OGC Op. No. 04-10-22

The Office of General Counsel issued the following opinion on October 22, 2004, representing the position of the New York State Insurance Department.

Re: $25 Postage Rebate

Questions Presented:

1) May XYZ Inc., a postage services company, provide customer lists to its affiliated company, ABC Insurance Agency, for the solicitation of insurance?

2) May ABC Insurance Agency give customers a $25 postage credit as an inducement for the purchase of insurance?

Conclusions:

1) The provision of a customer list by a non-licensee to a licensed insurance agent or broker, whereby the non-licensee does not refer or recommend such agent or broker to a customer, does not constitute a referral as that term is used in N.Y. Ins. Law § 2115(a)(1). However, since the New York State Insurance Department Licensing Bureau has advised that the New York property/casualty agent license held by ABC Insurance Agency has expired, the ABC Insurance Agency is prohibited from soliciting insurance in New York pursuant to N.Y. Ins. Law § 2102 (McKinney 2000).

2) ABC Insurance Agency may not give customers a $25 postage credit as an inducement for the purchase of insurance.

Facts:

The inquirer provided no specific facts. However, the New York State Insurance Department Licensing Bureau has advised that the agency in question held only a property/casualty agent license and that this license has expired.

Analysis:

N.Y. Ins. Law § 2101(a)(1) (McKinney 2000) defines an insurance agent as one "who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance . . . contract . . ." N.Y. Ins. Law § 2101(c)(1) (McKinney 2000) defines an insurance broker as one who "acts or aids in any manner in soliciting, negotiating or procuring the making of any insurance . . . contract or in placing risks or taking out insurance, on behalf of an insured. . . or on behalf of any licensed insurance broker. . ."

Acting as an insurance agent without a license generally violates N.Y. Ins. Law § 2102(a)(1) (McKinney 2000). Making any presentation of the specific terms and conditions of the insurance policy to people and organizations to promote an insurance program would constitute unlawful solicitation. In addition, if a non-licensee engaged in examining, appraising, reviewing or evaluating any insurance policy, plan or program or made recommendations or gave advice with regard to any of the above, then their activities would violate N.Y. Ins. Law § 2102(b)(3) (McKinney 2000).

For a non-licensee, there is a difference between unlawful solicitation and permissible referrals. N.Y. Ins. §§ 2115 and 2116 (McKinney 2000 & Supp. 2004), state the extent of referrals possible in property /casualty insurance transactions.N.Y. Ins. Law § 2115(a)(1) (McKinney 2000 & Supp. 2004) states:

As stated in N.Y. Ins. Law § 2115(a)(1) (McKinney Supp. 2004), a non-licensee may be compensated for referrals so long as it does not include a discussion of specific insurance policy terms and conditions and where the compensation is not dependent upon the sale of an insurance product. The law was due to expire on September 10, 2003, but has been extended to September 10, 2007.¹

The provision of a customer list by a non-licensee to a licensed insurance agent or broker, whereby the non-licensee does not refer or recommend such agent or broker to a customer, does not constitute a referral as that term is used in N.Y. Ins. Law § 2115(a)(1). The Department has taken this position in previous opinions. See OGC Op. 4/29/02; OGC Op. 3/21/01; OGC Op. 3/19/01.

Furthermore, the Department’s Circular Letter No. 5 (2001) states, "the New York Insurance Law does not prohibit licensees from purchasing lists of customer names and related information from non-licensees for the purposes of soliciting insureds. The compensation payable to non-licensees for such lists may be contingent upon the successful placement by the licensee of the insurance and may be a percentage of the insurance commission the licensee earned from placing the business."

However, since the New York State Insurance Department Licensing Bureau has advised that the New York property/casualty agent license held by ABC Insurance Agency has expired, the ABC Insurance Agency is prohibited from soliciting insurance in New York pursuant to N.Y. Ins. Law § 2102 (McKinney 2000).

With regard to the $25 postage credit as an inducement to purchase insurance, since the New York State Insurance Department Licensing Bureau has advised that the New York property/casualty agent license held by ABC Insurance Agency has expired, the ABC Insurance Agency is prohibited from soliciting insurance in New York pursuant to N.Y. Ins. Law § 2102. Should the ABC Insurance Agency become licensed in New York again, then N.Y. Ins. Law § 2324 (McKinney Supp. 2004) would apply.

N.Y. Ins. Law § 2324 (McKinney Supp. 2004), entitled "Rebating and discrimination," provides in pertinent part:

The language of N.Y. Ins. Law § 2324 (McKinney 2003) prohibits insurers, brokers, agents, and their employees and representatives 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 are not specified in the insurance policy. Since the postage credit of $25 is not an article of merchandise not exceeding $15 in value and is dependent upon the purchase of insurance, it is an illegal inducement in violation of N.Y. Ins. Law § 2324.

We have referred this matter to the Department’s Consumer Services Bureau for investigation.

For further information you may contact Special Counsel Athan Shinas at the Albany Office

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¹  Section 2114 (McKinney 2000 & Supp. 2004), as amended by section 4 of Chapter 418 of the Laws of 2000, applies to life and accident and health insurance agents. Section 2116 (McKinney 2000 and Supp. 2004), as amended by Section 6 of Chapter 418 of the Laws of 2000, in regard to insurance brokers, contains identical provisions.