New York State Seal

STATE OF NEW YORK

INSURANCE DEPARTMENT

25 BEAVER STREET

NEW YORK, NEW YORK 10004

David A. Paterson

Governor

James J. Wrynn

Superintendent

OGC Op. No. 10-12-06

The Office of General Counsel issued the following opinion on December 6, 2010, representing the position of the New York State Insurance Department.

Re: Commission Sharing on Sale of Long Term Care Insurance

Questions Presented:

1) May an insurance agent share commission on the sale of long term care insurance with a college, which is not licensed as an insurance agent or broker?

2) May an insurance agent pay a referral fee to a college that makes the referral by sending to its alumni and supporters correspondence that “explains the benefits” of long term care insurance?

3) Is the “sample agreement” that was attached to the request for an opinion acceptable for use?

Conclusions:

1) No. An insurance agent may not share commission on the sale of long term care insurance with an entity, such as a college, that is not licensed as an insurance agent or broker.

2) No. An insurance agent may not pay a referral fee to a college that makes the referral by sending to its alumni and supporters correspondence that “explains the benefits” of long term care insurance. The insurance agent may pay a referral fee to the college only if 1) the college does not discuss the specific terms and conditions of the policy with its alumni and supporters; and 2) the payment of the referral fee is not dependent on the purchase of insurance.

3) No. The “sample agreement” that was attached to the request for an opinion is not acceptable for use.

Facts:

In a letter to the Department, (the “Letter”), an insurance agent asked the Department to review a proposal to market and sell long term care insurance. The producer planned to enter into an agreement with a local college that, under the proposal, would send marketing materials “explaining the benefits” of long term care insurance to its alumni and supporters. Under the proposal, an employee of the college, who is an insurance producer licensed in this state, would receive a share of the commissions from any sale of long term care insurance to an alumnus or supporter of the college.

The producer attached to the Letter “a sample agreement [that the] company uses when [they] split commissions with licensed agents and professional advisers.” The sample agreement includes a “Strategic Partnership Check List,” which contains the following statement: “Your strategic partner does not need to be appointed with any carriers. As long as they have a valid license and the above paperwork completed, they can receive commission payments from [company] without being appointed with the carrier.”

Analysis:

Sharing Commission

Insurance Law § 2114(a)(3) is relevant to this inquiry. Pursuant to that section of the Insurance Law, a licensed insurance agent may share commission on a long term care insurance policy 1 only with (1) another insurance agent that is not only licensed to sell accident and health insurance, but is also appointed as an agent by the same insurer, or (2) an insurance broker that is licensed to sell accident and health insurance. Insurance Law § 2114(a)(3) reads as follows:

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.

The proposal to sell long term care insurance in partnership with a college violates Insurance Law § 2114(a)(3), because the producer proposes to share commission with an entity (the college) that is neither licensed as an accident and health insurance agent of the insurer, nor licensed as an insurance broker. Although the producer stated in the Letter that “[t]here would be a licensed person at the college who could receive these commissions,” the licensee would not retain the commission. The college would be the actual recipient of the commission, because the Letter states that “[i]f the families, friends bought Long Term Care Insurance through the college’s program, a per cent age [sic] of the commissions generated would go to the college.” Thus, the licensee’s only role in this arrangement would be to act as a conduit for the insurance agent to funnel commission to the non-licensee college, an arrangement that violates Insurance Law § 2114(a)(3).

Paying a Referral Fee

Insurance Law § 2114(a)(4) is also relevant to this inquiry. That section of the Insurance Law permits an insurance agent that sells long term care insurance to compensate a person, firm, association or corporation that is not an appointed agent of such insurer, or is not an insurance broker licensed in New York, for making a referral to the insurance agent provided that: 1) the referring party does not discuss the specific terms and conditions of the policy with the person being referred; and 2) the payment of the referral fee is not dependent on the referred person purchasing an insurance policy. Insurance Law § 2114(a)(4) reads as follows:

Services of the kind specified in this subsection 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.

Because the producer proposed that “the college, with our assistance designing the marketing piece, would send out information to alumni and friends of the college explaining the benefits of Long Term Care Insurance,” the proposal does not come within the exception for referrals set forth in Insurance Law § 2114(a)(4), which prohibits a person who is making a referral from discussing the specific insurance policy terms and conditions with the person being referred.

Sample Agreement

The sample agreement that was attached to the Letter includes incorrect information that must be removed. The agreement includes a “Strategic Partnership Check List,” which contains the following statement: “Your strategic partner does not need to be appointed with any carriers. As long as they have a valid license and the above paperwork completed, they can receive commission payments from [company] without being appointed with the carrier.”

The Insurance Law requires an insurance agent to be appointed by the insurer whose policies the agent sells. Insurance Law § 2101(a) defines “insurance agent” to mean:

any authorized or acknowledged agent of an insurer, fraternal benefit society or health maintenance organization issued a certificate of authority pursuant to article forty-four of the public health law, and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker[.] (Emphasis added.)

Additionally, Insurance Law § 2103, which sets forth the licensing requirements for insurance agents, calls for an agent to be appointed by an insurer, stating in subsection (a) that

The superintendent may issue a license to any person, firm or corporation who or which has complied with the requirements of this chapter, authorizing such licensee to act as an insurance agent with respect to the lines of authority for life insurance, variable life and variable annuity products, or accident and health insurance and sickness or any other line of authority deemed to be similar by the superintendent, including for this purpose, health maintenance organization contracts, legal services insurance or with respect to any combination of the above, as specified in such license, on behalf of any insurer, fraternal benefit society or health maintenance organization, which is authorized to do such kind or kinds of insurance or health maintenance organization business in this state. (Emphasis added.)

Thus, an insurance agent that sells long term care insurance must be appointed by the insurer whose policy the agent sells. And as discussed above, commission payments may not be shared with an insurance agent that is not an appointed agent of the insurer. Nor may an agent that is not licensed to do business in New York, and is not an appointed agent of the insurer, accept any commission or any other compensation for negotiating, soliciting, or selling insurance in this state, pursuant to Insurance Law § 2102(e)(1).

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.

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1 Long term care insurance is a form of accident and health insurance pursuant to Insurance Law § 1117.