Payment of Referral Fees – New Issues

I continue to receive calls on the Free Legal Service Program that I operate for members of the Independent Insurance Agents of Georgia about the payment of referral fees.  My last post on this subject looked at potential restrictions that may be placed on the payment of such fees by laws and regulations that apply to the recipients of them.  Since then, in responding to questions posed by callers to the above program, I have realized that a law that became effective on July 1, 2016 may impose restrictions on the payment of such fees to customers or potential customers of the agency or agent paying those fees.  That law added a provision to the anti-rebate law that allows an insurance company or insurance producer to give a customer or potential customer certain kinds of gifts as part of an “advertising” or “promotional” program, as long as the giving of such gifts was not conditioned on the purchase or renewal of an insurance policy by the recipient of the gift. (Click here for more details on this law).

The potential problem created by this law with respect to the payment of referral fees is the annual cap placed on the value of the gifts that can be made to customers or potential customers and the fact that it appears such gifts cannot include cash.  The law limits the amount of such gifts to $100 per calendar year and they can only be “prizes, goods, wares, store gift cards, gift certificates, sporting event tickets, or merchandise.”  Whether a “prize” can be cash has not been addressed by the Insurance Commissioner’s Office or the courts.  The same thing is true for the question of whether a referral fee program would be considered a “promotional” program.  Whether a “prize” can be cash in this context could go either way, but I think a good argument can be made that the offer to pay a referral fee is a promotion of the agency’s or agent’s business.

Until the above questions are answered by either the Insurance Commissioner’s Office or the courts, the safest course of action for an agency or agent would be to give their customers or potential customers who refer business one of the types of gifts permitted by the above statute, not cash, and to make sure that the total value of whatever is given to a single customer or potential customer does not exceed $100 in a calendar year.

Another issue that has come up is whether gifts of some kind can be given to potential referral sources for meeting with the agent to discuss the making of referrals in the future.  Such gifts would be legal as long as they were not tied in any way to the making of referrals or the writing of insurance business.  However, if any of the referral sources were customers or potential customers of the agent, the above issues with respect to the payment of compensation for actually making referrals would be present and I would recommend the same course of action.  Any agency or agent doing this should also make sure that such gifts were not being given to only those sources who made referrals that resulted in the writing of insurance business.


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