NAIC Adopts Amendments to the Unfair Trade Practices Model Law to Allow Certain Rebating

On December 9, 2020, the National Association of Insurance Commissioners (“NAIC”) Executive (EX) Committee voted unanimously to adopt amendments to the NAIC Model Law 880 – Unfair Trade Practices Act (the “Model Law”).

As we had previously reported, at the Fall 2019 NAIC National Meeting, the NAIC’s Innovation and Technology (EX) Task Force (“Task Force”) had voted to open consideration of amendments to the anti-rebating provisions of the Model Law due to concerns that the Model Law’s anti-rebating prohibitions impeded innovation in insurance and often prohibited the offer of beneficial value-added products and services to buyers of insurance.  The insurance industry, especially insurtech newcomers, have often felt unreasonably constrained by anti-rebating and inducement laws and regulations in a way that such industry players have argued are not beneficial to or protective of buyers of insurance. 

The existing Model Law has previously been adopted by most states, although with some variations across the states.  In recent years, several states have issued regulatory guidance permitting certain exemptions to anti-rebating laws and regulations, especially with respect to value-added products and services, but there remains a lack of consistency across the states on rebating which the amendments to the Model Law will hopefully help address. 

The amendments would exempt the following from the general prohibition against rebates and inducements:

• value added products and services offered at no or reduced cost which are not specified in the insurance policy provided that such products and services, inter alia, (1) relate to the insurance coverage, (2) are primarily designed to satisfy certain permitted purposes (e.g., mitigate loss, reduce claims, provide education about risk, etc.), and (3) are reasonable in comparison with the insurance premiums for the insurance policy;  
• non-cash gifts, items, or services, including meals to or charitable donations on behalf of the customer (including commercial insureds) as long as the cost is reasonable, is not made in a manner that is unfairly discriminatory, and is not conditioned on the purchase of insurance; and
• raffles or drawings to the extent permitted by state law, as long as there is no financial cost to entrants to participate, the drawing or raffle does not obligate participants to purchase insurance, the prizes are reasonable in value, and the drawing or raffle is open to the public and not conducted in a manner that is unfairly discriminatory.

The amendments to the Model Law include drafting notes suggesting that states could consider adding specific thresholds for permissible exemptions from the anti-rebating restrictions, such as the lesser of 5% of current or projected policyholder premium or a set amount such as $250. 

It could take several years for these amendments to the Model Law to be adopted by the states into their own insurance laws.  In the meantime, many states may choose to forego targeting rebating practices that otherwise comport with these amendments to the Model Law.