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

Eliot Spitzer
Governor

Eric R. Dinallo
Superintendent

The Office of General Counsel issued the following opinion on January 31, 2008 representing the position of the New York State Insurance Department.

Re: Licensure Requirement for Insurance Consulting

Questions:

1.  May a nonresident unlicensed fee-based consultant (i) make trust-owned life insurance (“TOLI”) policy ownership risk determinations, (ii) make TOLI policy performance determinations, or (iii) provide TOLI policy management advice to New York policy owners?

2. May a nonresident unlicensed fee-based consultant deliver reports containing determinations and advice referenced in question 1 above by mail, email or fax to New York policy owners?

3.  May a nonresident unlicensed fee-based consultant post reports containing determinations and advice referenced in question 1 above on the consultant’s network or server for download by New York policy owners?

4.  May a nonresident unlicensed fee-based consultant deliver reports containing determinations and advice referenced in question 1 above to intermediate consultants not located in New York, with said consultants forwarding reports to New York policy owners?

5.  If a nonresident unlicensed fee-based consultant may not properly deliver reports containing determinations and advice referenced in question 1 above, what is the fine for providing said unlicensed fee-based insurance advice?

6.  Are New York policy owners liable for fines if they purchase fee-based insurance consultation from nonresident fee-based consultants?

Conclusions:

1. No, a nonresident unlicensed fee-based consultant may not properly (i) make trust-owned life insurance (“TOLI”) policy ownership risk determinations, (ii) make TOLI policy performance determinations, or (iii) provide TOLI policy management advice to New York policy owners.

2. No, a nonresident unlicensed fee-based consultant may not properly deliver reports containing the determinations and advice referenced in question 1 above by mail, email or fax to New York policy owners.

3.     No, a nonresident unlicensed fee-based consultant may not properly post reports containing the determinations and advice referenced in question 1 above on the consultants network or server for download by New York policy owners?

4.     Nothing in New York Insurance Law prevents a nonresident unlicensed fee-based consultant from delivering reports containing determinations and advice referenced in question 1 above to intermediate consultants not located in or licensed by New York. However, were such unlicensed intermediate consultants to forward such reports to New York policy owners, those unlicensed consultants would stand in violation of the New York Insurance Law.

5.     There is no fixed fine. However, an unlicensed entity or individual that provides fee-based insurance advice or consultation services may be subject to criminal prosecution.

6.     No, the New York Insurance Law does not provide for sanctions on New York policy owners that purchase fee-based insurance consultation from nonresident fee-based consultants.

Facts:

An organization has provided fee-based outsourced TOLI administration support services to corporate trustees since 1992.  Trustees engage this organization to perform the cumbersome tasks of collecting in-force policy value information and in-force illustrations for trust investment committees so that they can perform their annual asset review as required by various regulatory agencies. The organization strictly provides only factual information reports (policy values and in-force illustrations) without opinion, judgment or recommendations to trustees.  Every administration support service performed and every report prepared for trustees can be performed internally by trust administrators, but that the organization simply performs these tasks more efficiently than trustees can using internal staff and that the organization has no proprietary processes that cannot be duplicated internally by a trustee at any time. 

Beginning in the 2002 – 2003 period, fee-based vendors began to emerge with discounted fees and services to not only collect and report factual information but also to make determinations of policy owner risk (i.e., high/low), render performance judgments (i.e., competitive/uncompetitive) and give policy management advice, including advice to replace policies and sell them as life settlements.  This activity has gradually emerged to include joint marketing relationships between fee-based vendors and commission-based agents where fee-based determinations that policies are high risk or uncompetitive are used as “independent” rationale for commission-based agents to propose alternative replacement policies.  New vendors continue to enter the fee-based service market with increasingly aggressive evaluation and advisory services targeted at trustees, and it is stated that under one such program, agents are advised to pay for the fee-based vendor’s performance report if the policy owner will give the agent a broker of record letter.   Finally, it is stated that there is another new vendor from Michigan that not only collects and reports in-force policy values and in-force illustrations but also advises trustees whether to retain or replace policies.

