The Office of General Counsel issued the following opinion on October 31, 2003 representing the position of the New York State Insurance Department.
Re: Referral fee for non-licensed entities
Questions Presented
1. May a licensed insurance agent or broker pay a referral fee to a non-licensed party that refers persons to such licensed insurance agent or broker for the purpose of purchasing insurance?
2. If a referral fee may be paid, must it be paid each time a referral is made by the same person, or must it only be paid to such person once a year?
Conclusions
1. Yes, pursuant to N.Y. Ins. Law § 2114, § 2115 and § 2116 (McKinney Supp. 2003), compensation of non-licensed persons or entities for referrals to licensed insurance agents or brokers is permitted, so long as the referral does not include a discussion of the specific insurance policy terms and conditions and where the compensation is not dependent upon the sale of an insurance product.
2. The referral fee may be paid each time a referral is made, or at intervals to which the parties agree as long as the referral complies with the above conditions.
Facts
No further facts were provided.
Analysis
N.Y. Ins. Law § 2102(a)(1) (McKinney 2000), concerning the licensing of agents, brokers, reinsurance intermediaries and adjusters, states:
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.
Currently, N.Y. Ins. Law § 2115(a)(1) (McKinney Supp. 2003) states:
No insurer doing business in this state, and no agent or other representative thereof, except as provided in subsection (b) hereof, shall pay any commission or other compensation to any person, firm, association or corporation for acting as insurance agent in this state, except to a licensed insurance agent of such insurer or to a person described in paragraph two or four of subsection (a) of section two thousand one hundred one of this article or except as provided in subsection (c) of this section. For purposes of this section, "acting as insurance agent" 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.1
As stated in N.Y. Ins. Law § 2115(a)(1) (McKinney Supp. 2003), non-licensees may be compensated for referrals so long as it does not include a discussion of the specific insurance policy terms and conditions and where the compensation is not dependent upon the sale of an insurance product. The law was due to expire on September 10, 2003, but was recently extended until September 10, 2007.
The referral fee may be paid each time a referral is made, or at intervals to which the parties agree as long as the referral complies with the above conditions.
For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.
1 N.Y. Ins. Law § 2116 (McKinney Supp. 2003) applies to insurance brokers. N.Y. Ins. Law § 2114 (McKinney Supp. 2003) applies to life, accident and health insurance agents.