We currently have a wholly owned subsidiary insurance company under our holding company umbrella. Our bank president would like to start paying fees to bank employees who refer persons to the insurance subsidiary. Where I do I look for guidance on this?

Some quesitons I have:
Who pays the referral fee, the bank or the insurance company?
Do we have to pay it no matter if a sale occurs?

Thanks for the help!

Although there is agency guidance on this, the most direct source is in the new regulations on Customer Protections for Depository Institutions Sales of Insurance. In Section .50(b) referrals by any employee that accepts deposits may only be compensated by a one time fee of a fixed dollar amount that does not depend on whether the referral results in a sale.

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This is a personal observation that should not be taken as legal advice nor relied upon for any purpose.

Thanks for the info.

I also wanted to just post what I learned regarding this matter. I called my regulator the OCC with this question and was told that they really don't deal with insurance matters I should look to my state law for guidance. WHAT?????

I then contacted the legal department at my state banking association. They stated that by referring customers I was going to have to give out all the not disclosures under the new Insurance Sales reg because they considered a referral a solicitation!

I don't feel that the insurance is being sold on behalf of the bank, simply because I tell my mother to go to Insurance Company X and tell them that I referred her. We have no contract with the insurance company and it is a separate subsidiary so the bank is not receiving any commissions on the sale.
Am I wrong? I think that both my regulator and my state bank association have given me bad advice?

[This message has been edited by Jennifer (edited 08-29-2001).]

Anyone? HELP!!!!!!!!!

Did you try calling one of the contact people listed on the cover letter to the new Q&A? They're meant to be the experts.

From what you describe, it doesn't sound to me like you meet any of the three prongs of the "on behalf of" test. In order for a referral to be "on behalf of' the Bank, you have to have a contractual arrangement to receive a commission for the referral. Referral fees to tellers ,etc. specifically do not trigger the "on behalf of" rule.

The only thing I would watch out for is does the Bank's name appear on any of the insurance sub's documents or marketing materials?

32 days to October 1 and counting.

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The opinions expressed are mine and not those of my employer