Analysis:

The activities described are encompassed within those performed by an "insurance consultant" under New York law. The provisions governing the licensing and duties of an insurance consultant are set forth New York Insurance Law § 2107 (McKinney 2007). Insurance Law § 2102(b)(1) prohibits a person, firm association or corporation from identifying or holding himself or itself out as an insurance consultant in New York State without a proper license. Section 2102(b)(1) provides:

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.

Additionally, Insurance Law 2102(b)(3) prohibits a person or firm from accepting compensation for examining, appraising, reviewing, evaluating, recommending or advising on an insurance policy in New York unless licensed as an agent, broker or consultant. Section 2102(b)(3) 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.

Under this statutory framework, it is unlawful for a person, firm, association or corporation to hold itself out as an insurance consultant, receive any fee for examining policies, or make recommendations with regard to insurance in New York without being licensed as an agent, broker or consultant, even though employed by a company that is itself licensed.

These statutes also apply to any impermissible activities that are internet-based. In Circular Letter 5 (2001), which addresses insurance advertisements, referrals and solicitations via the internet, the Department noted that any services or products offered over the internet by non-New York licensees must divulge this fact. The Circular Letter states as follows:

[I]f the insurance products or services are not being offered by a New York authorized insurer, the advertisements or the web sites upon which the advertisements appear must contain a clear and conspicuous disclaimer indicating that the advertised products or services are not available in New York State, and such products and services cannot, in fact, be made available in New York.

In addition, the Circular Letter provides that the websites of non-licensees must be designed to prevent insurance transactions with New York residents. See Circular Letter 5 (2001), available at http://www.ins.state.ny.us/circltr/2001/cl01_05.htm.

Further on the issue of licensing, every firm, association, or corporation in the business of consulting must have at least one licensed sub-licensee. Insurance Law § 2107(a)(2) states in pertinent part as follows:

Any such license issued to a firm or association shall authorize only the members of such firm or association named in such license as sub-licensees to act individually as consultants thereunder, and any such license issued to a corporation shall authorize only the officers and directors thereof named in such license as sub-licensees to act individually as consultants thereunder. Each sub-licensee named in such license must be qualified to obtain a license as an insurance consultant, and for each such sub-licensee the fee specified in subsection (b) of this section must be paid. Every sub-licensee acting individually as a consultant pursuant to a license issued to a firm, association or corporation shall be authorized to act only in the name of such firm, association or corporation.

Therefore, unlicensed employees of an insurance consultant may not provide advice or consult with clients. Rather, such employees must either become sub-licensees of a licensed firm or association, or obtain individual licensees in their own names in order to act as consultants. In other words, irrespective of whether a consultant is an employee or acting independently, she must have a license.

With respect to the sanctioning of unlicensed consultants, please note that Insurance Law § 109(a) makes every violation of any provision of the Insurance Law a misdemeanor, unless such violation constitutes a felony. Accordingly, a person who charges fees for consulting services without the appropriate license could receive a prison sentence of up to one year in duration. See Penal Law § 70.15 (McKinney 1998). Any criminal sanctions are in addition to any other penalty provided by law with respect to such violation.

Section 327 of the Insurance Law authorizes the Superintendent to maintain and prosecute an action against any person subject to the Insurance Law to obtain an injunction restraining such person from doing any acts in violation of the Insurance Law. The court may grant an injunction if it finds that a defendant is threatening or is likely to do any act in violation of the Insurance Law, and that such violation will cause irreparable injury to the interests of the people of this state.

In the alternative, the Superintendent may bring an administrative proceeding pursuant to Article 24 of the Insurance Law to have the violation of Insurance Law § 2102 by the non-licensee declared a determined violation. Following such proceeding, if the activities constituting this determined violation have not been discontinued, the Superintendent, through the Attorney General, may bring an action to enjoin such person from engaging in such determined violation.

For further information you may contact Supervising Attorney Michael Campanelli at the New York City office.