Is a free turkey a rebate? That was the question from Idaho Insurance Director Dean Cameron that stumped the experts.
One of the more interesting debates of the National Council of Insurance Legislators’ summer meetings in Newport Beach, California, has been an exploration of the range of marketing inducements that have been labeled impermissible “rebates.” Are flowers sent to a funeral by an insurance agent barred under state anti-rebating laws, as one perhaps apocryphal story suggests? If it is a thing of value that is not specified in either the policy or the rate filings, then it invites further scrutiny.
Nearly all of the states have laws, most enacted decades ago, to prohibit rebates of insurance premium. The notable exceptions are California, whose anti-rebating law was repealed as part of Proposition 103 in 1988, and Florida, whose anti-rebating statute was struck down in 1984 by the Dade County Court of Appeals but partially reinstated by the Florida Legislature in 1990.
Historically, the issue goes back to the 1800s, when some agents or brokers, often in the sale of life insurance products, had been winning business by rebating a large percentage of first-year commissions. Over time, the focus shifted to standard promotional gifts unrelated to the purpose of the insurance contract. Today, states commonly set define monetary thresholds that do allow for “incidental” gifts of $25 to $100, or else describe permissible categories of services detailed in the various regulatory directives.
The topic is one R Street has tackled before, as we generally view anti-rebating statutes as anti-competitive and anti-consumer. We covered the topic in a February 2015 policy short on anti-rebating reforms in Utah and then in a more extensive policy study on proposals to bring more competition to the insurance producer in October 2016.
Now the topic has moved to the agenda of NCOIL’s Financial Services & Multi-Lines Issues Committee. The highlighted issues center predominately on “value-added” services, many relating directly to the line of insurance being sold. So-called “insurtech” businesses that use telematics and “smart” devices are putting new pressure on lawmakers and regulators to clarify the rules and to swing the regulatory pendulum back from historical prohibitions. The Council of Insurance Agents and Brokers, which represents many of the big firms specializing in commercial insurance, argues that the laws do not make sense in business-to-business transactions and should be repealed in the commercial insurance space.
There are also issues around activity-monitoring wearables like Fitbit, discounts on gym memberships and life insurance wellness programs. Under a 2011 bulletin issued by then-New Jersey Insurance Commissioner Tom Considine, now NCOIL’s CEO, the state clarified that it considered gym membership discounts and wellness programs, claims-filing assistance, administration of certain tax-advantaged health arrangements, risk management services and certain product audits to be among the services it did not consider impermissible rebates. There was general consensus among committee members that these constituted commonsense examples of what should be allowed if the regulations were updated.
Maine Insurance Superintendent Eric Cioppa, the current president of the National Association of Insurance Commissioners, explained a 2017 bulletin his department issued following enactment by the Maine State Legislature of a statute to update the guidelines. Value-added services or discounts valued in excess of $100 are scrutinized based on whether they are offered selectively or equally to all existing and potential customers. If not offered to all customers, the benefit must either be included in the policy or “directly related to the firm’s servicing of the insurance contract or offered or undertaken to provide risk control for the benefit of a client.”
For the second meeting in a row, the American Property Casualty Insurance Association made a specific plea that NCOIL evaluate the effects of anti-rebating laws on innovative products and services. Of particular interest are those with technological applications that provide consumer benefits completely unknown at the time the laws originally were enacted. ACPIA offered the following as model language to be added to existing anti-rebating laws:
An insurer, by or through its employees, affiliates, insurance producers or third-party representatives, may offer or provide products or services in conjunction with a policy of insurance for free or at a discounted price that are intended to educate about, assess, monitor, control or prevent risk of loss to persons or property. The offer or provision of products or services in this subsection are exempt from the prohibitions set forth in [insert applicable citation].