New York State
Eric R. Dinallo Superintendent of Insurance 25 Beaver Street New York, N.Y. 10004
|ISSUED 3/3/2009||FOR IMMEDIATE RELEASE|
Providing risk assessment or insurance consulting services, helping prepare claims forms or billing former employees for their premiums under COBRA are typically among the services insurance agents and brokers can perform for clients, but referrals to third-party providers for discounted services and free legal services are among those generally prohibited by New York Insurance Law, according to a recently issued Insurance Department bulletin. The bulletin, sent to all licensed insurance agents and brokers in the form of a Circular Letter, provides guidance as to what kinds of services brokers and agents can provide clients or potential clients under the rebating and inducement provisions of the Insurance Law.
Those provisions forbid agents and brokers from paying or offering clients any kind of rebate from the premium specified in the insurance contract or offering any kind of valuable consideration or inducement not specified in the insurance policy or contract.
“The law helps ensure that all consumers are treated fairly, that there are no special deals for special customers and no discrimination against certain clients or groups,” said Insurance Superintendent Eric Dinallo. “That principle is unchanging, but its application must evolve as the services producers provide continue to change. Paying a rebate is obviously prohibited, but agents and brokers 25 years ago did not have to worry, for instance, about whether providing access to a website is OK. They should not have to speculate now either, which is why the Circular Letter offers clear and concrete guidance about the list of allowable services that agents and brokers may lawfully provide.”
The Circular Letter sets forth examples of the kinds of producer-provided services that typically are legally permissible, as well as those that generally constitute valuable consideration or inducement and thus are impermissible. Most importantly, the Circular Letter notes that an agent or broker may provide a service not specified in the insurance policy if it directly relates to the sale or servicing of a policy or provides general information about insurance or risk reduction, and is provided in a fair and nondiscriminatory manner to similar insureds or potential insureds.
“The essence of good regulation is to provide helpful guidance to industry by not only setting forth a workable legal framework that can adapt to changing circumstances, but by providing some real world examples as to which services, when provided by brokers or agents, are lawful and which are not,” Dinallo said. “I applaud Deputy Superintendent and General Counsel Robert H. Easton, Assistant Deputy Superintendent and Counsel for Research and Opinions Paul A. Zuckerman and Senior Attorney Joana Lucashuk for their work in sifting through the numerous opinions that the Office of General Counsel has issued on this subject over the years, and distilling them carefully to arrive at the guidance set forth in the Circular Letter, which should prove invaluable to the producer community for years to come.”
Examples of producer-provided services that typically are lawful include:
• Insurance consulting services or other insurance-related advice;
• Insurance-related regulatory and legislative updates;
• Certain claims assistance services (including the preparation of claims forms);
• Tax preparation on behalf of an employer of Schedule A of the Internal Revenue Service Form 5500 Annual Return/Report of Employee Benefit Plan, which requests information regarding insurance contract coverage, fees, and commissions, investment and annuity contracts, and welfare benefit contracts; and
• Information to group policy or contract holders and members under group insurance policies currently in place, as well as forms needed for plan administration, enrollment in a plan, insurer website links, and answers to frequently asked questions related to the insurance (including, for example, access through a website, created by the insurance agent or broker, to an employee benefit portal that contains such information).
Producer-provided services that could violate the law include:
• Flexible spending administration services;
• Legal services;
• Payroll services, such as providing employers with check creation and distribution services for their employees;
• Advice regarding compliance with federal and state laws concerning human resource issues not relating to the insurance provided; and
• Management of employee benefit programs, such as retirement programs and time-off/leave of absence programs, other than the insurance sold by the broker or agent.
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