MD - Rebating and inducements
It is quite common for agencies to attempt to drum up business by printing ads or flyers touting a gift in exchange for a quote or a piece of business written with the agency. Depending on how these ads are set up, they may be a violation of the rebating and inducement provisions of the statute, subject to a penalty of up to $500 per violation. Here are a few examples:
An agency published an ad in the paper indicating that they will give away a $25 gas card for anyone writing their auto policy with the agency
An agency offers to pay $50 to a specific charity or a charity of the insured's choice for business placed with the agency.
An agency sends a box of cookies ($45 value) to all clients who have been written that month.
An agency offers free HR consultation services to clients writing their group benefits policy with the agency.
How to report a potential rebating/inducement violation
WHAT THE LAW SAYS
Statutory reference: Title 27 – Unfair Trade Practices and Other Prohibited Practices
The following sections of the law address rebating and inducement situations, and can be reviewed from the link provided.
- § 27-209. Rebates--Life insurance, health insurance, and annuities
- § 27-210. Effect of §§ 27-208 and 27-209
- § 27-211. Use of insurance as inducement
- § 27-212. Rebates and unfair discrimination--insurance other than life insurance, health insurance, and annuities
The most relevant section for Property & Casualty insurance is § 27-212, reproduced below:
"§ 27-212. Rebates and unfair discrimination--insurance other than life insurance, health insurance, and annuities
(a) This section does not apply to life insurance, health insurance, and annuities.
(b) Except to the extent provided for in an applicable filing with the Commissioner as provided by law, an insurer, employee or representative of an insurer or insurance producer may not pay, allow, give, or offer to pay, allow, or give directly or indirectly as an inducement to insurance or after insurance has become effective:
(1) a rebate, discount, abatement, credit, or reduction of the premium stated in the policy;
(2) a special favor or advantage in the dividends or other benefits to accrue on the policy; or
(3) any valuable consideration or other inducement not specified in the policy.
(c) An insured named in a policy or an employee of the insured may not knowingly receive or accept directly or indirectly a rebate, discount, abatement, credit, reduction of premium, special favor, advantage, valuable consideration, or inducement described in subsection (b) of this section.
(d) Except as otherwise provided by law, a person may not knowingly offer, promise, or give any valuable consideration not specified in the policy, except for educational materials, promotional materials, or articles of merchandise that cost no more than $25, regardless of whether a policy is purchased.
(e) (1) An insurer may not make or allow unfair discrimination between insureds or properties having like insuring or risk characteristics in:
(i) the premium or rates charged for insurance;
(ii) the dividends or other benefits payable on the insurance; or
(iii) any of the other terms or conditions of the insurance.
(2) Notwithstanding any other provision of this section, an insurer may not make or allow a differential in ratings, premium payments, or dividends for a reason based on the sex, physical handicap, or disability of an applicant or policyholder unless there is actuarial justification for the differential.
(f) This section does not prohibit an insurer from:
(1) paying commissions or other compensation to licensed insurance producers; or
(2) allowing or returning to its participating policyholders, members, or subscribers lawful dividends, savings, or unabsorbed premium deposits."
HOW TO BE COMPLIANT
This is an area that is often confused with referral arrangements (see more on Referral Fees). Every scenario is different, but complying with the statute should be easy.
In determining whether a gift is a rebate or a permissible practice, certain factors are always examined:
Value of the gift (under or over $25)
Reason for the gift (i.e. for simply walking in the door versus sitting down and talking to an agent, or actually buying insurance)
Timing of the gift: a gift offered in connection with or proximity to the purchase or renewal of a policy would lead to increased scrutiny.
Relationship between the agent and the consumer (i.e. do they have an established and ongoing relationship or does the client represent new business?)
Proper setup
To be proper, any offer of a gift/prize must:
Carry no obligation to purchase (it can, however, be tied to a quote or a requirement to bring current insurance policy conditions for a review, to speak with a producer or otherwise discuss insurance).
Be a low-value item (no more than $25).
Be a certain type of gift: Only educational material, promotional material, or articles of merchandise that cost no more than $25 are permissible
► Cash is not permissible ► Gift cards are permissible ► Key chains, wall calendars, hats, mugs, pens, T-shirts, and other related items, which are promotional items are okay as long as there is no obligation to purchase associated with the gift. |
Beyond the wording of any such initiative, the salesmanship displayed cannot be overly aggressive. The language restrictions are meant to prevent such aggressive salesmanship.
Raffles, drawings & contests
Raffles (or drawings and contests) are generally seen as an acceptable option. However, they should only be what their name suggests: a raffle (i.e. a name in a hat). The anti-inducement sections of the law are broad and prohibit giving “valuable consideration not specified in the policy." Consequently, the same conditions as above will apply:
the promotional material for the drawing must not imply that the prospects must purchase a policy;
the prize value cannot exceed $25.
Premiums net of commission or with reduced commissions: is it rebating or not?
It is up to the company -- provided they have filed their rates appropriately.
Carriers can file rates accounting for reduced commissions or pricing net of commissions
The premium showing on the quote or policy must reflect the commission reduction. Insurers are accountable for the rates charged in the state, and may not rebate any part of the premium that is not specified in the policy either
Producers who wish to secure quotes net of commission (or with reduced commissions) should:
request consent from the carrier (due to the rate filings)
make sure the premium displayed accounts for new commission level
make sure they are also compliant with fee-charging limitations and any associated requirement (see fee-charging)
ENFORCEMENT
For the most part, the producer community polices itself. Most rebating violations are turned over to the Maryland Insurance Administration by other producers.
While the MIA does not offer formal determinations or binding legal opinions, the Legal and/or Enforcement Office are open to reviewing scenarios contemplated by agencies and offering informal guidance. If in doubt, check with your carrier (if the program involves the carrier), or contact IA&B for guidance.
REAL-LIFE EXAMPLES
IA&B has heard just about every "Is it okay for me to..." scenario. Here are a few "real life" examples.
IN A NUTSHELL 1. Never copy someone else's initiative (non-compliance is rampant) 2. Any program must:
3. When in doubt, check with your carrier (when applicable), or call IA&B. |
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