Question from an IIABNY member: I was under the impression that it was ‘required’ that an employee working in the capacity of a customer service rep-type position needed to be licensed. We require our personal lines and commercial lines reps to be licensed, although I’ve been told other agencies in the area, including some very large ones don’t require licensing. We are branching out into health insurance more fully and we need to have a couple of our CSR's begin servicing our health insurance clients. If the whole idea of licensing is true, wouldn’t they also be required to hold a life/health license?
Answer: New York Insurance Law does not necessarily require a CSR to hold a license; it really depends on what the person’s duties are and how you’re paying them. New York Insurance Law Section 2102 requires anyone acting as an “insurance producer” to hold a license. Section 2101(k) defines “insurance producer” as including insurance agents and brokers, which leads to the following definitions earlier in Section 2101:
(a) In this article, "insurance agent" means any authorized or acknowledged agent of an insurer… and any sub-agent or other representative of such an agent, who acts as such in the solicitation of, negotiation for, or sale of, an insurance, health maintenance organization or annuity contract, other than as a licensed insurance broker, except that such term shall not include:
(1) any regular salaried officer or employee of … a licensed insurance agent, who does not solicit or accept from the public, outside of an office of such … agent, applications or orders for any such contract, if such officer or employee does not receive a commission or other compensation for his services which commission or other compensation is directly dependent upon the amount of business done…
(c) In this article, "insurance broker" means any person, firm, association or corporation who or which for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or selling, any insurance or annuity contract or in placing risks or taking out insurance, on behalf of an insured other than himself, herself or itself or on behalf of any licensed insurance broker, except that such term shall not include:…
(2) an officer, director or employee of a licensed insurance producer, provided that the officer, director or employee does not receive any commission on policies written or sold to insure risks residing, located or to be performed in this state and:
(A) the officer, director or employee's activities are executive, administrative, managerial, clerical or a combination of these, and are only indirectly related to the sale, solicitation or negotiation of insurance; or
(B) the officer, director or employee's function relates to underwriting, loss control, inspection or the processing, adjusting, investigating or settling of a claim on a contract of insurance…
Therefore, an agency employee who receives no commissions and who takes applications and orders only inside the office does not have to be licensed. A brokerage employee who receives no commissions and who does administrative or clerical work or who does underwriting or claims processing does not have to be licensed. The New York Insurance Department gave me an advisory legal opinion on this very topic several years ago.
Follow-up Question: Can you help me further clarify? My CSRs do in fact discuss coverage, sell coverages, sell new business, write policies, etc. I am assuming that would mean they should then be licensed?
Answer: It sounds like your CSR’s should hold licenses. Their activities appear to go well beyond administrative and clerical duties and taking orders and applications and soliciting business. Section 2101 defines as an agent or broker someone who sells, solicits or negotiates insurance, and it has specific definitions of those terms:
(m) In this article, "negotiate" or "negotiation" means the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract, provided that the person engaged in that act either sells insurance or obtains insurance from licensed insurers, fraternal benefit societies or health maintenance organizations for purchasers.
(n) In this article, "sell" or "sale" means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of a licensed insurer, fraternal benefit society or health maintenance organization.
(o) In this article, "solicit" or "solicitation" means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a particular licensed insurer, fraternal benefit society or health maintenance organization.
In general, then, a person engaging in these activities needs an agent or broker license. Please note, however, what the Insurance Department attorney wrote in the opinion I sent you earlier:
With respect to the list of unauthorized activities that was drawn up by an insurer, please note that certain of those activities, such as soliciting insurance, may be engaged in by an unlicensed employee of an agent (but not of a broker) inside the office, pursuant to Section 2101(a)(1).
Therefore, an unlicensed employee may be able to solicit insurance inside the office. Again, however, it sounds like your CSR’s do more than that, so it’s probably best that they be licensed, particularly if you want to pay them any incentive compensation.