The Office of General Counsel issued the following opinion on August 18, 2004, representing the position of the New York State Insurance Department.
Compensation to Unlicensed Employee of Insurance Broker for Referral
Under what circumstances may an insurance broker compensate an unlicensed employee for referrals?
Referrals from non-licensees, and compensation for such referrals, are permissible if the referrals do not include a discussion of specific insurance policy terms and conditions and the compensation for referrals is not based on whether a sale is made.
You asked whether there are "any other circumstances whereby an employee of a brokerage agency can be compensated, if he is responsible for initiating the transaction." It was unclear from your question whether you were asking about an insurance broker or an insurance agent. It was also unclear what the term "initiating the transaction" meant. However, after speaking to James Tom, in your office, he explained that the question concerns an insurance broker. In addition, he explained that the term "initiating the transaction" refers to a situation where an unlicensed employee, without more, refers a potential insured to the broker.
N.Y. Ins. Law § 2116 (McKinney Supp. 2004), which applies to insurance brokers, addresses the payment of compensation. That section provides as follows:
No insurer authorized to do business in this state, and no officer, agent or other representative thereof, shall pay any money or give any other thing of value to any person, firm, association or corporation for or because of his or its acting in this state as an insurance broker, unless such person, firm, association or corporation is authorized so to act by virtue of a license issued or renewed pursuant to the provisions of section two thousand one hundred four of this article. For the purposes of this section, "acting as insurance broker" 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.
Section 2116 exempts from the prohibition therein referrals that do not include a discussion of specific insurance policy terms and conditions and the compensation for referral is not based on whether a sale is made. Therefore, referrals from non-licensees and compensation for such referrals are permissible if they fall within the parameters of Section 2116. N.Y. Ins. Law §§ 2114 and 2115 contain similar provisions pertaining to insurance agents. I have enclosed other Office of General Counsel opinions on this issue for your review.
For further information you may contact Associate Attorney D. Monica Marsh at the New York City Office.