Paying for Referrals - Compliance Question
- Thread starter Jack12345
- Start date
It is OK to pay for a referral but when you link it to a sale having been made you will run afoul of the insurance department in some jurisdictions.
- Thread starter
- #3
I've tried doing some research on the DOI websites, any suggestions on how to figure out the exact laws on a state by state basis?
Tray a Google search. This showed up for NY.
- 3) An insurance agency may pay a fee to a non-licensee, non-employee for making a referral provided that the non-licensee does not discuss the specific terms and conditions of the policy, and the fee paid is not dependent upon whether the referral results in the sale of insurance.
I would think most states have a similar rule. When I was searching, I found this presented as a problem. If the person is already a client and you pay them a fee for a referral, then would that be considered a rebate.. Hadn't thought about it but can see how some might claim that.
I have a friend that pays referral fees, usually a minimal amount ($25 Walmart Card) but he doesn't condition it on the sale of a product. Instead he says he will pay it as long as the person referred is willing to sit down and discuss insurance with him.
- 5,948
Have your E&O up to date and prepare for the worse. Non licensed can only be compensated for the "referral" only, not only if the enroll in a plan / policy.
- 4,585
Can only pay based on sales if the other person is licensed. Also, many carriers have in their contracts that anyone being paid for sales needs to be disclosed & appointed.
Paying for all leads or referrals should keep you out of trouble. So work your math backwards based on your cloaing ratio & pay for every lead/referral that you have an appointment with, not only for sales
- 11,289
E&O doesn't cover unauthorized acts of agents who violate their state's insurance code. If a penalty is declared from the state DOI, you pay the penalty.
E&O only deals with errors & omissions in dealing with the public and advice surrounding your actions that leads to a complaint against you.
- 5,948
Client can sue the Agent for many reasons.
- 11,289
Yes. And if you're sued for fraud... E&O won't cover that charge.
But this thread is dealing with state insurance code and I doubt a client would be harmed by offering a reward for a referral. However, such a penalty would come from the state because of violation of their rules that may not create an "even playing field" among all agents.
So such a fine would be an administrative penalty, not one because a client was harmed.
E&O won't cover it.
- 2,196
What State?
From What i know you can pay for the referall - but not the sale. [As in every referal, not just the ones that land sales.] Unless the referrer folks have the correct license and I would not dare do it unless they have their own E&O. This might be called a commission split. If you are doing commission splits you may want to review your agency contracting. If the commission split or the consumer are cross state lines, all of this needs to doubled: Licensing, and E&O.
Additionally I would make sure that all they are doing is referrring you and not making insurance related statements or suggestions. Lastly I would document the agreement.
