The Legislature enacted amendments to Washington state laws relating to referrals that were effective in July 2015. The following is a brief summary of the amendments and rule changes along with some suggested best-practices guidelines and examples to assist in promoting compliance and minimizing confusion.
Referrals involve two different categories – compensation and fees.
- Can be prizes, goods, wares, gift cards, gift certificates, or merchandise, but cannot be cash in any form, such as currency, bills, coins, check, or money order,
- Is limited to $100 in value in the aggregate in any consecutive 12-month period,
- Can be given to any individual whether insureds, prospective insureds, or neither, and
- Cannot be conditioned upon the referred person applying for or obtaining insurance.
- Can be paid to an unlicensed individual (not an insurance producer) who refers a person to the insurance producer,
- The payment to the unlicensed individual must be conditioned upon the submission of an application for insurance by the referred person,
- Can be cash or other valuable consideration,
- May be paid without a limitation as to amount,
- Cannot be given to any unlicensed person who sells, solicits or negotiates insurance, and
- Cannot be given to any insured or prospective insured.
The insurance producer should implement record-keeping processes to be able to provide evidence that the requirements have been met, particularly that the value of the referral compensation given did not exceed $100 for any consecutive 12-month period and that the referring individuals receiving referral fees were not insured clients or prospective clients at the time of payment.
1. An insurance producer pays a real estate agent $50 for each name given as a referral.
This is not permitted. Referral compensation cannot be paid in cash and it is not permissible as a referral fee since payment is not conditioned upon submission of an application.
See RCW 48.30.133(2) and (4) (leg.wa.gov). Please compare this with example No. 4 below.
2. An insurance producer gave an individual for referrals three gift cards in the amount of $50 each, but they only cost him/her $25 apiece.
This is not permitted. Even though the gift card cost $25, each is valued at $50. The maximum referral compensation value is $100 in the aggregate per referring individual for a consecutive 12-month period.
3. An insurance producer gives $10 gas cards for every referral made and once each month holds a drawing for a $50 gift card.
The giving of the $10 gas cards is permitted as long as each referring individual’s compensation does not exceed $100 in value in the aggregate for any consecutive 12-month period. It is not permissible as a referral fee since giving of the gift card is not conditioned upon submission of an application.
If eligible participants in the monthly drawing for the $50 gift card are limited to those who made referrals to the producer, the drawing is not permitted.
If the drawing were open to the general public, a winner’s prize must not result in compensation for the winner that would exceed $100 in value in the aggregate for any consecutive 12-month period.
4. A referral leads to an application being submitted and the insurance producer gives the referring individual $200. The referring individual is not a licensed producer, is not selling, soliciting, or negotiating insurance, and is neither an insured nor a prospective insured of the producer.
This is permitted. An insurance producer may pay a referral fee to an unlicensed individual when an application is submitted as a result of a referral but the referring individual must not be engaged in activities requiring an insurance producer license and must not be an insured client or prospective insured client of the producer.