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In today’s world, the amount you pay for a product or service is negotiable. Or if you’re patient, the product will probably go on sale, or you can search online for a better price.
However, for insurance, the ability of the consumer to negotiate the price is often limited, and that is what rebating is all about.
In this article, you will understand everything you need to know about rebating in insurance, including; what rebating in insurance is the anti-ban on rebating in insurance.
You will also learn the cons of rebating in insurance, why rebating is rarely used, and even the difficulty of anti-rebate laws.
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Rebating in insurance means returning a portion of the premium or the agent’s commission on the premium to the insured or other inducements to place business with a specific insurer.
Basically, rebating occurs when any part of the commission or anything else of value is given to the insured as an inducement to buy a policy.
Rebating seriously violates insurance law that comes with not only legal penalties imposed by state regulators but also various sanctions from insurance companies.
In most cases of rebating, the insurer will terminate its relationship with the agent/broker and other companies may choose to refuse to establish a relationship with an agent/broker who committed rebating in the past.
Rebating seems like a simple concept but its main purpose is to ensure that insurance agents cannot share their commissions with their customers.
The idea of rebating is intended to prevent insurance agents from offering current and prospective customers an inducement to buy a life insurance policy. With that inducement being directly funded by the commissions earned on the sale.
Rebates are mostly put in place for the benefit of the customers. Many people think that rebating is a fair deal because it is a part of negotiations.
Even though rebates are quite popular in sales, the insurance business is quite different and there are many cons in using this practice.
Some of the reasons why are:
They have made rebating illegal. However, there are two exceptions to the rule where rebating is illegal but with some restrictions- Florida and California.
In Florida, once they offer a rebate, the rule is that it should be offered to the next customers on the next deal.
The rebate in question must also be by the rebating schedule filed by the agent with the insurer issuing the policy to which the rebate applies. This limitation provides some protection from unfair insurance agents practices.
Also, in California where rebating is legal, agents can rebate commissions on any type of insurance, including auto and homeowner’s coverage.
California has the most remarkable history concerning insurance rebating and its current laws governing the practice warranted discussion beyond a simple table. California law originally prohibited insurance rebating of any kind, but the state repealed this law in the ’80s.
The Florida Supreme Court reaffirmed the validity of agent premium rebating in a 2000 decision. In practice, rebating is not common because an agent must offer the same rebate to all prospective purchases.
Although a Lower California court upheld the validity of anti-rebating statutes, the decision was rendered moot with the passage of Proposition 103 in 1988. The California Supreme Court ultimately upheld the validity of rebates.
Of recent, it has been rare to see rebates in insurance. Some of the reasons why this is so are:
Different purposes rebating law serves. Some of them are:
Anti-rebating laws were originally enacted to combat unfair and discriminatory sales practices and to protect insurer solvency.
The NAIC’s Unfair Trade Practices Act (#880) created a measure of uniformity in handling anti-rebating issues across states. Many states allow exceptions to anti-rebating rules.
The state anti-rebating laws have been faced with the issue of lack of consistency from state to state, both by statute and especially by interpretation.
Some states, such as California, don’t even have anti-rebating laws. Many insurance startups don’t have the regulatory compliance staffing to tailor their business practices to the 50 different state insurance jurisdictions, and instead, want a one-size-fits-all solution that works in all
This has proven difficult with state anti-rebating laws where the rules vary quite a bit.
Insurance agents may also be prevented from discounting clients due to provincial legislation restricting “rebates and inducements.”
The insurance agent typically funds a rebate, sharing some of the commission earned on the sale of a policy.
I hope in reading this article; you have understood what rebating in insurance is all about. They may also prevent insurance agents.