OGC Op. No. 11-01-02
The Office of General Counsel issued the following opinion on January 5, 2011 representing the position of the New York State Insurance Department.
Re: Proposed Payment by an Insurance Agent to an Unlicensed Person
1. Under the facts described below, may an insurance producer pay a fee to an association for the association to provide access to the association’s employer members so that the agent can sell group policies of life and accident and health insurance to the employer members?
2. Under the facts described below, may an insurance producer provide the specified administrative services to the association and its employer members without running afoul of Insurance Law
1. No. Under the facts described below, the insurance producer may not pay any compensation to the association for the association to provide access to the association’s employer members so that the agent can sell group policies of life and accident and health insurance to such employer members. Any such payment would constitute a rebate or inducement that runs afoul of Insurance Law
2. Yes. The insurance producer may provide the administrative services listed below to the association and its employer members without running afoul of the rebating and inducement prohibitions contained in Insurance Law
The inquirer reports that he represents a licensed life, accident and health and property/casualty insurance agent (“producer”). The producer proposes to enter into an arrangement with an association comprised of employers within the construction industry that is a multiple employer welfare arrangement (“MEWA”) under ERISA and provides welfare benefits including health, dental and life insurance benefits to the employees of employers who make contributions to the association for the purpose of obtaining such benefits (“contributing employers”). The association currently provides health and life insurance benefits through group insurance policies under which the Association is the group policyholder. The association self-funds the dental benefits; it has no insurance policy for these benefits. The producer is the agent of record for the association’s group insurance policies.
The inquirer states that the association wishes to “unwind its health benefits program.” The inquirer informs us that this means that the producer will solicit the association’s contributing employers to purchase group insurance policies directly, not through the association as policyholder, but the association will continue to maintain its group health insurance policies until all contributing employers can obtain coverage through the producer independently of the association. To that end, the producer and the association propose to enter into an agreement under which the producer will compensate the association a stated amount for each employee currently covered under the association’s group insurance policy for providing the producer with “access” to the association’s contributing employers, including inviting the producer to meetings and placing the producer on association meeting agendas; permitting the producer to provide information to employers about various insurance coverages; mailing informational flyers to employers; and making phone calls on behalf of the producer.
Under the proposed agreement, the producer will pay the association a quarterly fee of $75 for each employee who is then insured under the association’s group health insurance. The inquirer states that the association will use these fees for its general purposes and the money will not be distributed to any of the contributing employers nor will it be used to reduce a contributing employer’s insurance premiums. The fee will not be payable as to those employees who are insured under a group policy under which the employer, not the association, is the group policyholder.
The producer will continue to provide administrative services to the association for the association’s group insurance policies. These administrative services include: providing information to contributing employers about the insurance policies, providing forms needed for plan administration, enrollment services, billing employers for group health insurance premiums on behalf of the association and forwarding the premiums to the insurer, Consolidated Omnibus Reconciliation Act (“COBRA”) administration services, insurance consulting services and providing other insurance-related advice, and insurance-related regulatory and legislative updates.
1. Access Fee
The inquirer asks whether the fee to be paid under the agreement that his client proposes to enter into constitutes a referral fee that may be paid to an unlicensed person pursuant to Insurance Law
No insurer authorized to do business in this state, and no officer, agent or representative thereof, shall pay any money or give anything of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article. For the purposes of this section, “acting as an insurance broker” shall not include the referral of a person to a licensed insurance agent or broker that does not include a discussion of the specific insurance policy terms and conditions and where the compensation for referral is not based upon the purchase of insurance by such person.
No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.
(a) In this article, “insurance agent” means 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.)
Thus, if a group policyholder engages in any activities that would constitute acting as an insurance producer without a license, the group policyholder is in violation of Insurance Law
Two relevant exceptions that permit a group policyholder to assist in the administration of the group policy, such as assisting in the enrollment of new insureds under the group policy, are set forth in Insurance Law
(k)(6) a person who secures and furnishes information for the purpose of group life insurance, group property/casualty insurance, group annuities, group or blanket accident and health insurance; or for the purpose of enrolling individuals under plans, issuing certificates under plans or otherwise assisting in administering plans . . . , where no commission is paid to the person for the service…
(7) an employer or association or its officers, directors, employees, or the trustees of an employee trust plan, to the extent that the employers, officers, employees, directors or trustees are engaged in the administration or operation of a program of employee benefits for the employer’s or association’s own employees or the employees of its subsidiaries or affiliates, which program involves the use of insurance issued by an insurer, fraternal benefit society or health maintenance organization, as long as the employers, associations, officers, directors, employees or trustees are not in any manner compensated, directly or indirectly, by the company issuing the contracts…
Here, the group policyholder would receive compensation based upon the number of certificate holders under the group policy and thus the exceptions specified in Insurance Law
The inquirer asserts that the referral exception in Insurance Law
(4) 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.
In sum, under the facts described herein, the insurance producer may not pay any compensation to the association for the association providing access to the association’s employer members. Any such payment would constitute a rebate or inducement that runs afoul of Insurance Law
2. Administrative Services
The inquirer also asks whether the producer may provide administrative services to the association or whether such services would constitute an unlawful inducement or rebate in violation of Insurance Law § 4224(c).
An insurance producer may provide a service not specified in the insurance policy or contract to an insured without violating the anti-rebating and inducement provisions of the Insurance Law if 1) the service directly relates to the sale or servicing of the policy or provides general information about insurance or risk reduction, and 2) the insurance producer provides the service in a fair and nondiscriminatory manner to like insureds or potential insureds. See Circular Letter No. 9 (2009). The services that the inquirer has identified may be lawfully provided without running afoul of the rebating and inducement prohibitions contained in Insurance Law
For further information you may contact Senior Attorney Brenda M. Gibbs at the Albany Office.
1 Notwithstanding the prohibition against receiving compensation, an association may be reimbursed by an insurer or insurance producer for actual expenses rendered in providing services on behalf of the insurer under a group insurance policy or mass merchandising plan. See OGC Opinion Nos. 06-03-06 (March 9, 2006); 03-10-09 (October 16, 2003) and 86-83 (September 17, 1987). Thus, although the inquirer has not raised this as an issue in the inquiry, the inquirer’s client may reimburse the association for certain administration services performed by the association up to the administration’s actual costs of providing such services.