OGC Op. No. 04-10-14
The Office of General Counsel issued the following informal opinion on October 15, 2004, representing the position of the New York State Insurance Department.
Re: N.Y. Ins. Law §§ 2324 & 4224; Inducement to Purchase Insurance
1. May an insurance broker provide an insurance client with administrative health services for issues that arise with health care providers, insurers, or bill collectors after the purchase of insurance at no additional charge or do such administrative services constitute an unlawful inducement under N.Y. Ins. Law § 2324?
2. Does the offering of "human resource services" and "administrative health services" at a negotiated rate or at no cost to insurance clients constitute an unlawful inducement under N.Y. Ins. Law § 2324?
1. By providing administrative health services for the health insurance sold to clients at no additional charge, the broker would be providing a valuable consideration or inducement on such policies in violation of N.Y. Ins. Law § 4224(c) (McKinney 2000 & Supp. 2004), not N.Y. Ins. Law § 2324.
2. An insurance broker in New York, who sells administrative health services and human resources services (such as payroll and benefits administration services), may not make a distinction in the fees charged for these services based on whether the client also purchases the insurance brokerage services. If the services are offered at no cost or at a reduced cost to insurance clients, then such services would constitute a valuable consideration or an inducement in violation of N.Y. Ins. Law § 4224 or § 2324 (McKinney 2000 and Supp. 2004), dependent upon whether the agent is selling life, health or property insurance. However, such insurance broker, in its capacity as an administrative service provider, is not prohibited from making a distinction in the fees charged for these services where such distinction is based on the type and amount of such services provided to a particular client, independent of whether the client has insurance or how much insurance.
A licensed insurance broker wishes to assist insurance clients by providing "administrative health services," consisting of contacting health care providers, insurers, or bill collectors pertaining to claims made under health insurance policies. The services provided only to insurance clients would consist of resolving claims and paperwork problems, assisting clients with coverage and benefit questions, negotiating fees with health care providers, reviewing questionable bills, assisting clients with filing complaints or grievances, assisting clients in identifying alternative coverage options, and assisting clients in locating health care providers. The broker is considering hiring and paying a company to perform this function on behalf of the brokerage.
The broker also maintains a non-insurance business that provides "human resources services" consisting of coordinating, employee benefits, compensation, discipline, job descriptions, leave of absence issues, organizational development, business policy and practice, safety issues, staffing and recruiting, benefits administration, human resource administration, development of employee handbooks and employee training. These services are provided to insurance and non-insurance clients at different rates depending on company size.
Although the inquirer asked whether N.Y. Ins. Law § 2324 applied, it is N.Y. Ins. Law § 4224 that is relevant with respect to accident and health insurance as well as life insurance and annuities.
N.Y. Ins. Law § 4224(c) (McKinney 2000 & Supp. 2004) states:
No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract, or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.
An insurance agent or broker subject to the provisions of N.Y. Ins. Law § 4224(c) (McKinney 2000 & Supp. 2004), may not provide " . . . an inducement to any person . . . or any valuable consideration or inducement whatever not specified in such policy or contract; . . . " in connection with the sale of health insurance. Therefore, an insurance agent selling health insurance may not provide free administrative services to an employer because this service constitutes valuable consideration or an inducement in violation of N.Y. Ins. Law § 4224(c) (McKinney 2000 & Supp. 2004).
The inquirers other question was more general, pertaining to all of the inquirers insurance clients not necessarily restricted to accident and health insurance. N.Y. Ins. Law § 2324(a) (McKinney 2000 & Supp. 2004), which applies to contracts of property/casualty insurance, states:
No authorized insurer, no licensed insurance agent, no licensed insurance broker, and no employee or other representative of any such insurer, agent or broker shall make, procure or negotiate any contract of insurance other than as plainly expressed in the policy or other written contract issued or to be issued as evidence thereof, or shall directly or indirectly, by giving or sharing a commission or in any manner whatsoever, pay or allow or offer to pay or allow to the insured or to any employee of the insured, either as an inducement to the making of insurance or after insurance has been effected, any rebate from the premium which is specified in the policy, or any special favor or advantage in the dividends or other benefit to accrue thereon, or shall give or offer to give any valuable consideration or inducement of any kind, directly or indirectly, which is not specified in such policy or contract, other than any article of merchandise not exceeding fifteen dollars in value which shall have conspicuously stamped or printed thereon the advertisement of the insurer, agent or broker, or shall give, sell or purchase, or offer to give, sell or purchase, as an inducement to the making of such insurance or in connection therewith, any stock, bond or other securities or any dividends or profits accrued thereon, nor shall the insured, his agent or representative knowingly receive directly or indirectly, any such rebate or special favor or advantage, provided, however, a licensed insurance agent or a licensed insurance broker may retain the usual commission or underwriting fee on insurance placed on his own property or risks, if the aggregate of such commissions or underwriting fees will not exceed five percent of the total net commissions or underwriting fees received by such licensed insurance agent or insurance broker during the calendar year.
Therefore, an insurance broker licensed in New York is generally prohibited from offering or giving as an inducement, or interdependent with any policy, any valuable consideration that is not specified in a policy or contract of insurance to its insurance brokerage customer, except that with respect to making, negotiating or procuring a property/casualty insurance policy, an insurance broker may give its customer an article of merchandise not exceeding fifteen dollars in value that has conspicuously stamped or printed thereon the advertisement of the broker.
An insurance broker, however, is not prohibited under the New York Insurance Law from making a distinction in the fees it charges for administrative services where such distinction is based on a factor other than the insurance status of the customer; for example, if the distinction was based on the type and amount of administrative services provided to a particular customer. Therefore, if the insurance broker finds that more time is expended providing administrative services for a particular customer, the service for that particular customer may be priced accordingly. What an insurance broker may not do is make a discount available to only its insurance brokerage customers or provide these administrative services in its capacity as an insurance broker.
It is important to note that this opinion is limited to the specific facts provided and that any change in the facts could also change the analysis and conclusion of this opinion. This opinion is limited to inducement issues. Please be aware that this opinion does not address the issue of whether the administrative health services provided by the broker would require public adjuster licensing under the New York State Insurance Law or whether it falls within the exception of N.Y. Ins. Law § 2101(g)(2). The New York State Insurance Department web site www.ins.state.ny.us has further discussion of this issue.
For further information one may contact Special Counsel Athan Shinas at the Albany Office.