New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Acting Superintendent

The Office of General Counsel issued the following opinion on April 22, 2005 representing the position of the New York State Insurance Department.

Re: Referral Fees and Rebates

Question Presented:

1. Under what circumstances may a property/casualty insurance agent compensate unlicensed third parties for referrals?

2. May a property/casualty insurance agent give a $5 gift card to potential insureds as a reward for accepting insurance quotes from the agent?

Conclusion:

1. Referrals from non-licensees, and compensation for such referrals, are permissible if the referrals do not include a discussion of specific insurance policy terms and conditions and the compensation for referrals is not based on whether a sale is made. The Insurance Law does not limit the amount of such compensation.

2. No, the $5 gift card would constitute an unlawful inducement in violation of N.Y. Ins. Law §§ 2324 (McKinney Supp. 2005). The limited exception to N.Y. Ins. Law § 2324, which permits the giving of "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 . . .", is not applicable since the gas card is not a keepsake.

Facts:

The inquiry is of a general nature. No facts were provided.

Analysis:

N.Y. Ins. Law § 2115 (McKinney Supp. 2005), is applicable to property/casualty insurance agents and provides, in relevant part, as follows:

(a) (1) No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as insurance agent" shall not include the referral of a person to a licensed insurance 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).

Thus, there is a limited exemption for referrals from the prohibition against insurers or agents compensating a non-licensee for acting as an insurance agent or broker. Pursuant to the exemption, agents and brokers may compensate unlicensed persons for insurance referrals if the referrals do not include a discussion of specific insurance policy terms and conditions; and compensation for such referrals is not based on whether a sale is made.

In addition, the Department Circular Letter No. 5 (2001) provides guidance on referrals over the Internet. The circular letter is available on the Department’s website.

With regard to giving a $5 gift card to potential insureds who request an insurance quote from an agent, N.Y. Ins. Law § 2324 (McKinney Supp. 2005), is applicable to property/casualty insurance and provides, in relevant part, as follows:

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 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).

This Office has interpreted the exemption contained within N.Y. Ins. Law § 2324(a) in previous Opinions of General Counsel. For instance, as stated, in relevant part, in Opinion of General Counsel No. 02-05-17 (May 14, 2002):

The "article of merchandise that Section 2324(a) contemplates is a "keepsake", not exceeding $15 in retail value, that is designed to keep the name of the insurer or producer before the consumer through the embossing of the insurer’s or producer’s name. It is typical that a phone card is used shortly after receipt in exchange for calling and then would be discarded. Thus, the phone card does not qualify as an "article of merchandise" pursuant to the "keepsake" exception of Section 2324(a).

Opinion of General Counsel No. 04-08-03 (August 3, 2004) states, in relevant part, that:

Inasmuch as the gift certificate or the [gas] card being offered is not a "keepsake" within the meaning of the statute, but is expected to be used shortly after receipt and then be discarded, it would not fall under the "keepsake" exception of N.Y. Ins. Law § 2324 even if the agency name was placed upon it.

Therefore, despite the low value of the gift card as it is not an article of merchandise it is rather more similar to cash and thus it would not qualify for the exemption and it would be an illegal inducement pursuant to N.Y. Ins. Law § 2324(a) (McKinney Supp. 2005).

For further information you may contact Assistant Counsel Brenda M. Gibbs at the Albany Office.