In what jurisdictions is rebating on insurance not illegal?
Rebating: Why is Rebating Still Illegal in Many States?
- Thread starter mrpink
- Start date
In what jurisdictions is rebating on insurance not illegal?
- Thread starter
- #32
75% was a random number I threw out there and a very rough approximation of a tax neutral payout (as you smartly pointed out the tax overhang) where I only keep enough to pay the tax man.
Obviously you can't live off that, but I wanted to make a point that if there are other products/services/etc. that creates value in excess of the 75% rebate it could be worth pursuing. It's basically taking a portfolio approach to your customer. What high margin products make up for that 75% rebate is a separate issue.
The other alternative is to keep the commission and reallocate the proceeds to other products and drive lifetime value that way. It's a capital allocation decision entirely up to the agent.
The big picture question is what happens rebating was legal in all states? As you illustrated, 75% isn't rational for an agent but is it rational for a direct seller to drop their premiums to reflect a 75% type cut? How does the industry react and adjust? I think there will always be a home for real high quality insurance agents.
I agree. That said a great insurance adviser should be able to set their own price.
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Rebating is allowed in California
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So I discovered... and apparently in Florida.
- 4,132
Well become a fee based Financial Advisor and best of luck to you. There you can use non commissionable products (there are some) and run at a super discounted fee basis.
As an RIA you can base your fee on the advise you provide with products that pay nothing to you. But good luck with that as didn't you just come from that world?
Good luck. I honestly hope you do well with this concept. Would I do it? nope, not for a second. Insurance is not nearly as sexy as other financial products. It's the suspenders of the investment world.
As an RIA you can base your fee on the advise you provide with products that pay nothing to you. But good luck with that as didn't you just come from that world?
Good luck. I honestly hope you do well with this concept. Would I do it? nope, not for a second. Insurance is not nearly as sexy as other financial products. It's the suspenders of the investment world.
I very much enjoy this quote and will be stealing it!
Look at the link to their rebating policy on this site New Foundations Insurance and Annuity Services (not my site). I can see where they think it makes sense. If they are rebating 50% of the commission, they are assuming that their now lower premium will earn them at least twice as many clients, many of which they wouldn't have had without the rebate. They will end up working twice as hard to get all those apps done though.
I've also seen it on the p&c side. One of our competitors put it on their webpage that they would refund the entire first year's commission to anyone that switched the broker of record to their agency with company x. Very little work, they might lose a couple bucks the first year but they would gain a bunch of new clients and get the commission on all that stuck around for renewals. Company x told them to pull it, or at least take their name out of it.
I've also seen it on the p&c side. One of our competitors put it on their webpage that they would refund the entire first year's commission to anyone that switched the broker of record to their agency with company x. Very little work, they might lose a couple bucks the first year but they would gain a bunch of new clients and get the commission on all that stuck around for renewals. Company x told them to pull it, or at least take their name out of it.
Yeah, and depending on the product your selling you're going to have a buttload of clients looking to flip.
Take MedSupps for example (which is driven by price, since everything else is essentially the same). I get 30% commission with CSI and rebate 15% (take a $100 premium, and now it's $85). Once that year's up they could possibly go from pay 85 a month to 110-115. They're going shopping and the first dude that throws plan N at them, regardless if it's right for them; they're gone. Or, you're constantly flipping business each year because clients lose that 10-15 percent reduction in premium.
It's not in the best interest of the client or me, frankly, to even enter that discussion.
Take MedSupps for example (which is driven by price, since everything else is essentially the same). I get 30% commission with CSI and rebate 15% (take a $100 premium, and now it's $85). Once that year's up they could possibly go from pay 85 a month to 110-115. They're going shopping and the first dude that throws plan N at them, regardless if it's right for them; they're gone. Or, you're constantly flipping business each year because clients lose that 10-15 percent reduction in premium.
It's not in the best interest of the client or me, frankly, to even enter that discussion.
This is incorrect. CA repealed their anti-rebating legislation and technically has no law against it. But it has set legal precedent declaring it an illegal act. Rebating in CA will get you into trouble. FL allows it, but only if you rebate equally, meaning if you rebate for a certain product, you essentially must rebate every time you sell it.
TN has repealed its anti-rebating law, but has further passed legislation restricting rebating only to what the insurance contract would be able to provide the client, basically preventing you from rebating.
So, FL is really the only state where a rebating plan had a chance of getting off the ground.
Can I charge a broker fee and give a rebate at the same time? If so, I could make this work 
Forget the legalities for a second, go with the practicalities....
The concept of rebating only works with the concept of a committed contract. Cell phone carriers can rebate (in the form of a subsidized phone) because you commit to doing business with them for a period of time. They basically build in the value with the contract and then make you feel good for buying an overpriced phone.
With insurance, you may have a minimum earned premium, but you have no committed contract with the consumer. This makes rebating a very bad business practice. Unless of course, you have some way of making your commission fully earned, which would be illegal.
On top of that, the clients you get by rebating will have their hand out every year. No rebate? They go shopping.
Dan
Forget the legalities for a second, go with the practicalities....
The concept of rebating only works with the concept of a committed contract. Cell phone carriers can rebate (in the form of a subsidized phone) because you commit to doing business with them for a period of time. They basically build in the value with the contract and then make you feel good for buying an overpriced phone.
With insurance, you may have a minimum earned premium, but you have no committed contract with the consumer. This makes rebating a very bad business practice. Unless of course, you have some way of making your commission fully earned, which would be illegal.
On top of that, the clients you get by rebating will have their hand out every year. No rebate? They go shopping.
Dan
- Thread starter
- #40
Good stuff BNTRS. I'm a little confused about CA. On one hand, you say precedent makes it an illegal act to rebate in CA. On the other hand, Hefe linked to a CA based agent offering rebates. How do I reconcile the two? So is New Foundations running an illegal operation or are there very specific procedures that need to be followed to allow some form of rebating but avoid getting into trouble in CA?
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Can I charge a broker fee and give a rebate at the same time? If so, I could make this work
Forget the legalities for a second, go with the practicalities....
The concept of rebating only works with the concept of a committed contract. Cell phone carriers can rebate (in the form of a subsidized phone) because you commit to doing business with them for a period of time. They basically build in the value with the contract and then make you feel good for buying an overpriced phone.
With insurance, you may have a minimum earned premium, but you have no committed contract with the consumer. This makes rebating a very bad business practice. Unless of course, you have some way of making your commission fully earned, which would be illegal.
On top of that, the clients you get by rebating will have their hand out every year. No rebate? They go shopping.
Dan
lol. Great points. Client churn and bundling/cross-sell are probably the most important factors in rebate pricing. Doesn't work if all your clients try to shop every year, but could be manageable if it's limited.
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Thanks. I love boring. Insurance may be suspenders but they keep your pants up.
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