The Office of General Counsel issued the following informal opinion on May 1, 2002, representing the position of the New York State Insurance Department.
Re: Sale of life insurance and or long-term care insurance
Questions Presented:
1. Under what circumstances may an insurance agent obtain from a credit union a list of its members for the purpose of soliciting those members to buy life and/or long term care insurance?
2. Under what circumstances may an insurance agent rent space from a credit union so that it is conveniently located for the purpose of soliciting those members to buy life and/or long term care insurance?
3. Under what circumstances may an insurance agent advertise to members of a credit union to buy life and/or long term care insurance?
Conclusion:
1. The sale of a membership list from a credit union to an insurance agent for the purpose of soliciting does not violate N.Y. Ins. Law §§ 2102 or 2114 (McKinney Supp. 2001-2002). However, if the credit union recommends or endorses the agent, this would constitute a referral under § 2114 of the Insurance Law.
2. An agent may rent space from a credit union in order to solicit its members; however, any payment for the rent that is coupled with or based upon a referral by the credit union must comply with N.Y. Ins. Law § 2114 (McKinney 2001-2002).
3. An agent may compensate the credit union for advertising expenses; however, any payment that is coupled with or based upon a referral by the credit union must comply with N.Y. Ins. Law § 2114 (McKinney 2001-2002).
Facts:
A credit union wants to make available to its members life insurance and long term health care insurance. An agent is interested in entering into an agreement with the credit union by which the agent would sell policies to members of the credit union. The following options are under consideration by the credit union: selling to the agent a list of the members; referring the members to the agent; and/or advertising by the agent to the members.
Analysis:
N.Y. Ins. Law § 2102(a)(1) (McKinney 2001), concerning the licensing of agents, brokers, reinsurance intermediaries and adjusters, states in the relevant part:
No person, firm, association or corporation shall act as an insurance agent, insurance broker, reinsurance intermediary 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.
N.Y. Ins. Law § 2114(a) (McKinney Supp. 2001-2002) prohibits, among other things, payment of commissions or other compensation by an insurer to a person not licensed to sell life or health (including long term care) insurance. However, referrals to a licensed insurance agent or broker may be allowed if such referral complies with N.Y. Ins. Law § 2114(a)(4) (McKinney Supp. 2001-2002). N.Y. Ins. Law §§ 2114(a)(1) and (4) (McKinney Supp. 2001-2002) state in the relevant part:
(a)(1) No insurer . . . doing business in this state shall pay any commission or other compensation to any person, firm or corporation, for any services in obtaining in this state any new contract of life insurance or any new annuity contract, except to a licensed life insurance agent of such insurer . . . or to an insurance broker licensed under subparagraph (A) of paragraph one of subsection (b) of section two thousand one hundred four of this article, and except to a person described in paragraph two or three of subsection (a) of section two thousand one hundred one of this article.
. . . .
(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.
Accordingly, pursuant to § 2114(a)(4), referrals by an unlicensed person for compensation to a licensed insurance agent or broker are permitted if there is no discussion of specific insurance policy terms and conditions and where the compensation for the referral is not based upon the purchase of insurance by such person. N.Y. Ins. Law § 2114(a)(1) (McKinney Supp. 2001-2002) also does not prohibit licensees from purchasing from non-licensees lists of potential customers to solicit. This is because the mere sale of such list is, in fact, not a referral under this section and does not involve an unlicensed person acting in a manner that requires licensing, such as procuring, soliciting or otherwise selling insurance. Therefore, the price of such list may be based upon a percentage of actual sales made from it. If, however, the sale of the list is accompanied by a referral or recommendation to the potential customer, then the price of the list may not be based upon a percentage of sales pursuant to N.Y. Ins. Law § 2114(a)(4) (McKinney Supp. 2001-2002).
Similarly, a credit union is not prohibited from leasing space to an insurance agent where the rent paid by the insurance agent is based on a percentage of the volume of business written by the agency. However, if the rent paid is coupled with or based upon referrals made by the credit union to the insurance agent, then the referrals must comply with Section 2114(a)(4) (McKinney Supp. 2001-2002).
Further, an agent may compensate the credit union for advertising expenses. However, if the insurance agents advertisement can be construed as a referral by the credit union, an unlicensed entity, such referral must conform to N.Y. Ins. Law § 2114(a)(4) (McKinney Supp. 2001-2002). If an advertisement is framed by recommendations, endorsements or promotions by a non-licensee concerning the advertised services, this would constitute a referral that must conform to N.Y. Ins. Law § 2114(a)(1) (McKinney Supp. 2001-2002). However, if the advertisement lacks any sort of imprimatur by the unlicensed entity, then this would not be considered to be a referral under this section. Therefore, payment by the agent to the credit union could be based upon a percentage of actual sales resulting from the advertisement.
For further information you may contact Senior Attorney Susan A. Dess at the New York City Office.