The Office of General Counsel issued the following opinion on March 17, 2003, representing the position of the New York State Insurance Department.

Re: Sharing Commissions with Unlicensed Entities for Referrals.

Question Presented:

May a Connecticut insurance agent, who holds a non-resident life, accident and health insurance agent license in New York, share commissions with a Certified Public Accountant ("CPA") firm, whether located in or out of New York, for providing referrals, when such agent is selling insurance in New York?

Conclusion:

No. The Connecticut insurance agent may not share commissions with a CPA firm in regard to the sale of insurance in New York or for making a referral in New York on a life insurance policy or annuity contract, regardless of where the policy was placed. However, the insurance agent may compensate the CPA firm for referrals if there is no discussion of specific policy terms and conditions and the compensation is not based on the purchase of insurance.

Facts:

Mrs. A states that she is a Connecticut insurance agent who holds a non-resident life and accident and health insurance agent license in New York. When dealing with New York residents, she places insurance with insurers that are licensed to do business in New York.

Mrs. A is considering entering into a business venture with New York and Connecticut CPA firms and mentions the possibility of forming a bank holding company wherein her agency would become a subsidiary. She further states that she is unsure whether the CPA firms would also become subsidiaries or would remain separate entities and become partners in the bank holding company. However, the formation of such a bank holding company would not have any bearing on the analysis in this letter.

Mrs. A and a CPA would attend all meetings with the client in which the CPA would provide the client with tax and business planning services and would refer them to Mrs. A for the insurance issues. The CPA would not offer advice on specific insurance policy terms or conditions. Mrs. A wants to share commissions with the New York and Connecticut CPA firms for the referral of clients.

She further states that it is her understanding, as a Connecticut resident that commission sharing is now allowed in the state of Connecticut under PA01-113 which was passed in September of 2002. However, she is unsure how this law interfaces with the laws of other States. For example, she would like to know whether she may share commissions with a New York based CPA firm when she is selling insurance to a Connecticut resident. Alternatively, she would like to know whether she may share commissions with a Connecticut based CPA firm when she is selling insurance to a New York resident.

Analysis:

As a preliminary matter, it is unclear from the facts where the transactions that Mrs. A described would take place. The New York Insurance Law would govern any transaction that takes place in New York, from the initial referral by the CPA to the delivery of the insurance policy to the insured. This includes communications to New York via mail, telephone, the internet, etc. The residency of the parties involved is not dispositive. Questions regarding transactions that take place wholly in Connecticut should be directed to the Connecticut Insurance Department.

N.Y. Ins. Law § 2114 (McKinney Supp. 2003) applies to life, accident and health insurance agents and brokers and provides, in relevant part, as follows:

N.Y. Ins. Law § 2115 (McKinney Supp. 2003), in regard to property/casualty insurance agents and N.Y. Ins. Law § 2116 (McKinney Supp. 2003), in regard to insurance brokers, contain similar provisions.

N.Y. Ins. Law § 2114(a)(4) (McKinney Supp. 2003) specifically excludes from the services specified therein referrals that do not include a discussion of specific insurance policy terms and conditions and where the compensation for referrals is not based on the purchase of insurance.

Therefore, Mrs. A may not share commissions with a Connecticut CPA firm that is not licensed as an insurance agent or broker in regard to any life insurance policy or annuity contract issued in New York, regardless of where the referral occurred. Additionally, Mrs. A may not share commissions in regard to any policy of accident or health insurance where the referral occurred in New York, including by mail, phone, etc. from outside of New York. However, Mrs. A may provide the non-licensee with compensation for referrals if the non-licensee does not discuss specific insurance policy terms and conditions with the prospective insured and the compensation is not based on the purchase of insurance by such person. 1

Please note that it is not entirely clear to us that the CPA’s activities would be limited to referrals since Mrs. A states that they would be attending meetings with her in which insurance issues would be discussed. Such activities would appear to go beyond merely making referrals. Pursuant to N.Y. Ins. Law § 2101(a)(McKinney 2000), the term "insurance agent" means:

N.Y. Ins. Law § 2102(a)(1)(McKinney 2000) provides, in relevant part, as follows:

Accordingly, if the CPA’s will perform activities that require licensing as insurance agents, they must become licensed as such pursuant to Article 21 of the Insurance Law.

For further information you may contact Senior Attorney Pascale Joasil at the New York City Office.

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1 It should also be noted that this Department has opined that N.Y. Ins. Law §§ 2114, 2115 and 2116 (McKinney Supp. 2003) do not prohibit licensees from purchasing lists of customer names from non-licensees that will be used by the licensee for soliciting insurance, because the sale of the list does not constitute a referral or solicitation. Therefore, the compensation payable to non-licensees for providing such lists may be made contingent upon the successful placement of insurance by the licensee and may be a percentage of the insurance commission earned by the licensee. See Circular Letter No. 5 of 2001.

2 Although the statute lists exemptions from this licensing requirement, none of them are applicable to this inquiry.