What your agency needs to know comply with the updated rebating and inducement laws
Under the banner of modernizing Ohio’s rebating and inducement laws, state legislators enacted the most significant changes since the rebating laws were adopted decades ago. The Ohio Legislature used a model bill adopted by the National Association of Insurance Commissioners (NAIC) on rebating that addressed the following items: application of rebating laws to commercial insurance sales, rebating with personal lines sales, value-added products and services, and conducting of raffles or drawings. The new law offers a much more expansive and open way to utilize rebates and inducements that were traditionally illegal under existing law.
Specifically, the law makes the following changes:
- Commercial Insurance – Commercial property and casualty are completely exempted from rebating rules. This means it is permissible for carriers and agents to utilize rebates and inducements in the sale of commercial property and casualty policies. The dollar threshold that would be allowed for meals, gifts, etc. for commercial clients would increase from the current $50 per year to no dollar amount specified but rather an amount that is “reasonable in comparison to the premium”. While commercial insurance sales are exempt from the rebating and inducement laws, they do apply to producer commission reductions not included in insurance company rate filings.
The law states, that the offer or gifting of non-cash gifts, items, or services, including providing meals to or making charitable donations on behalf of, commercial or institutional consumers in connection with the marketing, sale, purchase, or retention of contracts of insurance, (1) as long as the cost is reasonable in comparison to the premium or proposed premium and the cost of the gift or services is not included in any amounts charged to another person or entity. (2) The offer shall be made in a manner that is not unfairly discriminatory. (3) The consumer shall not be required to purchase, continue to purchase or renew a policy in exchange for the gift, item, or service.
- Personal Lines – The new law does not state an amount permitted as a rebate or inducement but instead expressly authorizes the superintendent of the Ohio Department of Insurance (ODI) to determine an acceptable amount per policy year per term or calendar year. NAIC recommended that the permissible amount that can be spent on meals and items to the lesser of 5% of premium or a set amount of $250. Again, this change is not included in the legislation, rather will be reflected as an update to the Ohio Department of Insurance bulletin that currently limits rebates and inducements to the $50 annual limit.
- Value-added Products and Services – The law expressly allows insurers and agents to provide value-added products and services at no or reduced cost when such products or services are not specified in the policy. The products or services must; (1) relate to the insurance coverage (2) are designed to satisfy certain permitted purposes (mitigate loss, reduce claims, provide education about risk, etc.), and (3) are reasonable in comparison with the insurance premium. The value-added products shall not be offered in a manner that is unfairly discriminatory. The availability of value-added products or services shall be based on documented, objective criteria which must be maintained by the insurer or agent and be provided to the superintendent of insurance upon request.
- Conducting of raffles or drawings – These are permissible as long as the raffle or drawing meets all of the following: (1) There is no financial cost to entrants to participate. (2) The drawing or raffle does not obligate participants to purchase insurance. (3) The drawing or raffle is open to the public. (4) The raffle or drawing is offered in a manner that is not unfairly discriminatory.
The law will go into effect on July 21, 2022. The changes will supersede many of the ODI Bulletins that have been adopted in the past. We are working with ODI on the rulemaking process to further clarify the statutory changes. We are in the process of developing an Agent’s Guide to Ohio’s Rebating and Inducement Laws and will publish it for the membership in the coming month. In addition, we will also hold a webinar to explain the changes and answer clarifying questions as to how these changes impact agencies.
Rebating and inducements questions have long been a top 10 issue that we get questions from the membership about. The past laws and rules were cobbled together by a patchwork of laws, rules, and bulletins and were in need of review and updating. Therefore, the OIA testified in support of the legislation before the House and Senate Insurance Committees as the bill moved through the process. To read a copy of our testimony click here. Please contact Lauren Reid, OIA’s Government Affairs Manager with any questions regarding the rebating law changes.