The Office of General Counsel issued the following informal opinion on August 30, 2004, representing the position of the New York State Insurance Department.
Re: Rebates
Questions Presented
1. What penalty does New York Insurance Law impose on property/casualty insurance agents and/or brokers who offer rebates to insureds?
2. May a property/casualty insurance agent and/or broker agree to a lower commission from an insurer in order to offer an insured a lower premium?
3. How do the penalties relating to rebates on property/casualty insurance differ from those for rebates on securities transactions? Why is it permissible for automobile dealers and manufacturers to offer rebates, but it is illegal for property/casualty insurance agents and/or brokers to offer rebates?
Conclusions
1. N.Y. Ins. Law § 2324(f) (McKinney Supp. 2004) specifies the penalty for rebating. Additionally, pursuant to N.Y. Ins. Law § 2110 (Ch. 687 of the Laws of 2003), the Superintendent may revoke or suspend the license of a licensee, if, after notice and hearing the Superintendent determines that such licensee has violated any insurance laws, or otherwise engaged in specified improper behavior. N.Y. Ins. Law § 2127 (McKinney 2000) specifies which penalties, in lieu of revocation or suspension, may be imposed upon a licensee. Additionally, pursuant to N.Y. Ins. Law § 109(a) (McKinney 2000), every violation of New York Insurance Law is a misdemeanor, except as otherwise provided. Additionally, pursuant to N.Y. Ins. Law § 109(c) (McKinney 2000), the Superintendent may, after notice and a hearing, impose a monetary fine upon a licensee for violations of the New York Insurance Law; however, no penalty shall be imposed pursuant to this subsection if a monetary penalty is otherwise provided by the New York Insurance Law.
2. No, an insurance agent or broker may not agree to take a lower commission from an insurer in order to offer a lower premium to the insured.
3. The Department only opines on New York Insurance Law.
Facts
No facts were provided.
Analysis
The inquirer had specifically asked about the impact of N.Y. Ins. Law § 2324(a) (McKinney Supp. 2004) on rebating with respect to property/casualty insurance. N.Y. Ins. Law § 2324(a) (McKinney Supp. 2004) states in the relevant part:
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 . . . 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, or shall give, sell or purchase or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, . . .
Reducing the insured's premium by taking a smaller commission from the insurer, would constitute a rebate, and thus be a violation of N.Y. Ins. Law § 2324(a) (McKinney Supp. 2004). The penalty for violating N.Y. Ins. Law § 2324 (McKinney Supp. 2004) is stated below:
(f) Any person or corporation violating the provisions of this section shall, in addition to all other penalties provided by law, pay to the people of this state as a penalty the sum of five hundred dollars for each such violation.
Additionally, it is a violation of N.Y. Ins. Law § 2314 (McKinney 2000) to charge a premium that departs from the filed rate. N.Y. Ins. Law § 2314 (McKinney 2000) states:
No authorized insurer shall, and no licensed insurance agent, no employee or other representative of an authorized insurer, and no licensed insurance broker shall knowingly, charge or demand a rate or receive a premium which departs from the rates, rating plans, classifications, schedules, rules and standards in effect on behalf of the insurer, or shall issue or make any policy or contract involving a violation thereof.
Subject to certain exceptions, a premium is based on the rate that is filed with the Department. Once a rate has been filed, pursuant to N.Y. Ins. Law § 2314 (McKinney 2000), no deviation from the filed rate is usually allowed. A filed rate includes commission expenses, which is usually an indivisible component of the filed rate. Therefore, although an agent or broker may agree to take a lower commission from an insurer, this can have no impact on the premium paid by the insured.
Pursuant to N.Y. Ins. Law § 2110 (Ch. 687 of the Laws of 2003), the Superintendent may revoke or suspend the license of a licensee, if, after notice and hearing the Superintendent determines that such licensee has violated any insurance laws, or otherwise engaged in specified improper behavior. N.Y. Ins. Law § 2127 (McKinney 2000) specifies which penalties, in lieu of revocation or suspension, may be imposed upon a licensee. Additionally, pursuant to N.Y. Ins. Law § 109(a) (McKinney 2000), every violation of New York Insurance Law is a misdemeanor, except as otherwise provided. Additionally, pursuant to N.Y. Ins. Law § 109(c) (McKinney 2000), the Superintendent may, after notice and a hearing, impose a monetary fine upon a licensee for violations of the New York Insurance Law; however, no penalty shall be imposed pursuant to this subsection if a monetary penalty is otherwise provided by the New York Insurance Law.
Regarding the inquirer's question about rebating in other industries, the Department only opines on New York Insurance Law. Regarding the purpose of the prohibition by the New York Insurance Law against rebating as set forth in N.Y. Ins. Law § 2324(a) (McKinney Supp. 2004), N.Y. Ins. Law § 2301 (McKinney 2000) states:
The purpose of this article is to promote the public welfare by regulating insurance rates to the end that they not be excessive, inadequate or unfairly discriminatory, to promote price competition and competitive behavior among insurers, to provide rates that are responsive to competitive market conditions, to improve the availability and reliability of insurance and to authorize and regulate cooperative action among insurers within the scope of this article.
For further information one may contact Susan Dess, Senior Attorney at the New York City Office.