I've gotten a bunch of phone calls in the last day or so from members wanting to know what New York law allows employees who do not have insurance producer licenses to do. Some members are under the impression that only one person in the office needs a license, others think that unlicensed employees can have no customer contact, and some insist that everyone in the building get a license. Clearly, there's a lot of confusion on this topic. Take a deep breath -- I'm about to bludgeon you with legalese.
New York Insurance Law Section 2101 defines the terms "insurance agent," "insurance broker," and "insurance producer." The definitions are quite lengthy; the one for "insurance producer" is 897 words long. Most of that wording describes what a producer is not, thus carving out definitions of people who do not need a license. Here are the parts of the "insurance agent" definition that are most relevant to agencies:
(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...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;...
Therefore, a regular salaried employee of an agent who does not receive commissions or other sales-based compensation and solicits or accepts orders for insurance inside the agent's office is not an insurance agent; the law does not require such a person to have a license. The definition of "insurance broker" is somewhat different:
(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; or
(C) the officer, director or employee is acting in the capacity of a special agent or agency supervisor assisting licensed insurance producers where the person's activities are limited to providing technical advice and assistance to licensed insurance producers and do not include the sale, solicitation or negotiation of insurance;...
Therefore, an officer, director or employee of an insurance producer who does not receive commissions and whose activities are indirectly related to insurance sales, or whose activities are in the underwriting, loss control, or claims areas, or whose activities involve giving technical assistance to producers is not an insurance broker. The law does not require this person to hold a license. The definition of "insurance producer" is similar to this one.
At the request of some members in the Binghamton area a few years ago, I asked the Insurance Department's Office of General Counsel for an advisory legal opinion on the permissible duties of unlicensed customer service representatives. In her opinion, the attorney wrote:
As a preliminary matter, agents and brokers may delegate certain activities to their officers or employees, provided that the insurer or other principal does not prohibit or restrict the delegation and the Insurance Law does not otherwise prohibit the activity. Subject to the above, in-office delegation is within the discretion of the licensee, who must exercise reasonable judgment based upon considerations such as:
1. the nature and complexity of the task being delegated
2. the education, training, experience and other personal qualifications of the officer or employee who will be performing the task and
3. the type and extent of supervision and internal controls that will be in place.
She went on to say that, even if the law permits an unlicensed employee of an agent to perform an activity, the insurer that the agent represents has the right to prohibit it:
Moreover, an insurer may restrict or prohibit the delegation of certain activities or duties to non-licensees, notwithstanding the statutory exemptions. Thus, an insurer may establish a list of non-delegable or unauthorized activities with respect to such insurer, even if the Insurance Law permits non-licensees to otherwise engage in such activities. A licensee that subsequently violates an insurer’s prohibition or restriction on delegation may be found by the Superintendent to be acting in an untrustworthy or incompetent manner.
Since the overwhelming majority of IIABNY members hold agent licenses, the focus should be on the definition of "insurance agent." An unlicensed employee can solicit or accept orders for insurance inside the agent's office only. That person cannot receive commissions or any other sales-based compensation, even small bonuses for selling additional coverage to existing clients. The insurers an agent represents can restrict the activities of unlicensed employees, so it's important to be aware of what the contract with the insurer says.
End of legalese. I hope to have a less complicated question for you tomorrow.


