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: Referrals for Bank Insurance Sales Activity

Question Presented:

How may ABC Financial Services ("ABC"), a New York licensed life, and accident and health insurance agent, and wholly owned subsidiary of The XYZ Bank ("Bank"), compensate the Bank’s employees ("Employees"), who are not licensed by the Insurance Department to sell insurance, for referring potential customers to ABC?

Conclusion:

ABC may compensate the Employees for such referrals if: (1) the Employees do not discuss any specific policy terms or conditions, and (2) such compensation is not based upon the purchase of insurance.

Facts:

ABC Financial Services ("ABC")1, a New York licensed life, and accident and health insurance agent, is a wholly owned subsidiary of The XYZ Bank ("Bank"), a New York State chartered savings bank, which is owned by 123 Corp, Inc., a publicly traded financial holding company. ABC has proposed a referral fee program ("Program") to compensate the Bank’s employees, and possibly the employees of the Bank’s affiliates and subsidiaries, who are not licensed by the Insurance Department to sell insurance, for referring potential customers to ABC.

WSB described the Program in the following manner:

(1) All tellers who make referrals, outside of the teller area, will receive $5.00 for every referral made. Referral fees will be paid out at the end of each quarter (March, June, September and December) and deposited to the employee’s account on the most convenient pay date, for the bank, in the month following the quarter end.

(2) All "sales people" within the bank, to include all administrators, lenders and all branch platform people will be segregated into groups. "Sales people" is defined by anyone in the bank that has direct contact with the public and is expected to sell products and services of the bank (excluding tellers).

All platform people in each branch will be a group.2

All float platform staff will be considered a group.3

All commercial lenders will be a group.

Mssrs. John Doe 1 and John Doe 2, Ms. Jane Doe 1 and Ms. Jane Doe 2 will be a group.4

All referrals for each group, that result in sales of an insurance product, will receive 20% of the bank’s portion of the first annual premium and will be divided by and paid equally to all people in that group. Example: ABC Branch has 3 platform people, each of which may have made referrals to the program; out of the referrals made, 2 resulted in sales, totaling $9,000.00 in premiums to the bank. Even if one of those people made no referrals or if none of their referrals resulted in a sale, they would receive $600.00, just like the other 2 (9,000.00 premium to bank x 20% = $1,800.00 / 3 people = $600.00 each).

Analysis:

N.Y. Ins. Law § 2114 (McKinney Supp. 2003) governs the payment of commissions, and other compensation, to persons, firms, associations, and corporations for services in obtaining, soliciting, or procuring new life insurance, annuity, accident and health insurance, and health maintenance organization contracts; it provides in pertinent part:

(a)(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.

(2) No agent or other representative of any such life insurer or fraternal benefit society shall pay any commission or other compensation to any person for any services of the kind specified in paragraph one hereof, except to a licensed life insurance agent of such insurer or of such society as the case may be.

(3) No insurer, fraternal benefit society or health maintenance organization doing business in this state and no agent or other representative thereof shall pay any commission or other compensation to any person, firm, association or corporation for services in soliciting or procuring in this state any new contract of accident or health insurance or any new health maintenance organization contract, except to a licensed accident and health insurance agent of such insurer, such society or health maintenance organization, or to a licensed insurance broker of this state, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.

(4) Services of the kind specified in this subsection 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.

N.Y. Ins Law § 2114(a)(4) (McKinney Supp. 2003) excludes from the services specified in § 2114(a) the referral of a person to a New York State licensed life insurance agent, or broker (see N.Y. Ins. Law § 2104(b)(1)(A) (McKinney Supp. 2003)), or an accident and health insurance agent, or broker (id.), if: (i) the referral does not include a discussion of specific insurance policy terms and conditions, and (ii) the purchase of insurance is not a condition for such compensation.

Accordingly, ABC may compensate the tellers for referrals in the manner described under the Program if such referrals do not include discussions of specific insurance policy terms and conditions. However, even if the referrals from the "sales people" do not include discussions of specific insurance policy terms and conditions, ABC may not compensate the "sales people" for such referrals because their compensation is contingent upon the purchase of insurance. The fact that all individuals of a "sales people" group (including those who have not made referrals or have not made referrals that resulted in an insurance purchase) receive an equal share of any referral fee paid to such group is immaterial because the payment of any referral fee remains contingent upon the purchase of insurance. This conclusion stands irrespective of: (1) which group members share the referral fee, and (2) which members’ referrals resulted in the purchase of insurance.

Please note that this opinion is based solely on the New York State Insurance Law and the facts as presented.

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


1 ABC is also licensed to sell securities with the Securities and Exchange Commission.

2 The job function of "Platform People" is to cross sell the bank’s products and services, meet the customer service needs of bank customers, and to manage the daily operation of the various bank branches by overseeing tellers, control of cash and reconciliation of branch bank activity.

The job function of "Float Platform People" is identical to that of "Platform People," except the physical location of their responsibilities may change from day to day.

3 ABC is also licensed to sell securities with the Securities and Exchange Commission.

4 The job function of "Platform People" is to cross sell the bank’s products and services, meet the customer service needs of bank customers, and to manage the daily operation of the various bank branches by overseeing tellers, control of cash and reconciliation of branch bank activity.

The job function of "Float Platform People" is identical to that of "Platform People," except the physical location of their responsibilities may change from day to day.