New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
ONE COMMERCE PLAZA
ALBANY, NEW YORK 12257

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following opinion on February 16, 2006 representing the position of the New York State Insurance Department.

RE: Rebates, Commission Sharing and Referrals

Question Presented

1) What is the current limit on promotional items that can be given by an insurance producer to insureds?

2) Does the Insurance Law limit the amount of compensation that may be given for a referral pursuant to N.Y. Ins. Law §§ 2114 (McKinney Supp. 2006), 2115 (McKinney Supp. 2006) or 2116 (McKinney Supp. 2006)?

3) May an insurance agent or broker compensate nonlicensees who make referrals to the insurance agent or broker by giving them entries in a raffle run by the insurance agent or broker?

4) May an insurance agent or broker rent space within the premises of other businesses where rent is calculated based upon the insurance sales of the insurance agent at such location?

Conclusion

1) N.Y. Ins. Law § 2324 (McKinney Supp. 2006), which applies to property/casualty insurance, allows an insurance agent or broker subject to its provisions to distribute as a "keepsake" an item that does not exceed $15.00 in value, and is designed to keep the name of the insurer or producer before the customer by conspicuously stamping or printing the insurer’s or producer’s name on the item. N.Y. Ins. Law § 4224 (McKinney Supp. 2006) does not contain a similar exception.

2) The Insurance Law does not limit the compensation that may be given for a referral pursuant to N.Y. Ins. Law §§ 2114 (McKinney Supp. 2006), 2115 (McKinney Supp. 2006) or 2116 (McKinney Supp. 2006) provided that the referral does not include a discussion of specific insurance policy terms and conditions and the compensation for the referral is not based on whether a sale is made.

3) An insurance agent or broker may compensate a nonlicensee who makes a referral to the insurance agent or broker with entries in a raffle run by the insurance agent provided that the raffle is open to anyone who makes a referral and is not conditioned upon the nonlicensee purchasing insurance or submitting to a solicitation for insurance; and provided that entry is not conditioned upon the referral resulting in a sale of insurance.

4) Yes, an insurance agent or broker may rent space within the premises of other businesses where the rent is calculated based upon the sales of the insurance agent or broker at the location. However, if the business also makes referrals to the agent or broker pursuant to N.Y. Ins. Law §§ 2114 (McKinney Supp. 2006), 2115 (McKinney Supp. 2006) or 2116 (McKinney Supp. 2006), the total sales upon which the rent is calculated may not include sales resulting from referrals by employees or other representatives of the business.

Facts

The inquirer is the principal of a property/casualty and life insurance agency. The inquirer states that the inquirer has the opportunity to set up satellite offices within some other businesses. The inquirer plans to designate a separate, licensed individual to be responsible for the supervision of each office, including the inquirer’s headquarters location and all other offices. Each supervising person will be present during the hours that the particular office he or she is responsible for supervising is open to the public. The inquirer would like to pay rent for each satellite office based upon sales at such office.

Analysis

N.Y. Ins. Law § 2324 (McKinney Supp. 2006), which applies to property/casualty insurance, and N.Y. Ins. Law § 4224(c) (McKinney Supp. 2006), which applies to life, accident and health insurance prohibit an insurer, insurance agent or insurance broker from offering an inducement or valuable consideration not specified in the insurance policy. However, N.Y. Ins. Law § 2324 makes an exception that permits an insurer, insurance agent or insurance broker to distribute as a "keepsake", an item of merchandise that does not exceed $15.00 in value, and is designed to keep the name of the insurer or producer before the customer by conspicuously stamping or printing the insurer’s or producer’s name on the item. N.Y. Ins. Law § 4224 does not contain a similar exception.

Accordingly, § 2324 does not allow gifts to be made by agents to their clients other than as denoted above. In addition, some items may not qualify as a "keepsake". For instance, gift cards and certificates are not keepsake items. For other examples, one may review Opinions of General Counsel at www.ins.state.ny.us or to ask about a specific type of item, one may submit a request for an opinion.

Pursuant to N.Y. Ins. Law §§ 2114 (McKinney Supp. 2006), 2115 (McKinney Supp. 2006) and 2116 (McKinney Supp. 2006), referrals from non-licensees, and compensation for such referrals, are permissible if the referrals do not include a discussion of specific insurance policy terms and conditions and the compensation for referrals is not based on whether a sale is made. The Insurance Law does not limit the compensation that may be paid for a referral made pursuant to N.Y. Ins. Law §§ 2114, 2115 and 2116 subject to the above conditions. Opinion of General Counsel No. 06-01-14 (January 10, 2006).

An insurance agent or broker may compensate a nonlicensee who makes a referral to the insurance agent or broker with entries in a raffle run by the insurance agent or broker provided that the raffle is open to anyone who makes a referral and is not conditioned the nonlicensee purchasing insurance or submitting to a solicitation for insurance; and provided that entry is not conditioned on the referral resulting in a sale of insurance. Opinion of General Counsel No. 03-10-30 (October 31, 2003).

The Department has previously addressed the issue of the rental of space by an insurance agent or broker within the premises of another business. E.g., Opinion of General Counsel No. 01-06-38 (June 19, 2001) Based upon the holding of 1947 Op. Atty. Gen. 211 and subsequent opinions of the Department based thereon, an insurance agent or broker may lease space within the premises of another business, and the rental amount may be calculated as a function of the level of sales the agent or broker makes at the location. Id. However, if the business also makes referrals to the agent or broker pursuant to N.Y. Ins. Law §§ 2114, 2115 or 2116, the total sales upon which the rent is calculated may not include sales resulting from referrals by such business. Opinion of General Counsel No. 01-08-34 (August 13, 2001).

As the Department has stated in previous opinions, such as Opinion of General Counsel No. 03-01-41 (January 21, 2003), a licensee must operate only under the name on its license exactly as it appears therein. However, the licensee may make an application for an additional license or amend an existing license upon receiving permission from the Department to use another name to reflect a trade name and after making the proper filing with the county clerk. If the licensee uses a name other than the one it is licensed under, the licensee would be doing business without a license in violation of N.Y. Ins. Law § 2102(a) (McKinney Supp. 2005). Opinion of General Counsel No. 02-04-05 (April 3, 2002).

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