The Office of General Counsel issued the following opinion on March 12, 2008, representing the position of the New York State Insurance Department
RE: Referrals of potential insureds by clients to an insurance agency
May an insurance agency compensate clients with a $25 gift certificate for referring potential insureds, where the compensation is not contingent upon the purchase of property/casualty insurance by the referred parties?
Pursuant to N.Y. Ins. Law §§ 2114, 2115, and 2116 (McKinney Supp. 2008), a non-licensee may receive compensation for referrals that are not contingent upon the sale of insurance to the persons referred, so long as the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insureds. However, to limit, as proposed, a referral program to existing property/casualty insurance clients would run afoul of Insurance Law § 2324.
An insurance agent would like to give a $25 gift certificate on a monthly basis to the client who refers to the agency the highest number of prospective insureds that month. While the agent intends to solicit those persons in an attempt to sell property/casualty insurance, the $25 gift is not contingent on an actual sale.
Insurance Law § 2115(a)(1), which apples to property/casualty insurance agents, is relevant to the inquiry. It reads in relevant part as follows:
No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For the purposes of this section, "acting as insurance agent" 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. (Emphasis added.)
Insurance Law § 2116, which pertains to insurance brokers, and Insurance Law § 2114, which relates to life, accident and health insurance agents and brokers, contain similar provisions.
Under the proposal, the $25 gift certificate would not be contingent upon the purchase of property/casualty insurance by the potential insured. Thus, provided that the non-licensee does not discuss specific insurance policy terms and conditions with the potential insured, the referral would not violate Insurance Law § 2102 .
However, because the proposal applies only to existing clients, it would violate Insurance Law § 2324’s prohibition against unlawful rebates or inducements. That statute forbids giving or offering to the insured “either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium… or 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…” Here, the proposed $25 gift certificate not only exceeds the $15 exception, but in any event, the gift certificate would not come within the “keepsake” exception, either.
For further information you may contact Associate Attorney Jeffrey A. Stonehill at the New York City Office.