The Office of General Counsel issued the following opinion on October 27, 2004, representing the position of the New York State Insurance Department.
Re: Referral by Non-Licensed Employees
May a licensed life and health insurer, in addition to a base pay, compensate non-licensed employees based upon a ratio of how many of the employees telephone leads turn into sales?
No, a licensed life and health insurer that provides compensation to non-licensed employees based upon a ratio of how many telephone leads turn into sales would be in violation of N.Y. Ins. Law § 2114 (McKinney Supp. 2004).
The inquirers insurance company solicits life and health insurance business over the telephone. The inquirer stated that non-licensed employees place telephone calls to prospective insureds, and once the "lead" is on the line, the non-licensed employee transfers the call to a licensed representative who then proceeds with the sales presentation and confirmation. It is not clear from the facts that the inquirer has provided exactly what is discussed between the non-licensed employee and the potential insured prior to transfer of the call to a licensed representative.
Currently, the non-licensed employees are paid a base wage. However, the inquirers insurance company is considering implementing a new pay scale under which non-licensed employees would receive a base wage, and in order to receive an increased hourly wage, the non-licensed employees would have to meet a certain conversion ratio based on how many leads turn into sales. For instance, the inquirer stated that if an employee met a .8 conversion ratio, that employee would receive an additional one dollar per hour.
N.Y. Ins. Law § 2101 (a) (McKinney 2000) defines an insurance agent as:
[A]ny authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or procurement or making of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker, except that such term shall not include: (1) any regular salaried officer or employee of a licensed insurer, fraternal benefit society or health maintenance organization or of a licensed insurance agent, who does not solicit or accept from the public, outside of an office of such insurer, health maintenance organization or agent, applications or orders for any such contract, if such officer or employee does not receive a commission or other compensation for his services which commission or other compensation is directly dependent upon the amount of business done. (Emphasis added)
Regarding life insurance, N.Y. Ins. Law § 2114 (a)(1),( (McKinney Supp. 2004) provides in relevant part:
(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 . . . .
Regarding health insurance, N.Y. Ins. Law § 2114(a)(3) (McKinney Supp. 2004) provides:
No insurer . . . 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, negotiating or selling 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. . . .
Thus, an insurer may not pay an employee or any other person for services in obtaining an insurance contract unless the individual is a licensed insurance agent or comes within one of the exceptions provided for in N.Y. Ins. Law § 2101(a).
However, the Insurance Law does distinguish between those activities for which a license is required and those activities that constitute a referral for which a license is not required. Specifically, N.Y. Ins. Law § 2114 (a)(4) (McKinney Supp. 2004) provides:
Services of the kind specified in this subsection shall not include the referral of a person to a licensed 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. (Emphasis added)
The telephone calls placed by non-licensed employees of the insurer to prospective insureds would be considered referrals as long as the employees do not discuss specific insurance policy terms and conditions, and the employees compensation is not based on the purchase of insurance. (Emphasis added). However, the pay scale being considered in this inquiry would provide non-licensed employees an increased wage dependent upon the amount of leads that turn into sales. Such a pay proposal constitutes compensation based upon the purchase of insurance, and therefore does not satisfy the requirements of the referral exception. Accordingly, the inquirers proposal as currently structured would violate N.Y. Ins. Law § 2114 (McKinney Supp. 2004).
For further information you may contact Supervising Attorney Joan Siegel at the New York City Office.