On May 3, 2018, Lisette Johnson, Bureau Chief with the DFS Health Bureau, issued a supplement to Insurance Department Circular Letter No. 20 (2017) ( The supplemental Circular Letter provides additional guidance and clarification to issuers (insurers and plans)  and insurance agents and brokers of requirements regarding compensation in the form of commissions, fees, or other allowances paid to insurance agents and brokers, group policyholders or prospective group policyholders. Further guidance was deemed warranted in view of recent rate filings for group and blanket accident and health insurance that included flexibility in the payment of compensation to insurance agents and brokers without correlation to the services provided by those agents or brokers. Those rate filings made it clear that they were intended to accommodate arrangements where broker compensation is agreed upon by the broker and a group policyholder and the issuer of the contract is asked to adjust the premium accordingly.  DFS does not consider these arrangements in compliance with applicable law . because the premium charged to insureds of the same class must be based on the issuers’ approved premium rate filings and must further be applied uniformly to all similarly situated insureds.  While an agent or broker may receive different compensation from an issuer in connection with the sale of an accident and health insurance policy, unless such differences are attributable to specific factors articulated in the insurer’s approved premium rate filings for that policy, the insurance laws do not otherwise permit deviation. Compensation adjustments not expressly addressed in rate filings may well be considered an unlawful rebate or inducement to the insured. Moreover, insurance agents acting on behalf of the issuer (insurer or plan) may not charge policyholders a fee or receive any compensation on account of a sale, solicitation or negotiation of, or other services in connection with, any policy. Brokers may receive fees which must be reasonable, and different policyholders should not be charged different amounts for the same services. See Insurance Law Section 2119(c).

While New York Insurance Law Section 2119(c)(1) does permit a broker to receive compensation from a policyholder in connection with an accident and health insurance policy, the broker may not receive:

any compensation, other than commissions deducted from premiums on insurance policies or contracts, from an insured or prospective insured for or on account of the sale, solicitation or negotiation of, or other services in connection with, any contract of insurance made or negotiated in this state or for any other services on account of such insurance policies or contracts, including adjustment of claims arising therefrom, unless such compensation is based upon a written memorandum, signed by the party to be charged, and specifying or clearly defining the amount or extent of such compensation. (emphasis supplied).

New York Insurance Regulations 9, 18 and 29 (see 11 N.Y.C.R.R. 20.6) provide additional requirements with respect to the written memorandum required. Not only is a written memorandum required by the group policyholder and the broker or agent, but if any portion of compensation pursuant to the agreement is to be paid by an insured member of the group, the insured member also must be a party to the agreement.

In summary, DFS concludes that it is permissible for an insurance broker to receive compensation from both a policyholder and an issuerIt is not permissible, however, for an issuer to consider any arrangement that a broker may have with a policyholder when setting a broker’s compensation.

Questions regarding the supplement to the 2017 Circular Letter No. 20 are directed to Frank Horn, Assistant Chief Actuary, Health Bureau, at the New York State Department of Financial Services, One Commerce Plaza, Albany, New York 12257, or by email to

This bulletin, which confirms implementation of existing law, likely will curb the ability of brokers to negotiate favorable compensation terms with insureds and will thwart efforts by brokers to avoid characterization of commission or other compensation (as an element of premium charged) paid to them by carriers, as an “administrative expense” as opposed to a claims cost for purposes of calculation of the medical loss ratio (MLR). Under the Affordable Care Act and most states’ law, an MLR of at least 80% is generally required in the individual and small group markets, and 85% in the large group market, respectively. The insurer must use the remaining 20% or 15% of premium dollars to pay overhead expenses, which include marketing, profits, salaries, other administrative costs, and agent/broker commissions. Any premium charged above the MRL required ratio will have to be rebated by the issuer to its policyholders.  This is to assure that the vast majority of the consumers’ premium dollars are spent on actual claims costs, which drives efficiency in the marketplace.

DFS has exercised its right to adopt a higher MLR requirement and has implemented an 82% minimum MLR standard for the small group and individual markets for purposes of calculating required rebates.  It has also indicated that carriers who follow the federal standards for reporting and rebate distribution, and provide a copy of their federal reports to the New York Superintendent of Financial Services, will have satisfied their state reporting obligations under New York law.  However, for rate review purposes, the New York Superintendent of Financial Services has retained discretion to review rates under state law standards that require a minimum MLR of 82%.

Since implementation of the ACA, the agents and brokers and their various trade associations have claimed that the MLR mandates will have a serious derogatory impact on their business. The New York Supplement to the 2017 Circular Letter No. 20 could have an even greater financial impact.

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