Questions To Make Sure You Are Not Breaking Anti Rebating Rules
By Harry Lew
Beware Illegal Gifts... and Not Just During the Holidays
Not all gifts are wise, especially if you’re an insurance agent. That’s because giving something of value to prospects and clients can lead you to violate your state’s anti-rebating statutes. And this can land you a state insurance department fine regardless of whether your intent was innocent or not.
Although you no doubt learned about rebating in Compliance 101, it can’t hurt to review key concepts. Let’s start with what rebates actually are. Most regulators consider rebates to be giving value in various forms to a customer relating to a purchase of insurance. For example, all of the following would be considered an illegal rebate in most states:
Any gift designed to induce an insurance purchase, especially when the value of the gift is significant in relation to what the prospect will pay in premiums.
- Any return of agent commissions to the buyer.
- Any offer of free insurance that is contingent on buying insurance.
- Any agent or agency premium payment on behalf of a prospect.
- A refund of premiums resulting from favorable policy persistency.
The key point: regulators will normally view anything an agent introduces into the purchase process that is not defined in the contract as either a rebate or an inducement. What is the difference between the two? The former involves returning a part of a person’s premium payment after the sale, whereas the latter provides for the delivery of value in order to motivate someone to buy. In either case, regulators enforce anti-rebating statues in order to create a level, competitive playing field for all producers and companies and to assure that all consumers have access to the same policy terms.
So how do you know when you’re in danger of violating your state’s anti-rebating statutes? According to the white paper, “Understanding Concepts of Rebates, Gifts, and Inducements,” by Currin Compliance Services, Inc., start by answering the following five questions. A “yes” to any of them suggests you may be on dangerous ground.
- Are you giving, paying for, allowing, or offering anything of value that is not defined in the insurance contract?
- In considering the items in #1 above, would prospects be more likely to purchase the insurance on offer?
- Are you offering value in order to acknowledge or reward your existing client base?
- Is the offer unrelated to the insurance offer you’re making?
- Does your offer include a game of chance such as a raffle or lottery?
Although a “yes” answer points to a rebating violation, this is not a foolproof conclusion. That’s because two states—Florida and California—do not prohibit rebating at all. For example, in Florida, you can offer a rebate to one customer as long as you do so for all customers. Similarly, California agents can engage in rebating as long as their carriers allow it. There are other regulatory nuances in these two states, which the Currin white paper explains in greater detail.
The paper goes on to list a number of do’s and don’ts when it comes to the topic of rebates and inducements. It will be well worth your time to adhere to the following guidance:
- Don’t make offers of cash or cash equivalents, even if the payments are nominal. The closer you get to cash payments, the more likely you’ll run into trouble.
- Do check with state rules about item giveaways to attract prospects. These are often permitted, especially if they carry a company or agent/agency logo.
- Don’t make offers contingent on an insurance purchase. That is a huge red flag to insurance departments.
- Do try to make offers as far away from the sales process as possible.
- Don’t make them specific to individual consumers or groups of consumers. The broader your scope, the better.
The point is, whenever you’re tempted to give something of value to a prospect in order to close a sale, think twice. And since insurance departments treat this issue differently, be sure to consult your own state’s anti-rebating statute before going ahead with a promotion. Still uncertain? Check with your agency, FMO or carrier compliance department.