New NAIC Rule Would Allow Rebating

By John Hilton

The Executive Committee of the National Association of Insurance Commissioners adopted language today designed to allow for "rebates" to be offered to consumers.

The committee unanimously adopted an amendment to the NAIC Unfair Trade Practices Act.

Adopted language will permit insurers or producers to "offer or give non-cash gifts, items, or services, including meals to or charitable donations on behalf of a customer, in connection with the marketing, sale, purchase, or retention of contracts of insurance."

The amendment leaves open the possibility of a cap on gift amounts to be determined by the state commissioner. Amendment drafters suggested that "the lesser of 5% of the current or projected policyholder premium or $250 would be an appropriate limit."

The NAIC’s Innovation and Technology Task Force has worked on the anti-rebating issue since 2018. During that time, several states, from New Hampshire to Arizona, either proposed or adopted new legislation, rules, or bulletins addressing their states’ anti-rebating prohibition.

'Long Time Coming'

"This has been a very, very long time coming," said Jon Godfread, North Dakota insurance commissioner and chairman of the task force. "It's important and will serve to allow the right balance of bringing the needed and desired innovation and technology as it relates to the value of products and services to our consumers while affording appropriate consumer protection."

Likewise, the amendment allows insurers or producers to "conduct raffles or drawings to the extent permitted by state law, as long as there is no financial cost to entrants to participate, the drawing or raffle does not obligate participants to purchase insurance, the prizes are not valued in excess of a reasonable amount."

The anti-rebating changes were not arrived at without dissent, Godfread said, acknowledging one vote against the language at the task force level.

Forty-one comment letters were received, mostly from trade associations, Godfread added.

Former New York regulator Paul Zuckerman, who now runs a consulting business in New Jersey, sent a November letter of constructive criticism of the language.

"While the anti-rebating laws could probably stand some dusting off, I remain concerned that the draft provides exceptions that are too broad and will result in unfair discrimination and may add significant additional costs to insureds," Zuckerman wrote.

The final amendment language strikes a fair balance, Godfread maintained today.

"It addresses the age-old issues related to gifts, items or services in connection with the marketing, sale, purchase or retention of contracts and insurance and ensuring that it's done in a manner that is not unfairly discriminatory and without a requirement to purchase, or continue to purchase, or renew the policy in exchange for that gift, item or service," he said.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.