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 16, 2003, representing the position of the New York State Insurance Department.

Re: Reimbursement of Administrative Fees to Unlicensed Associations

Question Presented:

How may New York authorized insurers, and licensed insurance agents and brokers reimburse unlicensed associations (i.e., entities comprised of members sharing like professional backgrounds) for expenses incurred for administrative services performed by such associations?

Conclusion:

A New York authorized insurer, or licensed insurance agent or broker may reimburse an unlicensed association for expenses incurred for administrative services related to a group policy issued to such association, in which its members receive individual certificates, if such reimbursement does not exceed the actual costs incurred for the rendered services, and the services would normally be performed by such insurer, agent or broker. See Bulletin of the New York State Insurance Department (April 1987).

Facts:

A New York domiciled union (the "Association") has requested ABC Services, Inc. ("ABC Inc."), a New York licensed insurance broker, and life and accident and health agent, to submit a reimbursement schedule, which specifies reimbursement amounts to be paid to Association member policyholders for various administrative functions performed by the Association, in connection with the voluntary term life insurance, and voluntary short and long term disability insurance products1 that ABC Inc. is proposing to sell to Association members under group policies issued to the Association. Although, the Association is not licensed to sell insurance products in New York, it plans to assist ABC Inc. in various administrative functions, which include customer service, payroll processing and the notification of policy changes.

Analysis:

The following analysis describes how New York authorized insurers, and licensed insurance agents and brokers may reimburse unlicensed associations for expenses incurred for administrative services performed by such associations without violating N.Y. Ins. Law §§ 2102, 2114, 2115, 2116 (McKinney 2000 & Supp. 2003), which address the issues of acting without a license and the payment of commissions.

A New York authorized insurer, or licensed insurance agent or broker may reimburse an unlicensed association for expenses incurred for administrative services related to a group policy issued to such association, in which its members receive individual certificates, if such reimbursement does not exceed the actual costs incurred for the rendered services, and the services would normally be performed by such insurer, agent or broker. See Bulletin of the New York State Insurance Department (April 1987) (enclosed).

Under the facts presented, the administrative functions of customer service and the notification of policy changes appear to be tasks that would normally be performed by a New York licensed agent or broker. However, the task of payroll processing would necessarily fall outside the bounds of an administrative task normally performed by an agent or broker. Therefore, ABC Inc., a New York licensed agent and broker, may submit a reimbursement schedule, in connection with its proposed insurance products, that specifies reimbursement amounts to be paid to the Association for expenses incurred for the administrative functions of customer service and the notification of policy changes - but not for payroll processing - if such reimbursement does not exceed the actual costs incurred by the Association for such rendered services.

For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.


1 ABC Inc. will provide Association members with the opportunity to purchase these insurance products through payroll deduction.