BILL NUMBER:  S2302

 TITLE OF BILL :  An act to amend the insurance law, in relation to
prohibitions on rebating and discrimination

 PURPOSE :

To modernize the anti-rebating statutes of the Insurance Law, by
adding a provision to each statute which requires the imposition of a
quid pro quo standard as necessary for the Superintendent to find that
a violation of those statute's prohibitions have occurred.

 SUMMARY OF PROVISIONS :

Section 1 of the bill amends section 4224(c) of the insurance law to
provide that services offered or delivered as part of the sale or
renewal of a life insurance policy, contract or group insurance policy
shall not be considered to be an inducement or rebate when the offer
and sale of such services does not constitute the sole reason for the
purchase of such life insurance policy, contract or group insurance
policy such services shall not be considered to be an inducement or
rebate prohibited by this section unless the Superintendent
determines, after a notice and hearing, that the offer and sale of
such services constituted the sole reason for the purchase of such
life insurance policy, contract or group insurance policy and that,
but for the offer or delivery of such service, the purchase of such
              

policy or contract would not have taken place.

Section 2 is the effective date.

 JUSTIFICATION :

Section 4224 prohibits "rebating" and "inducements" being used in the
sale of an insurance policy. This situation occurs when a life
insurance agent or life insurance company offers to return all or a
portion of the premium paid by an insured for a policy directly back
to that insured for the sole purpose of "inducing" that insured to buy
the policy in the first place. Thus, the returned premium is "rebated"
to the insured.

The anti-rebating provisions have their origin in the historically
significant investigation conducted by the New York Legislature in
1905 known as the "Armstrong Commission". That commission conducted a
comprehensive investigation of allegations concerning extravagant
spending and political payoffs by the Equitable Life Assurance Society
which were undertaken at the expense of the company's policyholders.
The Armstrong Commission found a number of abuses including
interlocking directorates, the creation of subsidiary financial
institutions to evade investment restrictions, the use of proxy voting
to frustrate policyholder control of mutual, unlimited company
expenses, tremendous spending for lobbying activities, and rebating.

The Armstrong Commission recommended changes to the insurance law
which were enacted in the 1907 session, including the prohibition of
rebating.

The life insurance business has changed significantly since those
original anti-rebating provisions were enacted. Some companies have
sought legislative exemptions for services offered to insureds in
order to ensure that the service does not run afoul of the
anti-rebating statutes. In addition, the Department of Financial
Services has sought to administratively expand the list of services
which life companies and producers wish to offer their insured's in
conjunction with the policy, and have labeled such services,
"rebates". The DFS has created an ever-expanding list of goods and
services which violates the anti-rebating provisions. (See DFS
circular letter No. 22, 2009) As a result, a great deal of confusion
exists in the insurer, producer and insurance consumer communities as
to exactly which services may or may not be offered with the policy.

A need has arisen to create a clear standard with which all parties
may use to ensure compliance with the law and also which allows
insurers and producers to convey value to insureds along with the
insurance policy, while returning to the original intent and purpose
of the anti-rebating statutes.

This legislation imposes a standard for services offered by life
insurance companies and producers which requires that in order to show
a violation, the Superintendent must show through evidence at a
hearing that the offered service was the sole reason for the sale of
the policy and that such sale would not have taken place without the
offered service. This standard will restore the original intent of the
statute to prevent insurance sales made solely to obtain the service
while allowing the provision of valuable services to insureds which
happen to come along with the purchase of their insurance policies.

 LEGISLATIVE HISTORY :

Similar to S7661 of 2016.

 FISCAL IMPLICATIONS :

None.

 EFFECTIVE DATE :
The bill will take effect 60 days after it is signed.