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

Andrew M. Cuomo
Governor

James J. Wrynn
Superintendent

OGC Op. No. 11-08-01

The Office of General Counsel issued the following opinion on August 5, 2011, representing the position of the New York State Insurance Department.

Re: Compensation under Regulation 194

Questions Presented:

1. Does lunch with an insurance producer qualify as compensation under N.Y. Comp. Codes R. & Regs. Tit.11, Part 30 (2011) (Regulation 194)?

2. If lunch with an insurance producer qualifies as compensation under Regulation 194, how should an insurer maintain a record of the cost of that lunch when multiple producers are present at the lunch, but only one is the binding producer?

Conclusions:

1. It depends. Section 30.3(a)(2) of Regulation 194 only requires an insurance producer to disclose compensation received “based in whole or in part on the insurance contract the producer sells.” As a result, lunch would qualify as compensation under Regulation 194, but only if receipt of the lunch is based in whole or in part on an insurance contract an insurance producer sells.

2. If an insurance producer at the lunch is receiving the lunch from the insurer based in whole or in part on an insurance contract the producer sold, then the insurer must maintain a record of the cost of the producer’s lunch in conformance with 11 NYCRR § 243 (Regulation 152).

Facts:

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

Analysis:

1. Lunch as Compensation

The inquirer first asks whether lunch with an insurance producer qualifies as compensation under Regulation 194. Section 30.3(a) of Regulation 194 states in relevant part that:

Except as provided in § 30.5 of this Part, an insurance producer selling an insurance contract shall disclose the following information to the purchaser orally or in a prominent writing at or prior to the time of application for the insurance contract:

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(2) whether the insurance producer will receive compensation from the selling insurer or other third party based in whole or in part on the insurance contract the producer sells.

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In addition, § 30.2(a) of Regulation 194 defines “compensation” as:

anything of value, including money, credits, loans, interest on premium, forgiveness of principal loan or interest, trips, prizes, or gifts, whether paid as commission or otherwise. Compensation does not mean tangible goods with the insurer name, logo or other advertisement and having an aggregate value of less than $100 per year per insurer.

Section 30.3(a)(2) of Regulation 194 only requires an insurance producer to disclose compensation received “based in whole or in part on the insurance contract the producer sells.” As a result, lunch would qualify as compensation under Regulation 194 only if receipt of the lunch is based in whole or in part on an insurance contract an insurance producer sells. For example, if an insurer provides lunch as a reward for an insurance producer placing a certain amount of business with the insurer, then the lunch would be based in whole or in part on an insurance contract the producer sells and would qualify as compensation under Regulation 194. On the other hand, if an insurer provides lunch to all of its insurance producers during a training class, without regard to the amount of business the producers place with the insurer, then the lunch would not be based in whole or in part on an insurance contract a producer sells, and would not qualify as compensation.

2. Maintaining a Record of the Compensation when Multiple Producers Attend a Lunch

The second question the inquirer asks is how an insurer should maintain a record of the cost of a lunch that qualifies as compensation under Regulation 194 when multiple producers are present at the lunch, but only one is the binding producer.

Section 30.6 of Regulation 194 is relevant to this inquiry. Section 30.6 states that “[t]he amount of any compensation that an authorized insurer or its agent pays to an insurance producer shall be maintained by the insurer in accordance with Part 243 of this Title (Regulation 152).” Regulation 152 sets forth standards for records retention by insurers. If an insurance producer at the lunch is receiving the lunch from the insurer based in whole or in part on an insurance contract the producer sold, then the insurer must maintain a record of the cost of the producer’s lunch in conformance with Regulation 152.

There are a number of acceptable ways an insurer may calculate the cost of a producer’s lunch. An insurer may either record the actual amount of the producer’s meal, or divide the total cost of the lunch by the number of people present. However, pursuant to Section 30.5(c), Regulation 194 does not apply “to an insurance producer that has no direct sales or solicitation contract with the purchaser, which may include wholesale brokers or managing general agents.” Therefore, it is not necessary to maintain a record of the cost of an insurance producer’s lunch if the producer has no direct sales or solicitation contact with the purchaser.

For further information, you may contact Senior Attorney Joana Lucashuk at the New York City Office.