Advertisement

Rebating

What Does Rebating Mean?

Rebating is the practice of returning the broker's commission, or a portion of it, to the insured with the desire of inducing an insurance sale. The rebate is typically funded by the insurance agent.

Rebating can also be referred to as “inducement.” However, inducement can also apply to indirect forms of payments or benefits offered by the broker or agent.

Rebating is considered illegal in many provinces and states. While the legislation governing rebating varies widely, the overarching objective is to protect consumers from unfair sales activity from insurance companies and licensed agents. In life insurance, a broker that rebates or incentivizes a client to purchase life insurance is placing their insurance license at risk.

Advertisement

Insuranceopedia Explains Rebating

Rebating is a way of making a potential insurance client buy the insurance product by returning the commission meant for the broker or agent as compensation or payment for the sale. The insurer might also promise discounts on premiums or even gifts. Insurance commissioners think that this is not a good practice because it develops unfair competition and might lead to insurer insolvency.

The National Association of Insurance Commissioners developed the Model Act to discourage and penalize this practice in the US. The Canadian Council of Insurance Regulators states that its rebating rules:

  • Protect consumers from making inappropriate insurance purchasing decisions,
  • Ensure parity between different-sized insurers and intermediaries who compete for the same business,
  • Address concerns that the cost of the incentives would ultimately be borne by all consumers in the pricing of the product, and
  • Ensure premium reductions are offered equally to all similar risks and not arbitrarily to certain consumers.

In most jurisdictions rebating is an offence, but there are differences in the ways they have enacted it through law. In some cases, the company, the broker, or the agent is the target. A broker that rebates or incentivizes a client to purchase life insurance is placing their insurance license and company at risk. Yet, in other cases, the client is also considered an offender for knowingly participating in the practice.

Advertisement

Share this Term

  • Facebook
  • LinkedIn
  • Twitter

Related Reading

Tags

InsuranceThe Insurance Business

Trending Articles

Go back to top