You asked if an insurance producer can legally offer a referral fee to an unlicensed person and, if so, when this became permissible.

SUMMARY

Connecticut law permits an insurance producer to offer a referral fee to a person who is not also a licensed producer. This became permissible under PA 01-113, which took effect September 1, 2002 and is codified at CGS § 38a-702l. Before the legislature enacted PA 01-113, insurance producers could provide a referral fee only to other producers licensed with the same line of authority to which the policy sold related.

The law now provides that “[a]n 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 section 38a-825 (CGS § 38a-702l(d)). ” Section 38a-825 is the statute that prohibits rebates or other valuable consideration that are an inducement to purchase insurance.

Connecticut law provides, in pertinent part, that “[n]o insurance company doing business in this state . . . or producer . . . shall pay or allow, or offer to pay or allow, as inducement to insurance, any rebate on premium payable on the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement not specified in the policy of insurance” (CGS § 38a-825).

The insurance department provided guidance on this anti-rebating provision, including a “reasonable monetary limit” of $ 15 per year on the value of gifts that may be given to clients in connection with the solicitation or sale of insurance products, in Bulletin S-12 (December 24, 2008). The department then rescinded Bulletin S-12 on May 18, 2009 in Bulletin S-13.

According to the department, PA 01-113 applies with respect to both existing clients and non-clients. In order to determine if a referral fee is an illegal inducement under the law, the department would hold a hearing and make a determination after hearing evidence on the matter.

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