At the regularly scheduled meeting of the NAIC's Innovation and Technology Task Force during the NAIC's recently completed Spring 2019 National Meeting, the Task Force announced − with no advance notice other than an agenda item labeled as an "update" − that it will have an interim meeting in conjunction with the NAIC's annual Insurance Summit in June to consider whether anti-rebating laws continue to be sound insurance regulatory policy.
If a recommendation to repeal or materially revise those laws comes out of the June meeting, it will be one of the most significant reforms in insurance regulatory law in many years.
State statutes prohibiting insurance licensees from rebating premium or providing other economic inducements to the purchase of insurance have been in effect since the early Twentieth Century. Initially considered an essential element of insurance solvency regulation, over the years these laws have been expanded to prevent unfair discrimination and unfair competition. Ultimately, anti-rebating laws were included in the NAIC's Unfair Trade Practices Model Act (#880). Many states have other provisions prohibiting rebates or inducements in addition to having adopted the Model Act language.
On their face, anti-rebating statutes are extremely broad. In addition to prohibiting more obvious inducements, such as refunding premiums, these laws generally prohibit an insurer or agent from offering anything of value other than what is specified in the terms of an insurance policy as an inducement to purchasing insurance.
In practice, states' interpretation and implementation of these laws have varied widely and inconsistently. For example, many states allow inducements below $50 or $100 in value, even where not expressly permitted in the state's anti-rebating law. Others have issued guidance in the forms of bulletins or other interpretive materials allowing licensees to provide value added services that are related to the delivery of insurance without separate consideration for such services and concluding that such services are not illegal inducements. Yet other states have taken exactly the opposite approach. Historically, producer trade groups have generally opposed relaxed enforcement of anti-rebating laws while most insurers support change.
The issue regarding the inconsistent application of anti-rebating laws has come to the attention of the Task Force as it looks into various insurtech initiatives. Many of these initiatives depend upon the use of software, telematics and smart home devices. To achieve that result, insurtech companies wish to provide the hardware, software, and other technology needed for a policyholder to take advantage of, for example, the reduced premium rates and other services that are tied to an insurer's use of telematics. Providing these sorts of things to policyholders violate anti-rebating laws, when they are strictly interpreted.
As a result, insurtech groups have identified anti-rebating as one of three regulatory issues that impede advancement of tech initiatives. The NAIC's legal staff analyzed each of these areas and, during the NAIC's Fall 2018 Meeting, presented a report to the Task Force which summarized staff's review of state law and state practices regarding anti-rebating. The Task Force's minutes of that meeting state that staff found that “even though rebating is largely prohibited, many states have carved out a wide variety of exceptions to the law" and note the impact of anti-rebating laws on many insurtech developments. Staff concluded that "reconciling these developments with dated rebating laws and bulletins is becoming a challenge."
Next steps: a welcome opportunity
During the Task Force's Fall 2018 meeting, Task Force members indicated they largely agreed with staff's findings, and there were indications of interest by members in developing "some best practices or guidance to the states in bringing more consistency" to the interpretation of anti-rebating laws.
With that somewhat modest summary of the Task Force's intention as the only indication of the Task Force's thinking, the announcement during the recent Spring 2019 meeting that the Task Force intends to consider "the need" for anti-rebating laws at all (according to the NAIC's summary of the Spring Meeting) came to most observers as a surprise, albeit one that many interested parties were no doubt pleased to hear about.
No one questions the accuracy of the Task Force's findings regarding the inconsistency in how anti-rebating laws are interpreted and applied, nor that such interpretations and applications are adversely impacting the introduction of new technologies for rating, underwriting, and claims handling. This opportunity presented by the Task Force to assess the current scope and application of these laws should be welcomed by most insurance industry parties.
The Task Force's meeting is scheduled for 9:00 AM on June 4 in Kansas City. It has invited interested parties to indicate their interest in participating in the meeting by letting Task Force staff know by April 30, 2019. It is likely the Task Force will have many willing participants.
We would be pleased to assist any party that wishes to make a presentation at the meeting. In any event, DLA Piper will attend the meeting and report on it promptly.
Learn more about this development by contacting any of the authors.