We suffer with anti-rebating laws
because of a few abusers selling personal lines.
My paternal grandmother died more than 20 years ago. Dirt poor
in rural Mississippi her entire life, her husband and two
children preceded her in death, so it fell to us five
grandchildren to settle her tiny estate. We decided to donate
her ramshackle house to the local fire department so they could
burn it down for practice. Since I was in the insurance
industry (albeit in a far-removed lobbyist job), I took on the
task of sorting through her financial papers. She had
meticulously catalogued everything.
It turns out my grandmother was obsessed with not being a
financial burden to anyone. She had bought funeral insurance
years earlier from the local mortuary, though the policy only
covered $1,000 of the actual $6,000 cost. She had been making
payments on several health policies—all sold by the same
agent—that were duplicative at best. One looked to be a
legitimate, if expensive, Medicare supplemental policy. One was
a cancer insurance policy from a no-name Alabama insurer.
Another was a “catastrophic gap-filler” that
appeared to be designed to wrap around the Catastrophic Care
Act—even though that law had been repealed by Congress
The names of the insurers seemed to change every year on the
multiple policies, and she had filed away three
“warning” letters from carriers suggesting that her
agent may have been churning policies to collect more
In her later years, my grandmother’s only income was a
meager monthly Social Security check, and most of it obviously
went to pay a dirtbag insurance salesman who never returned my
calls. At a meeting of the National Association of Insurance
Commissioners a few months after we buried her, I broached the
subject with then-Mississippi Insurance Commissioner George
“You wouldn’t believe the number of these guys
who are out there going door to door,” he said.
“It’s almost impossible to keep track of
I ultimately let the matter go, but that decision still
gnaws at me. My grandmother’s insurance episode also
informs my views on regulation. So much of my professional life
has been spent trying to minimize regulation, which in this
industry is invasive, all-too-often protectionist and more
bureaucratic than it should be. My conscience is clear in the
cause of advocating on behalf of large commercial insurance
brokerage firms. Not every broker of business insurance is a
saint, and the overwhelming majority of personal lines agents
are honest and professional. But the abuses of a few have
resulted in a million iterations of “unfair trade
practices” regulations, some that hit the mark and many
that are far afield.
Near the top of the list of laws historically aimed at
curbing insurance sales abuses are anti-rebating statutes. I
saw no evidence that my grandmother’s agent was breaching
these, but if he’s still out there preying on innocent
80-year-olds, he’s probably figured out how to violate
those laws, too.
Personally, I love rebates. When I buy a car, I like the
rebate from the manufacturer. But rebates in the insurance
industry are a dirty word, conjuring visions of side deals,
kickbacks, or back-end payoffs. They are illegal inducements to
purchase an insurance policy specifically prohibited by most
state statutes (thank you, Florida and California, for getting
rid of them).
Life insurance practices in the late 19th and early 20th
century resulted in these laws. Anti-competitive, high-pressure
sales tactics, deceptive policies, and excessive commissions
were created by overuse of rebates. The practice spread to the
property-casualty business, leading regulators and legislatures
to enact anti-rebating statutes.
Fast forward to the 21st century. In the commercial
insurance world, the anti-rebating laws are used mostly so
small agents can turn state’s evidence against their
larger, better competitors who are offering better products or
services to their clients. Do a Google search of anti-rebating
statutes. The protectionist proponents of these laws always put
quotation marks around the words valued-added services, as though there
isn’t really such a thing.
The result: Commercial insurance brokerages (depending on
the state interpretation) may not provide legal services,
payroll services, referrals that involve discounts, HR
compliance advice, employee benefit statements listing benefits
provided to employees not relating to insurance purchased, and
a million other services. If they’re not delineated in
the underlying policy form, they’re illegal. I hear from
Council member firms every week suffering under the enforcement
of these laws, which are absurd in the commercial context.
Throughout the nation, there should be delineation between
business insurance and personal lines/life insurance with
respect to anti-rebating laws.
This is an uphill climb. These statutes are too often
supported by local and state agent organizations representing
smaller independent insurance agencies. They’re the ones
who use kickbacks as an epithet
when they otherwise profess to be such small-government
Ideally, anti-rebating statutes shouldn’t exist at
all. But victims like my grandmother remind us why consumers
need protection in the complicated world of insurance.
We know who the dirtbags are. Laws and enforcement should be
focused on them. Agents and brokers, meanwhile, provide
legitimate services to businesses that require and demand
value. For decades too long, agents and brokers in the
commercial space have been collateral damage in America’s
zeal to enforce anti-rebating laws. This must stop.
Wood is The Council’s senior vice president of