The National Association of Insurance Commissioners has taken the first step in what stands to be a more than yearlong process to update the rules states use to police impermissible “rebates” offered by insurers and insurance producers.
By a unanimous vote, the Innovation and Technology Task Force – convening today as part of the NAIC’s summer meetings in New York – moved to submit a request for model law development to the NAIC Executive Committee. If approved, the process would involve opening the NAIC’s Unfair Trade Practices Act, Model 880 , with the goal of rewriting its “anti-rebating” prohibitions.
The move comes as regulatory uncertainty continues to grow about how a growing number of products and services offered to policyholders – from telematics devices to automated doorbell cameras and from payroll-processing software and weather-monitoring tools – interact with longstanding prohibitions about providing anything of value outside the terms of an insurance contract.
Task Force Chairman Jon Godfread, North Dakota’s insurance commissioner, noted that in examining regulatory barriers to the emergence of insurtech and other innovative insurance business models, task force members have found that state interpretations of the anti-rebating portion of the century-old NAIC model vary significantly.
As an alternative to the lengthy and laborious process of opening the model law, Godfread suggested the task force could simply promulgate guidance to departments seeking a more consistent interpretation of the existing model. He offered draft guidance  written by his own department, which would define permissible “value-added” services as either those that are incorporated into policy language or those that “assess risk, identify sources of risk, or develop strategies for eliminating or reducing those risks that aligns with the risks of the policy.”
However, he cautioned that the document is simply a working draft that has not been finalized or enacted.
One complicating factor is that the National Council of Insurance Legislators is already at work on its own  insurance modernization model legislation, and they are almost certain to beat the NAIC to the finish line. According to David Kodama, assistant vice president of research at the American Property Casualty Insurance Association, NCOIL’s Financial Services & Multi-Lines Issues Committee plans to finalize its anti-rebating model by the group’s annual meeting in December.
In contrast, the process initiated by the NAIC Innovation and Technology Task Force begins with the executive committee submitting their request to a two-prong test for initiating new model legislation, said Denise Matthews, NAIC’s director of data coordination and statistical analysis. There must be a situation that necessitates a minimum national standard or requires uniformity among all states. NAIC members also must indicate they are committed to dedicating significant regulatory and NAIC resources to educate, communicate and support a new model.
The task force cannot begin work on the model until it receives approval from the executive committee, who may open the decision up to public comment. If approved, the task force would have 12 months plus one additional meeting to complete drafting of the model, which must be approved by a majority of both the executive committee and the NAIC plenary to take effect.
We at R Street are on record as endorsing the complete repeal  of all anti-rebating laws, as California and Florida both did back in the 1980s. But we also support reasonable compromise solutions that permit greater innovation and consumer surplus. APCIA has proposed adding language to the current model law to provide more consistent treatment of value-added products and services. The Council of Insurance Agents and Brokers propose that anti-rebating rules be abolished altogether for commercial lines of insurance. A reform package that includes both changes, whether it comes from NAIC or NCOIL or both, would be a very promising start.
- “Model 880”: https://www.naic.org/store/free/MDL-880.pdf
- “draft guidance”: https://naic-cms.org/sites/default/files/national_meeting/ND_Rebating_Bulletin_Final.pdf
- “work on its own”: https://www.insurancejournal.com/blogs/2019/07/13/532167.htm
- “complete repeal”: https://www.rstreet.org/2016/10/13/agents-for-change-competitive-reforms-for-producer-licensing/