Rebating
What is rebating?
Rebating occurs when insurance agents or brokers give applicants for insurance something of value in addition to the benefits of the policy. Rebating is usually accomplished by the agent refunding a part of his commission to the insured. Other common practices include giving the insured free gifts, performing services for the insured, paying the insured's premium, or giving the insured a loan or credit.
Anti-rebating statutes
Rebating is prohibited by the National Association of Insurance Commissioners' Model Unfair Trade Practices Act and most state statutes. In addition, the Act and state statutes prohibit unfair discrimination in the pricing of certain policies. The purpose of the anti-rebating and anti-discrimination provisions is to ensure that all insureds in the same class are treated equally with respect to the premiums paid and benefits received. Rebating may be regarded as a type of discrimination because those insureds who receive the rebates are in effect paying less or receiving preferential treatment in comparison to those who do not receive rebates.
Effect of violating anti-rebating statutes
An insurer whose agent practices rebating may be fined, and the agent may lose his license. Some states go so far as to impose criminal sanctions for violations of the statutes.
The insurer may not avoid its liability under a policy issued pursuant to an agent's rebating agreement. The policy will be held in force, while the rebating agreement between the agent and the insured will not be enforced.
Permissible rebating
Some states have invalidated their anti-rebating statutes on the ground that they limited the bargaining power of insureds when attempting to get a competitive price for their insurance policies. These states focus on free market forces and consumerism.
Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.
