The Office of General Counsel issued the following opinion on December 8, 2006, representing the position of the New York State Insurance Department.
Promotional Discounts N.Y. Ins. Law §§ 2324 and 4224 (McKinney 2006)
(1) May a licensed insurance producer give to prospective insureds who seek an insurance quote on the Internet a free coupon to cover the $10 charge for insureds to be listed in an on-line directory to advertise their businesses?
(2) May a licensed insurance producer provide to a prospective insured a calendar, which can be downloaded on a computer, containing the producer's name and contact information?
(1) No. The free coupon would constitute unlawful valuable consideration or inducements, in violation of N.Y. Ins. Law §§ 2324(a) and 4224(c) (McKinney 2006 and Supp. 2007).
(2) It would depend upon the type of insurance being quoted. The calendar would fall under the $15 maximum "keepsake" exception to the rebating prohibition in N.Y. Ins. Law § 2324(a) (McKinney 2006), in connection with property/casualty insurance. The offer of a calendar would be prohibited in connection with life, accident and health insurance because there is no such exception contained in N.Y. Ins. Law § 4224(c) (McKinney Supp. 2007).
The company creates Internet applications intended to be marketed to licensed insurance agents and brokers in New York and other states to help develop specialty contact and prospect lists. Before the design is finalized, the inquirer wishes to know if this program would violate rebating statutes in New York.
The aim is to encourage people to sign up on an Internet directory and list their businesses or services as an advertisement to other browsers. The cost of being listed in the directory is $10, but if a prospective insured chooses an insurance agent or broker advertising on the Internet site to provide the prospective insured with an insurance quote, the person would receive a coupon worth $10 to be used only to cover the cost of being listed in the directory. The cost of the subscription would instead be charged to the insurance agent or broker. The prospective insured would also receive a designed calendar that contains identifying information of the agent or broker. Actual purchase of insurance is not required to receive the coupon or calendar.
As the type of insurance in issue was not indicated, the opinion will address both property/casualty insurance policies and life, accident and health insurance policies.
N.Y. Ins. Law § 2324(a) (McKinney 2006), entitled "Rebating and discrimination," is applicable to property/casualty insurance and provides in pertinent part as follows:
No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker. . . (emphasis added).
Thus, in accordance with the express language of N.Y. Ins. Law § 2324(a) (McKinney 2006), insurers, brokers, agents and their employees and representatives are prohibited from directly or indirectly offering inducements or valuable consideration, other than an article of merchandise not exceeding $15 in value in connection with the sale of insurance, when such inducements or valuable consideration are not specified in the insurance policy.
In the present case, the offer of a free coupon violates N.Y. Ins. Law § 2324(a) (McKinney 2006) because it induces insureds or prospective insureds to procure insurance through an insurance agent or broker by offering the added benefit of receiving a free coupon which is not specified in the insurance policy.
Moreover, the coupon is not an article of merchandise within the meaning of N.Y. Ins. Law § 2324(a) (McKinney 2006). The article of merchandise that § 2324(a) contemplates is a "keepsake," not exceeding $15 in retail value, which conspicuously bears the agency's name and is designed to keep the agency's name before the customer through the conspicuous stamp or printing thereof. Inasmuch as the coupon being offered is not a keepsake within the meaning of the statute, it would not fall under the "keepsake" exception of N.Y. Ins. Law § 2324(a) even if the agency name was placed on it. The calendar has the agency name conspicuously on it and is a permissible keepsake even after the calendar year ends.
With respect to life, accident and health insurance, the prohibition is contained in N.Y. Ins. Law § 4224(c) (McKinney Supp. 2007), which states:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof an 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).
N.Y. Ins. Law § 4224 (McKinney Supp. 2007) prohibits an insurance agent or broker from offering any valuable consideration or inducement directly or indirectly, in connection with the sale of insurance when it is not specified in the policy or contract.
Unlike the "anti-rebate" statute for property/casualty insurance, there is no exception for a $15 keepsake in the "anti-rebate" statute for life, accident and health insurance, so both the coupon and calendar would be prohibited thereunder.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.