Compensation and Insurance Distribution April 13, 2017 Chrys D. Lemon McIntyre & Lemon, PLLC cdl@mcintyrelf.com

Insurance Compensation Variables What type of compensation is being paid? Who is paying the compensation? Who is receiving the compensation? Is the compensation success-based? How much is the compensation? Is insurance compensation part of a broader compensation formula? What state’s law applies?

Scenario 1: Teller Referrals

Teller Referrals – Bank-Insurance Sales Rules Focus is on Federal law Apply to banks that sell insurance or annuities Apply to any person that sells insurance or annuities: At an “office” of a bank, or “On behalf of” a bank.

Teller Referrals – “On Behalf Of” Selling “on behalf of” a bank: The person represents that the insurance is sold by or on behalf of the bank. The bank refers a consumer to the seller of insurance and the bank has a contractual arrangement to receive commissions or fees from the sale of insurance resulting from the referral. Documents for the insurance transaction identify or refer to the bank.

Teller Referrals Federal Bank Insurance Sales Rules restrict teller compensation for referrals. Referral payment must: Be paid once Be of a fixed amount Be of a nominal amount Not depend on whether a sale is made What about “qualified” referrals? Apply to payments by bank or insurance agency.

Scenario 2: Non-Teller Referrals

Non-Teller Referrals Focus is on State law General rule: Commissions only payable to licensed personnel (NAIC Producer Licensing Model Act)

Non-Teller Referrals A. An insurance company or insurance producer shall not pay a commission, service fee, brokerage or other valuable consideration to a person for selling, soliciting or negotiating insurance in this state if that person is required to be licensed under this Act and is not so licensed.

Non-Teller Referrals B. A person shall not accept a commission, service fee, brokerage or other valuable consideration for selling, soliciting or negotiating insurance in this state if that person is required to be licensed under this Act and is not so licensed.

Non-Teller Referrals “Commission” defined under New York law: “A payment to an agent or broker, as compensation for the sale or service of a specific policy or contract, based upon a percentage of the premium or consideration for that policy or contract.” NY CLS Ins 4228

Non-Teller Referrals PLMA Exception, Section 13(D): “An insurer or insurance producer may pay or assign commissions, service fees, brokerages or other valuable consideration to an insurance agency or to persons who do not sell, solicit or negotiate insurance in this state, unless the payment would violate [insert appropriate reference to state law, i.e. citation to anti-rebating statute, if applicable].”

Non-Teller Referrals: Caveats When source of funds is from an insurance agency subsidiary. Is it a “commission?” Restrictions on success-based referral fees No insurer or insurance agent shall pay a commission, referral fee, or other compensation to an unlicensed person for any referral unless the compensation is a fixed dollar amount for each referral and does not depend on whether the person referred purchases an insurance product. (Ohio)

Scenario 3: Bonus Compensation Formulas Success-based? What percentage is insurance related?

Compensation and Insurance Distribution April 13, 2017 Chrys D. Lemon McIntyre & Lemon, PLLC cdl@mcintyrelf.com