The Office of General Counsel issued the following informal opinion on February 15, 2005, representing the position of the New York State Insurance Department.
Re: Agent Paying Premium for Group Insurance
An insurance agent purchases group accidental death & dismemberment insurance ("AD&D") for a union or other employee group ("the group policyholder"). The agent earns no commission on the AD&D policy. The group policyholder notifies its members of the coverage and delivers a response card to each member offering them the opportunity to have a representative of the insurer contact him/her to arrange to deliver his/her coverage certificate and to discuss other available insurance products that may be of interest. The agent does not contact the member except when the member returns the response card. Does the transaction violate N.Y. Ins. Law § 4224(c) (McKinney 2000) or N.Y. Ins. Law § 2602 (McKinney 2000)?
Neither N.Y. Ins. Law § 4224(c) (McKinney 2000) nor N.Y. Ins. Law § 2602 (McKinney 2000) would be violated provided that the inducement, i.e., the agent paying the premium for the AD&D policy and the conditions necessary for the continued payment of premium by the agent, is specified in the underlying AD&D policy and the coverage certificates. But each insured member must receive "...a certificate setting forth in summary form a statement of the essential features of the insurance coverage." N.Y. Ins. Law § 3221(a)(6) (McKinney 2000). Each group member must receive the certificate whether or not they return the response card and ask to meet with an agent.
An insurer, which is licensed in New York, has developed a marketing strategy that would have the company issue a group AD&D policy to a labor union or other employee organization as the group policyholder, on a non-contributory basis, with the general agent paying the premium.1
The general agent will continue to pay the premium until the group policyholder no longer desires to make the existence of the coverage known to its members. The group policyholder will make the existence of the group coverage known to its members by a mailing. The mailing will also include a response card offering the member the opportunity to have a representative of the insurer contact him/her to arrange to deliver his/her coverage certificate and to discuss other available insurance products that may be of interest. The member will not be contacted unless he or she returns the response card.
If the member returns the response card, a certificate of insurance for the group AD&D coverage will be personally delivered by an agent, who works under the supervision of a general agent. The coverage certificate includes the statement that the general agent is paying the premium for the AD&D coverage and will continue paying the premium as long as the group policyholder chooses to "present" this coverage to its members. At the time the certificate is delivered, the agent will also solicit the sale of individual life and/or accident insurance. This marketing strategy is being proposed because labor unions, as a rule, will not release the names of their members. The general agent will not be receiving commission on the sale of the AD&D policies.
N.Y. Ins. Law § 4224(c) (McKinney 2000) provides:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
In accordance with the above cited provision, provided that the coverage is not dependent upon solicitation of the members for additional insurance, and the inducement (which is the general agents payment of the premium on behalf of the policyholder), as well as the conditions under which the agent will cease paying the premium, are specified in both the underlying AD&D policy and the certificate, there would be no violation of N.Y. Ins. Law § 4224(c).
Pursuant to N.Y. Ins. Law § 3221(a)(6) (McKinney 2000), an insurer is required to "issue either to the employer or person in whose name such policy is issued, for delivery to each member of the insured group, a certificate setting forth in summary form a statement of the essential features of the insurance coverage ." Accordingly, in the situation you have presented, even if a member/employee does not return the response card he/she still must receive a certificate evidencing coverage.
The insurer has been so advised and has agreed that, in the future, the certificates will be mailed to each group member by the group policyholder. By using this procedure, the group policyholder can maintain the confidentiality of its membership roster while allowing the insurer to comply with the requirements of NY Insurance Law §§ 3221(a)(6), 4224(c) and 2602 that each group member receives a coverage certificate and has the opportunity to designate a beneficiary.
For further information one may contact Associate Attorney Sam Wachtel at the New York City Office.
1 The insurer does not require the agent to sell this policy.