unfamiliar with the product may have to include a discussion of specific policy terms and conditions to be at all productive. Similarly, a conversation with a prospect who already has this product through another insurer may likely have to include some comparison of the two products. Either of these types of discussions would not fall under the referral provisions in Sections 2114, 2115 and 2116, but instead could constitute solicitation pursuant to those sections.

The inquirer also states in his letter that the presence of the non-licensee at the meeting would be "essentially, to make an introduction". While this would be acceptable, anything beyond that could well constitute "soliciting, negotiating, or procuring." See General Counsel Opinion 3-17-2003.

Additionally, with respect to the method of compensation, the letter states that "the non-licensee would be put on a monthly retainer, which would be evaluated on a periodic basis." The statute prohibits compensation based upon the purchase of insurance. Without the inquirer providing the basis for the periodic evaluation of the non-licensee’s compensation, the Department cannot opine on this aspect of the proposal.

For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.