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

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following informal opinion on May 11, 2005 representing the position of the New York State Insurance Department.

RE: Broker Fees and Commissions

Question Presented:

May a licensed insurance broker receive compensation from an insured and a commission from an insurer for the placement of the insured’s business with such insurer?

Conclusion:

There is nothing in the Insurance Law to prohibit a licensed insurance broker from receiving compensation from an insured and a commission from an insurer for the placement of the insured’s business with such insurer.

Facts:

The inquiry is of a general nature.

Analysis:

N.Y. Ins. Law § 2101(c) (McKinney Supp. 2005), defines an insurance broker, in relevant part, as "any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured . . . "

N.Y. Ins. Law §§ 2119(c) and (d) (McKinney Supp. 2005) address broker compensation and provide as follows:

(c) (1) No insurance broker may receive any compensation, other than commissions deductible from premiums on insurance policies or contracts, from any insured or prospective insured for or on account of the sale, solicitation or negotiation of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation.

(2) A copy of every such memorandum shall be retained by the broker for not less than three years after such services have been fully performed.

(3) This subsection shall not affect the right of any such broker to recover from the insured the amount of any premium or premiums for insurance effectuated by or through such broker.

(4) This subsection shall not affect the requirements of subsection (a) or (b) hereof, subsection (g) of section two thousand one hundred one or section two thousand one hundred eight of this article.

(d) No insurance broker shall, in connection with the sale, solicitation or negotiation, issuance, delivery or transfer in this state of any contract of insurance made or negotiated in this state, directly or indirectly charge, or receive from, the insured or prospective insured therein any greater sum than the rate of premium fixed therefore by the insurer obligated as such therein, unless such broker has a right to compensation for services created in the manner specified in subsection (c) of this section. (emphasis added)

There is nothing in the Insurance Law to prohibit a licensed insurance broker from receiving compensation from an insured (subject to the provisions of § 2119 herein cited) and a commission from an insurer for the placement of the insured’s business with such insurer. However, Department Circular Letter No. 22 (1998), a copy of which is enclosed, may be used for guidance regarding disclosure of additional compensation paid to brokers by insurers.

Currently, there is no requirement in the Insurance Law to disclose commissions. However, the Department is considering promulgation of regulations regarding disclosure of commissions.

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