PL Risk Blog

Insurance Rebates Lead to Potential Pitfalls

Written by Drew Smith | Mar 27, 2020 1:45:00 PM

As the demand for insurance starts to climb and with many people seeking insurance in many different fields over the coronavirus, many companies have started to compete for customers leading to essentially price wars. There are many legal ways to do this, but one illegal way is through the process of rebates.

Rebates in their base form is essentially paybacks to the client for agreeing to become someone’s client. This can be something like monetary compensation and gifts. These are considered illegal in the insurance world as most producers work on commission, the more sales they bring the more commission they get. Some states have laws on the books that define what are considered rebates and what isn’t. West Virginia’s Insurance commissioner, James A. Dodrill, this month clarified that rebates are gifts or “side deals” that aren’t in the negotiated price. Meaning whatever the clients paid is what the producer makes. They also have anti-rebating laws to prevent solvency and predatory pricing.[1]

Rebates are not explicitly illegal as many advertisements display. However, buying off your customers to get more sales is. Consult your state’s insurance commission over what is and isn’t allowed in the states you do business in.

[1] https://www.wvinsurance.gov/Portals/0/pdf/20-02_Rebates_%20Value-Added_Products.pdf?ver=2020-03-13-114938-393