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 October 17, 2005, representing the position of the New York State Insurance Department.

RE: Rebating

Questions Presented:

1) May a life insurer provide an item that is valued between ten and twenty-five dollars to its prospective and existing policyholders?

2) May a life insurer sell such item to its prospective policyholders or existing policyholders for a small fee at its office or on its website?

Conclusions:

1) No, pursuant to N.Y. Ins. Law § 4224 (McKinney Supp. 2005) a life insurer may not provide an inducement or valuable consideration of any kind that is not specified in the insurance contract.

2) Absent approval by the Superintendent pursuant to N.Y. Ins. Law § 1714 (McKinney 2000), a life insurer may not sell such item as it would constitute engaging in business other than that necessarily and properly incidental to life insurance business under N.Y. Ins. Law § 4205 (McKinney Supp. 2005)

Facts:

A company is in the process of developing a product that it is considering marketing to life insurers to provide to their policyholders. It was stated that the cost to manufacture the product is uncertain but that its value would be between ten and twenty-five dollars.

Analysis:

With respect to life, accident and health insurance, N.Y. Ins. Law § 4224 (c) (McKinney Supp. 2005) 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. (Emphasis added)

Thus, a life insurer, among others, is prohibited from giving or selling, as an inducement to purchase insurance, valuable consideration of any kind that is not expressly specified in the insurance policy. The item intended to be marketed to insurers would serve as an inducement to prospective policyholders to purchase insurance and would also serve as an inducement to existing policyholders to continue to do business with the insurer.

With regard to selling the item to the general public, life insurers are prohibited from engaging in business that is not necessarily or properly incidental to life insurance business. N.Y. Ins. Law § 4205 (McKinney Supp. 2005) provides:

No life insurance company licensed to do a life insurance business in this state shall do any business other than the kinds of business specified in paragraphs one, two, three and twenty-nine of subsection (a) of section one thousand one hundred thirteen, sections one thousand one hundred fourteen, one thousand seven hundred fourteen and three thousand two hundred twenty-two of this chapter and such other business as is necessarily or properly incidental thereto. Except as stated in section one thousand one hundred six of this chapter, this section shall apply to the business within or without this state of such a foreign life insurance company and shall apply only to the business within the United States of such an alien life insurance company.

However, an insurer may request approval by the Superintendent to sell such item under N.Y. Ins. Law § 1714 (McKinney 2000), which states in relevant part:

(a) A domestic life insurance company may, if it maintains books and records that separately account for such business, engage directly in (i) any business, to the extent necessarily or properly incidental to the insurer's business, including rendering investment advice, investment management services and services related to the functions involved in the operation of an insurance business, and (ii) any other business to the extent approved by the superintendent.

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.