The Office of General Counsel issued the following opinion on November 29, 2006 representing the position of the New York State Insurance Department.
Re: Referral Fees to Unlicensed Entity
May an independent insurance agent give a "finders fee" to an unlicensed entity that provides it with a referral?
A licensed insurance agent may not compensate a non-licensee for referrals contingent upon the placement of insurance. However, the non-licensee may be compensated for the referral if the compensation is not based upon the placement of insurance and the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insured.
The inquiry is of a general nature.
N.Y. Ins. Law § 2102(a)(1) (McKinney 2006) provides as follows:
(a)(1) No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
An insurance producer is defined in N.Y. Ins. Law § 2101(k) (McKinney 2006) as "an insurance agent, insurance broker, reinsurance intermediary, excess lines broker, or any other person required to be licensed under the laws of this state to sell, solicit or negotiate insurance."
N.Y. Ins. Law § 2114(a) (McKinney 2006) applies to life and accident and health insurance and annuity contracts and provides, in relevant part, as follows:
(1) No insurer or fraternal benefit society doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer or of such society or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
(2) No agent or other representative of any such life insurer or fraternal benefit society shall pay any commission or other compensation to any person for any services of the kind specified in paragraph one hereof, except to a licensed life insurance agent of such insurer or of such society as the case may be.
(4) Services of the kind specified in this subsection 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.
Generally, only a licensed insurance agent or broker may be compensated for soliciting insurance as provided in § 2102. However a licensed insurance agent or broker may compensate a referring party if the referral to the agent or broker does not include a discussion of the insurance policy terms and conditions and the referral fee is not based on whether insurance was sold. Paying a referral fee based on a per-policy sold basis would violate § 2114(a)(4) and the referring party would be in violation of § 2102.
For further information you may contact Assistant Attorney Sapna Maloor at the New York City Office.