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July 1, 2019

While state anti-rebating rules have long been problematic for insurance producers in terms of both compliance and business practice, new technologies and value-add products – telematics, connected devices and the internet of things (IoT) – have further challenged the logic around these anti-rebating laws.

Take, for example, a device for construction sites that can sense early signs of water leakage, mold, sewage and other waste. It would make sense for brokers and carriers to bundle this device for risk management purposes along with insurance that covers the risk. Catching early signs of a leaking pipe or a molding crawlspace could prevent losses in the tens of thousands for both the insured and the carrier. Make sense? Apparently not.

Anti-rebating laws in most states deem the practice of bundling non-insurance products with insurance illegal, but it’s easy to see how regulations prohibiting risk-management technologies and services from getting in the hands of policyholders could be viewed as “anti-consumer,” not “anti-competition.”

Not to mention, the confusion that arises from simply trying to figure out what is and is not permitted under the rules. It can be impossible to determine which aspects of bundled and value-added services will be classified as “rebating” in a particular state’s anti-rebating rules, hindering insurers and brokers from providing beneficial services and technologies that their clients want and need.

The anti-rebating rules have handcuffed brokers, carriers and startups from providing value-add services to their insureds, and The Council has long supported repealing anti-rebating laws for commercial lines.

From a producer standpoint, anti-rebating statues do not help brokers who lose opportunities to provide their commercial clients with the best products and services at the best prices. They add compliance-related costs to brokers on transactions that span states with differing rebating laws – and they even add costs on single-state transactions – costs that are ultimately borne by consumers. Ultimately, they simply do not make sense in today’s commercial insurance marketplace because they are not needed to protect sophisticated business consumers that want to get the best product and services for the best price, but are unable to under today’s regulatory structure.

It is necessary for regulators to shift the focus to protecting the consumer, not competitors, allowing the commercial insurance industry, including brokers, carriers and insurtechs, to provide the tools and services that insureds not only want, but would benefit all parties in the transaction.