The Office of General Counsel issued the following opinion on October 28, 2005, representing the position of the New York State Insurance Department.
Re: Disclosure of Relationship Between Insurance Producer and Premium Finance Agency.
Does the New York Insurance Law require an insurance producer to disclose its relationship with a premium finance agency where its shareholders are also shareholders of the premium finance company and will receive a financial benefit if the clients of the insurance producer choose to obtain financing through the premium finance company?
No. The New York Insurance Law does not contain such a requirement. However, it would be advisable for an insurance producer to make such disclosure to prevent potential conflicts of interest and appearance of impropriety.
The inquirer states that one of its members is a corporation and a New York licensed insurance agent and broker ("insurance producer"). Certain shareholders of the corporation have formed a separate company in whose name they intend to apply for a New York premium finance agency license. The inquirer states that the new company is neither a subsidiary nor a legal affiliate of the insurance licensee.1 The only thing that the two companies have in common is the aforementioned shareholders. The insurance producer will offer the new company's premium financing arrangements to its clients. The insurance producer will not receive a service or referral fee from the finance company. The shareholders of the finance company will receive the profits from its operations. The clients will be informed that they are free to obtain financing from another source. We are assuming that there will be no obligation to purchase a premium finance agreement when insurance is purchased and vice versa; that the arrangement will not affect the rates charged on the insurance policy or the premium finance agreement and that the client will not receive any other kind of special benefit relative to the arrangement. We are also assuming that the new company's premium financing arrangement will not be more favorable to the licensee.
The New York Insurance Law does not contain a specific requirement that an insurance producer disclose its relationship with a premium finance agency under the circumstances that the inquirer described. However, it would be advisable for an insurance producer to make such disclosure to prevent potential conflicts of interest and appearance of impropriety. The inquirer was directed to also make the inquiry of the New York Banking Department, since that Department regulates premium finance agencies.
For further information you may contact Associate Attorney Pascale Jean-Baptiste at the New York City Office.
1 N.Y. Ins. Law § 107(a)(40) (McKinney 2000 and Supp. 2005) defines the term "subsidiary" in part as "an institution controlled, directly or indirectly, by another institution or by a retirement system." Section 107(a)(4) defines the term "affiliate" as "a corporation a majority of whose shares is owned or controlled by shareholders, directors or officers of another corporation, who own or control a majority of the shares of the other corporation." The Department can not opine further, as to whether the companies are affiliates or whether the premium finance agency is a subsidiary, without additional facts. However, this does not appear to affect the result herein.