New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT

25 BEAVER STREET
NEW YORK, NEW YORK 10004

Eliot Spitzer
Governor
Eric R. Dinallo
Acting Superintendent

The Office of General Counsel issued the following opinion on February 8, 2007 representing the position of the New York State Insurance Department.

Re: Insurance Consultants

Question Presented:

May a New York State licensed insurance broker act as an insurance consultant to examine, appraise, review or evaluate an insurance policy for which he is not the broker of record, without becoming separately licensed as an insurance consultant?

Conclusion:

Yes. Under N.Y. Ins. Law § 2102(b)(1) (McKinney 2006), a New York State licensed insurance broker may act as an insurance consultant to examine, appraise, review or evaluate an insurance policy for which he is not the broker of record, without becoming separately licensed as an insurance consultant.

Facts:

The inquiry is of a general nature, without reference to any facts.

Analysis:

Insurance Law § 2102(b)(1) is relevant to the inquiry. It states:

Unless licensed as an insurance agent, insurance broker or insurance consultant, no person, firm, association or corporation shall in this state identify or hold himself or itself out to be an insurance advisor, insurance consultant or insurance counselor.

Insurance Law § 2102(b)(3) likewise pertains to the question. It provides:

Unless licensed as an insurance agent, insurance broker or insurance consultant with respect to the relevant kinds of insurance, no person, firm, association or corporation shall receive any money, fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, annuity or pension contract, plan or program or shall make recommendations or give advice with regard to any of the above.

Thus, under Insurance Law § 2102(b), a New York State licensed insurance broker may act as an insurance consultant to examine, appraise, review or evaluate an insurance policy for which he is not the broker of record, without becoming separately licensed as an insurance consultant.

However, please note that Insurance Law § 2119(a)(1) states:

No person licensed as an insurance agent, broker or consultant may receive any fee, commission or thing of value for examining, appraising, reviewing or evaluating any insurance policy, bond, annuity or pension or profit-sharing contract, plan or program or for making recommendations or giving advice with regard to any of the above, unless such compensation is based upon a written memorandum signed by the party to be charged and specifying or clearly defining the amount or extent of such compensation.

Pursuant to this section, compensation for consulting fees must be based on a written memorandum signed by the party to be charged, and specify or clearly define the amount and extent of the fees. The fee must be reasonable in relation to the services provided for the insurance consultations, and must be agreed upon prior to the consulting.

Moreover, if the insurance broker also wishes to make a commission on the sale of insurance sold as a result of the consultation, the consulting fee memorandum must so specify. An insurance broker or agent may not receive a commission on such a policy unless it complies with the requirements set forth in Insurance Law § 2119(b)(1), which states:

No person licensed as an insurance agent, broker or a consultant may receive any compensation, direct or indirect, as a result of the sale of insurance or annuities to, or the use of securities or trusts in connection with pensions for, any person to whom any such licensee has performed any related consulting service for which he has received a fee or contracted to receive a fee within the preceding twelve months unless such compensation is provided for in the memorandum or contract required pursuant to subsection (a) hereof.

Thus, a broker or agent may receive a commission for placing insurance and a consulting fee for providing consulting services only if the written memorandum signed by the party to be charged clearly so states.

Regardless of whether the broker or agent may receive a commission, in no event does this alter the amount of premium that the insured must be charged. See Ins. Law §§ 2324(a)(1); 4224(c). Finally, please note that Insurance Law § 2119(b)(2) permits a broker or agent to offset part or whole of a consulting fee if the broker or agent also receives a commission on the policy; the statute does not, however, permit the broker or agent to reduce his commission.

For further information you may contact Senior Attorney Elizabeth Barrett at the New York City Office.