OGC Op. No. 04-01-06
This Office of General Counsel issued the following information on January 6, 2004, representing the position of the New York State Insurance Department.
Re: Premium Finance Agreements Payment to a Licensed Agent
Question Presented:
1) May an insurance agent that is licensed as a premium finance agency receive a fee for financing or arranging the financing of premiums pursuant to a premium finance agreement?
2) May an insurance agent that is not licensed as a premium finance agency receive a referral fee from a premium finance agency?
Conclusion:
1) Yes. N.Y. Banking Law § 568(2) specifically authorizes an insurance agent that is licensed as a premium finance agency to charge a service fee for financing or arranging the financing of insurance premium.
2) Yes. Provided that the referral fee paid by the premium finance agency to the insurance agent is not recouped, either directly or indirectly, from the insured, there would be no violation of the filing and rate approval provisions of the New York Insurance Law.
Facts Presented:
Office of General Counsel Opinion dated August 12, 2003 states that, "(A)gents act on behalf of and represent insurers and, consequently, may receive their compensation only from such insurers. This compensation stems from an insurers filed or manual rate (the gross amount the insurer may charge under the law), which incorporates commissions payable to agents. Any additional compensation paid by insureds directly to the agent, which is beyond the incorporated commissions of an insurers filed or manual rates, violates the filing and rate approval provisions of the New York Insurance Law." An opinion requestor has asserted that this conclusion precludes a premium finance agency from paying a referral fee to an agent, regardless of whether or not the agent is licensed as a premium finance agency.
Analysis:
N.Y. Banking Law § 568(2) specifically authorizes an insurance agent that is licensed as a premium finance agency to charge a service fee for financing or arranging the financing of insurance premiums. It states:
A premium finance agency, including an insurance agent or broker licensed as such, may, in a premium finance agreement, contract for, and if so contracted for, the holder of the agreement may charge, receive and collect a service charge, for financing or arranging the financing of premiums under the agreement, computed as provided in subdivision four."
Accordingly, an insurance agent licensed as a premium finance agency may charge a fee in his or her capacity as a premium finance agency for financing or arranging the financing of insurance premiums, in accordance with the provisions of Article 12-B of the New York Banking Law.
With respect to an agent that is not licensed as a premium finance agency, as noted in the Office of General Counsel opinion dated August 12, 2003, because insurance agents generally act on behalf of and represent insurers, they may receive their compensation only from such insurers. An insurers filed or manual rates incorporate commissions payable to its agents. Agents are prohibited from receiving any additional compensation, either directly or indirectly, from insureds. However, where the referral fee is being paid by the premium finance agency, and is not being recouped, either directly or indirectly, from the insured, the agent will not be receiving any additional compensation from the insured. Accordingly, under these facts, the Insurance Law does not prohibit the insurance agent from accepting the referral fee from the premium finance agency.
For further information you may contact Supervisory Attorney Joan Siegel at the New York City Office.