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 opinion on June 27, 2005, representing the position of the New York State Insurance Department.

Re: Referrals

Question Presented:

Would an arrangement where a real estate company refers new homeowners to an insurance agent for homeowners insurance in exchange for a "finder’s fee" contingent on the purchase of the insurance be in violation of the New York State Insurance law?

Conclusion:

Yes. Pursuant to N.Y. Ins. Law §§ 2114, 2115, and 2116 of the N.Y. Ins. Law (McKinney 2005), a non-licencee may not be compensated for referrals that are contingent upon the placement of insurance.

Facts:

The inquirer’s company is an insurance agent that sells homeowners insurance. Recently, it was approached by a real estate company to participate in its "Client Perks Program." Under the program, the real estate company would refer its clients to the inquirer’s company for the purposes of purchasing homeowners insurance. If the client purchases insurance, then the inquirer’s company would give a "finder’s fee" of $25.00 to the real estate company. The real estate company does not discuss the specific insurance policy terms and conditions with the prospective insured.

Analysis:

N.Y. Ins. Law § 2115(a)(1), which refers to property and casualty insurance agents, states:

No insurer doing business in this state, and no agent or other representative thereof . . . , 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.

N.Y. Ins. Law §§ 2114 and 2116 prohibit such activities as it relates to life, accident & health insurance agents and insurance brokers, respectively.

According to § 2115, a non-licensee may be compensated for referrals by an insurance agent so long as the referral does not include a discussion of specific insurance policy terms and conditions, and where the compensation for the referral is not contingent upon the sale of insurance. Although the non-licensed real estate company does not discuss specific insurance policy terms and conditions, the compensation for referral is based on the sale of homeowners insurance. Therefore, the referral program as described here would be in violation of the New York State Insurance law.

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