The Office of General Counsel issued the following opinion on November 12, 2003 representing the position of the New York State Insurance Department.
Re: Defensive Driving Class at Reduced Rate
Question Presented:
May the instructor (who holds New York property/casualty, life, and accident and health agent licenses) of a New York State approved defensive driving class advertise to the general public an offer to reduce the normal price of the driving class for those registrants who receive an automobile or homeowners insurance quote from the agent for whom the instructor works?
Conclusion:
No. The driving class price reduction offered to those members of the public who register for the course and receive an automobile or homeowners insurance quote from the instructors agency would constitute an improper inducement in violation of the Insurance Law. N.Y. Ins. Law § 2324 (McKinney Supp. 2003).
Facts:
The instructor of a New York State approved defensive driving class, who holds New York property/casualty, life, and accident and health agent licenses, plans to advertise to the general public an offer to reduce the normal price of the driving class (from $31.95 to $16.95 per person) for those registrants that receive an automobile or homeowners insurance quote from the agent for whom the instructor works.
Analysis:
N.Y. Ins. Law § 2324 (McKinney Supp. 2003) prohibits rebating and discrimination in contracts of property/casualty insurance. § 2324 states, in relevant part, that:
(a) No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker . . . .
(emphasis added).
Thus, in accordance with the express language of N.Y. Ins. Law § 2324 (McKinney Supp. 2003), insurers, brokers, agents and their representatives are prohibited from directly or indirectly offering inducements or valuable consideration (other than an article of merchandise not exceeding $15 in value) in connection with the sale of insurance when such inducements or valuable consideration are not specified in the insurance policy.
Under the facts presented, an agent is offering, on behalf of a New York licensed agency, the inducement and valuable consideration of a driving class price reduction, which is not specified in an insurance policy, in connection with an insurance rate quote. While the offer does not require driving class registrants to purchase insurance, the offer operates as a cash incentive, which constitutes an inducement to purchase insurance through the agency by offering the benefit of a reduced driving class price in exchange for the insurance rate quote. The offer also constitutes valuable consideration because the price reduction decreases the normal rate of the driving class nearly 50%.
Furthermore, the driving class price reduction is not an article of merchandise within the meaning of N.Y. Ins. Law § 2324, which contemplates a "keepsake," not exceeding $15 in value, that conspicuously bears the agencys name and is designed to keep the insurers name before the customer.
For further information you may contact Senior Attorney Kristian Earl Lynch at the New York City Office.