New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

Eliot Spitzer
Governor

Louis Pietroluongo
Acting Superintendent

The Office of General Counsel issued the following opinion on January 2, 2007, representing the opinion of the New York State Insurance Department.

Re: Sharing Commissions for NYS Partnership Long-term Care Policies

Question Presented:

1. May an agent certified by New York State Department of Health to sell New York State Partnership long-term care policies that presents the policy, examines suitability, takes the application, and delivers the policy, split commissions with an agent that is not certified by the New York State Department of Health to sell New York State Partnership long-term care policies but is a licensed accident and health agent that is appointed by the insurer?

2. May a general agent pay part of the commission received from the sale of a New York State Partnership long-term care policy to a New York licensed agent that is appointed by the insurer but who is not certified by the New York State Department of Health to sell Partnership policies when the sale was initiated and completed by a certified agent?

Answer:

1. An agent certified by New York State Department of Health to sell New York State Partnership long-term care policies that presents the policy, examines suitability, takes the application, and delivers the policy, is not prohibited by the Insurance Law from splitting commissions with an agent that is not certified by the New York State Department of Health to sell New York State Partnership long-term care policies but is a licensed health and accident agent that is appointed by the insurer.

2. A general agent is not prohibited by the Insurance Law from paying part of a commission received from the sale of a New York State Partnership long-term care policy to a New York licensed agent that is appointed by the insurer even though the agent is not certified by the New York State Department of Health when the sale was initiated and completed by a certified agent.

Facts Presented:

No specific facts were presented for this inquiry.

Analysis:

The New York State Partnership for Long-Term Care is a program combining long-term care insurance and Medicaid Extended Coverage. Its purpose is to help New Yorkers financially prepare for the possibility of needing nursing home care, home care or assisted living services someday. The program allows New Yorkers to protect some or all of their assets (resources), depending on the insurance plan purchased, if their long-term care needs extend beyond the period covered by their private insurance policy.

N.Y. Ins. Law § 2114(a)(3)(West, WESTLAW through L.2003, c. 687 legislation) regulates the payment of commissions for the sale of accident and health policies and states:

No insurer, fraternal benefit society or health maintenance organization doing business in this state and no agent or other representative thereof shall pay any commission or other compensation to any person, firm, association or corporation for services in soliciting, negotiating or selling in this state any new contract of accident or health insurance or any new health maintenance organization contract, except to a licensed accident and health insurance agent of such insurer, such society or health maintenance organization, or to a licensed insurance broker of this state, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.

N.Y. Ins. Law § 2112(a) (West, WESTLAW through L.2004, c. 245 legislation) requires every insurer doing business in New York to file a certificate of appointment in such form as the Superintendent may prescribe in order to appoint insurance agents to represent such insurer.

Therefore, the Insurance Law requires that a person be a licensed as an agent by the New York State Insurance Department to receive a commission and appointed by the insurer in order to represent the particular insurer.

Paragraph I. A. of the New York State Partnership of Long Term Care, Insurer Participation Agreement states in pertinent part:

Participating insurers shall also require that only Partnership Certified Agent(s)/Broker(s) shall market and sell Partnership approved policies/certificates regardless of where the agent/broker resides and/or conducts business. Participating Insurers shall always require at least one Partnership Certified Agent/Broker be directly involved in the marketing and sale of Partnership approved policies/certificates.

The terms of the Insurer Participation Agreement indicate that as long as one Partnership Certified Agent or Broker is involved in the marketing and sale of Partnership approved policy, then the terms of the Insurer Participation Agreement is met. Further, the Insurer Participation agreement does not prohibit the sharing of commissions between licensed and contracted agent.

The New York State Insurance Department’s general limitations on commissions that may be paid to an insurance agent or broker for sale of a non-Partnership or Partnership long term care insurance policy/certificate are set forth in § 52.25(e) of N.Y. Comp. Codes R. & Regs. tit 11, Part 52 (Regulation 62) (West, WESTLAW through 2006):

(e) Permitted compensation arrangements.

1. An insurer may provide commissions or other compensation to an agent or other representative for the sale of a long term care insurance, nursing home insurance only, home care insurance only, or nursing home and home care insurance policy or certificate at a higher level or amount during the first year the policy or certificate is in effect than is paid for selling or servicing the policy or certificate during the second year. However, all proposed first year commissions or compensation as well as renewal commissions or compensation shall be subject to review and approval to ensure that they are reasonable, not excessive, and not inconsistent with expected loss ratio requirements.

2. The commission or other compensation provided in subsequent (renewal) years must be the same as that provided in the second year or period and must be provided for a reasonable number of renewal years.

3. In a replacement situation no insurer shall provide compensation to its agents or other producers and no agent or producer shall receive compensation greater than the renewal compensation payable by the replacing insurer on renewal policies.

4. For purposes of this section, compensation includes pecuniary or nonpecuniary remuneration of any kind relating to the sale or renewal of the policy or certificate including but not limited to bonuses, gifts, prizes, awards and finders fees.

The New York State Insurance Law and regulations do not require training and certification to receive commissions for selling New York State Partnership for Long Term Care policies. The requirement for training and certification to sell New York State Partnership for Long Term Care insurance policies originates from the governance process of the New York State Partnership for Long Term Care directly involving participating Partnership insurers and the New York State Department of Health. The requirement for training and certification to sell New York State Partnership for Long Term Care insurance policies involves a contractual arrangement between the New York State Department of Health and participating Partnership insurers. Therefore, any issues concerning this particular training and certification requirement should be directed to the insurer providing New York State Partnership for Long Term Care policies, the New York State Department of Health, and the New York State Partnership for Long Term Care.

In view of the aforementioned, an agent certified by New York State Department of Health to sell New York State Partnership long-term care policies is not prohibited by the Insurance Law from splitting commissions with an agent that is not certified by the New York State Department of Health to sell New York State Partnership long-term care policies but is a licensed health and accident agent that is contracted with the insurer.

In addition, a general agent is not prohibited by the Insurance Law from paying part of a commission received from the sale of a New York State Partnership long-term product to a New York licensed agent that is appointed by the insurer even though the agent is not certified by the New York State Department of Health when the sale was initiated and completed by a certified agent.

For further information you may contact Special Counsel Athan Shinas at the Albany Office.