Life Insurance

New NAIC rules could see explosion in carrier freebies

Significant changes to trade practice regulation could throw the door wide open for insurance companies and producers to offer more rebates to their customers.

Last week, the National Association of Insurance Commissioners (NAIC) unanimously adopted an amendment to the NAIC Unfair Trade Practices Act, also known as the Model Act. The amendment would relax current restrictions on offering rebates in connection with the solicitation and sale of insurance. In addition, the changes to the rule would permit companies to provide non-insurance products and services to policyholders without the need to receive regulatory approval to include rebates.

Notably, the amendment considers that a state may impose a cap on the costs of allowable rebates offered by insurers operating in their respective regions. Drafters of the amendment have recommended that “the lesser of 5% of the current or projected policyholder premium or $250 would be an appropriate limit.”

Currently, most states prohibit insurers from offering anything of value that is not included in the terms of the policy – these anti-rebating laws were put into place to prevent any unfair discrimination between policyholders.

In a blog post on its website, Cooley LLP maintained that the old anti-rebating laws effectively ban a wide range of potentially innovative services that insurers could have offered their customers. But the revised Model Act provides the insurance industry – particularly up-and-coming insurtechs – a roadmap in how to offer insurance products “in new and creative ways,” the law firm concluded.

Cooley also noted that since the NAIC’s Innovation and Technology Task Force started work on revising the Model Act in 2018, many states have since proposed new legislation offering insurers more flexibility in offering innovative products under their respective anti-rebating laws. However, the rules can vary from state to state – this means that insurers first had to review each state’s laws before they can offer their proposed value-added product or service. The inability of insurers to adopt a one-size-fits-all approach to the anti-rebating laws of different states also means that they are saddled with multiple regulatory compliance costs, Cooley said.

“Until these revisions to the Model Act are adopted by the states, careful consideration must be made to the current iteration of the rebating laws of the applicable state in which the product is being offered,” the law firm advised.

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