The Office of General Counsel has issued the following informal opinion on March 9, 2000 representing the position of the New York State Insurance Department.
Commission Reduction for Group Insurance Client
Question Presented:
Is it a violation of the Insurance Law to lower the commission of the group term life and medical insurance policy for one particular group after the policy year has commenced?
Conclusion
Yes, lowering the commission of one particular group term life and medical insurance policy, after the policy year has commenced, would be violative of N.Y. Ins. Law Section 4235(h) and Section 4224(c) (McKinney 1985).
Facts
A nursing home has demanded that its insurance broker lower the current 5% commission on an in-force group term life and medical insurance policy. The broker was concerned that if she reduced her commission level at this time, she would violate the anti-rebating provisions of the Insurance Law.
Analysis
N.Y. Ins. Law Section 4235(h)(1) (McKinney 1985) states, in relevant part, that:
"Each domestic insurer and each foreign or alien insurer doing business in this state shall file with the superintendent its schedules of premium rates, rules and classification of risks for use in connection with the issuance of its policies of group accident, group health or group accident and health insurance, and of its rates of commissions, compensation or other fees or allowances to agents and brokers pertaining to the solicitation or sale of such insurance "
Once these rates are filed with the Department, the insurer may not deviate from the filed rates unless it refiles rates for the entire class of business.
Further, N.Y. Ins. Law Section 4224(c) (McKinney 1985), the "anti-rebating statute," states that:
"No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing business in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of such insurer, agent or broker, shall pay, allow, or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds, or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract."
In the circumstances here, both the broker and the group would be in violation of the "anti-rebating statute" if the broker were to reduce her commission and the difference between the current 5% commission and the lower commission rate was returned to the group directly or indirectly through lower premiums.
For further information, you may contact Assistant Attorney Sally A. Geisel at the New York City office.