Recently, the DFS issued a set of frequently asked questions clarifying requirements regarding commissions, fees, or other allowances paid to insurance agents and brokers by issuers or to insurance brokers by group policyholders or prospective group policyholders. These requirements were addressed in Insurance Circular Letter No. 20 (2017), and subsequently supplemented on May 3rd, 2018.
Under the NYS insurance law, insurers must include compensation scales paid to producers in their rate filings. Filings must articulate the amount of producer compensation payable and include all variables used to determine that amount, such as the level of services performed in connection with the sale of insurance, or otherwise provided for in the insurance contract. Additionally, compensation scales must articulate when and how those variables are applied.
These requirements are designed to prevent unfair rebating, by prohibiting insurers from paying less than filed commissions to agents in an attempt to lower the premium.
The May 3rd, 2018 supplement notes that:
“DFS has received rate filings for group and blanket accident and health insurance that include flexibility in the payment of compensation to insurance agents and brokers without correlation to the services provided by the agent or broker. Issuers have indicated that the compensation ranges in these filings accommodate arrangements where broker compensation is agreed upon by the broker and a group and the issuer is asked to adjust the premium accordingly. An issuer may not consider these arrangements or any associated payments to a broker from a policyholder in determining broker compensation paid by that issuer. Therefore, such arrangements are not in compliance with New York's insurance laws and regulations."
The Department further notes that:
The premium charged to insureds of the same class must be based on the issuer's approved premium rate filing and must be applied uniformly to all similarly situated insureds. An insurance agent or broker may receive different compensation from an issuer in connection with the sale of an accident and health insurance policy only if such differences are attributable to specific factors articulated in the issuer's approved premium rate filing for that policy. For example, an insurance agent or broker may provide differing levels of services on behalf of the issuer in connection with the sale of a policy and therefore may receive different compensation. See OGC Opinion No. 08-05-05 (May 13, 2008).
If you licensed to sell accident and health insurance in New York, we recommend you review Circular Letter 20, Supplement 1, and the corresponding FAQs to ensure that your compensation agreements are in compliance.
Contact Tim Dodge with questions