The Office of General Counsel issued the following opinion on December 13, 2004, representing the position of the New York State Insurance Department.

Re: Inducements to Insureds

Question Presented:

May an insurance agency, in partnership with a non-insurance entity, participate in a program where the non-insurance entity provides a discount for its services if the client designates the insurance agency as the "agent of record" for a health, life or disability insurance policy?


No. This arrangement violates N.Y. Ins. Law § 4224 (McKinney 2000), which prohibits the giving of inducements or valuable consideration, which are not specified in the insurance policy.


The inquirer has indicated that his insurance agency has entered into a partnership with a "payroll services" company. According to the inquirer's description, the aforementioned payroll services include providing employers with check creation and distribution services for their employees. The inquirer now wishes to ascertain whether the payroll services company may provide a discount to clients in return for "assigning [the insurance agency] as the agent of record for their health, life, and/or disability insurance." Specifically, the inquirer wishes to know whether the proposed action violates the New York Insurance Law's provisions against rebating. See, N.Y. Ins. Law § 2324 (McKinney 2000); See also, N.Y. Ins. Law § 4224 (McKinney 2000).


N.Y. Ins. Law § 4224 (McKinney 2000) provides, in pertinent part:

(c) 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 business 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, 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 . . . . (emphasis added).

Under the proposed arrangement, the payroll services company would be acting on behalf of the agent in offering an inducement or valuable consideration that is not specified in the insurance policy. By providing an indirect discount to an insured through the payroll service, the agent would be inducing the insured to purchase the insurance and continuously renew their policy with the subject insurer in furtherance of retaining the discount in the future. This arrangement would violate N.Y. Ins. Law § 4224. See also, OGC opinion dated February 26, 2001 (attached).

For further information you may contact Supervising Attorney Paul Zuckerman at the New York City Office.