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: Premium Finance Agency Fee

Question Presented:

May an insurance company accept a fee from a premium financing agency (PFA) for aiding brokers to place a premium finance agreement with that PFA?

Conclusion:

No. N.Y. Banking Law § 568 (McKinney 2004) does not permit an insurance company to receive a fee from a PFA to cover the insurer’s costs of aiding insurance brokers in placing premium financing agreement with that PFA.

Facts:

An insurer proposed to offer premium financing as a service to its policyholders by referral to a premium financing agency (PFA). To aid insurance brokers in arranging premium financing, it was proposed that the services be made available through a particular premium financing company. The insurer would provide a finance agreement to the broker that the broker may activate. For each accepted agreement, the finance company would provide the insurer with a flat fee.

Analysis:

The Banking Department opines, in a letter to the Insurance Department from Harry C. Goberdhan, Assistant Counsel at the Banking Department, dated April 14, 2005, that the proposed arrangement would violate Section 566(2)(a) of the Banking Law, which provides:

2. Notwithstanding any contrary provisions of the personal property law, banking law or other law:

(a) No premium finance agency, and no employee of such an agency shall pay, allow or offer to pay or allow in any manner whatsoever to an insurance agent or broker or any employee of an insurance agent or broker, or to any other person, either as an inducement to the financing of any insurance policy with the premium finance agency or after any such policy has been financed, any rebate whatsoever, either from the service charge for financing specified in the premium finance agreement or otherwise, or shall give or offer to give any valuable consideration or inducement of any kind directly or indirectly, other than an article of merchandise not exceeding one dollar in value which shall have thereon the advertisement of the premium finance agency, but a premium finance agency may purchase or otherwise acquire a premium finance agreement, provided that it conforms to this article in all respects, from an insurance agent or broker or another premium finance agency with recourse against the agent, broker or agency on such terms and conditions as may be mutually agreed upon.

In the opinion of the Banking Department, the payment would constitute a prohibited inducement to "any other person", namely, the insurer. Further, the statute prohibits "any rebate whatsoever" after a policy has been financed and the proposed flat fee would fit squarely within this prohibition.

For further information you may contact Principal Attorney Paul A. Zuckerman at the New York City Office.