1.11.6 Rebating
Only two states within the United States permit rebating (Florida and California); however, they are closely scrutinized for any wrongdoing.
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. It is illegal and cause for license revocation in most states. In some states, it is an offense by both the agent and the person receiving the rebate. Florida regulations are very strict in this respect and are designed to prohibit discrimination in favor of, or against, policyowners.
Rebating can cause a myriad of problems for both the agent and the insured; however, there are circumstances in which rebating can be legal if performed properly. (Florida Statutes Section 626.572 on rebating is quoted below.)
To briefly summarize, first, the insurer must allow rebating and must have a rebating schedule from the agent on file. This schedule must be in plain view in the agent's place of business. If a customer requests a copy, it must be given at no charge. In that case, rebating to the same actuarial class of insureds who have purchased the same policy as long as they receive the same percentage without any discrimination is legal.
Agents must keep copies of rebate schedules for five years.
Florida Statutes, Section 626.572 - Rebating; when allowed...
"No agent shall rebate any portion of his commission except as follows:
- The rebate shall be available to all insureds in the same actuarial class;
- The rebate shall be in accordance with a rebating schedule filed by the agent with the insurer issuing the policy to which the rebate applies;
- The rebating schedule shall be uniformly applied in that all insureds who purchase the same policy through the agent for the same amount of insurance receive the same percentage of rebate;
- Rebates shall not be given to an insured with respect to a policy purchased from an insurer that prohibits its agents from rebating commissions;
- The rebate schedule is prominently displayed in public view in the agent's place of doing business and a copy is available to insureds on request at no charge;
- The age, sex, place of residence, race, nationality ethnic origin, marital status or occupation of the insured or location of the risk is not utilized in determining the percentage of the rebate or whether a rebate is available;
- The agent shall maintain a copy of all rebate schedules for the most recent five years and their effective dates;
- No rebate shall be withheld or limited in an amount based on factors which are unfairly discriminatory;
- No rebate shall be given which is not reflected on the rebate schedule;
- No rebate shall be refused or granted based upon the purchase or failure of the insured or applicant to purchase collateral business."
Coercion and Unfair Discrimination
Coercion can be defined as "an unfair trade practice that occurs when someone in the insurance business applies physical or mental force or threat of force to persuade another to transact insurance." Coercion doesn't have to always be aggressive, though. An agent interfering with or injuring a client's reputation or business unless a policy is purchased is coercion. Any activity whose purpose is to remove the client's free will is coercion.
If an agent makes a "distinction in sales, underwriting, pricing, claims handling, or any other insurance application function between two individuals of substantially the same underwriting classification and expectation of life or health" can be deemed unfair discrimination. Agents should never discriminate: they must offer all products and services to their clients equally without taking race, gender, age, ethnicity, etc. into consideration. The Florida code, in particular, cautions against unfair discrimination against those who have been victims of domestic violence or abuse (Sec. 626.9541, F.S.).
