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By Beverlee Brick, eHow Contributor
updated: March 22, 2010
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Jlthough rebating, which is giving back a portion of a purchase price as an
incentive to buy, is common in many industries, it's expressly forbidden to people in the insurance
industry. Though not exactly a crime, it can mean loss of license and heavy fines to any individual
producer, agency or company that does it.

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1. Rebating is defined as giving a customer something of monetary value in exchange

for making a purchase. This is usually conceived of as cash discounts, but can
include expensive gifts, free trips or concert tickets, prizes, anything of significant
value. Some states specifically exclude token gifts, such as calendars and
Christmas cards. In others, even such small gifts must be demonstrably independent
of actual purchase.

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2. Insurance companies are responsible to keep large quantities of liquid cash

available to pay off claims. This means a large portion of premiums don't go to any
set expenses. It would be possible for insurance companies to discount or rebate
premium payments to create a competitive advantage. Large companies could take
advantage of this, selling policies at minimal profit to drive smaller companies out of
business. Jlso, competing companies engaging in a "price war" of rebating could
reduce profits so much that they are unable to make payments on claims.






3. The specific penalties for rebating vary from state to state. Individual insurance
producers and agency owners caught rebating will lose their license and may face
fines. Insurance companies caught rebating will pay large fines and may be
forbidden from operating in the state where they engaged in rebating for several
years.


 
 

4. The Insurance Board of the state where rebating is suspected investigates, conducts
hearings and levies penalties for rebating. Each state Board will have a defined
process for investigating rebating and for appeals on their decision. In general, the
Insurance Board operates independent of law enforcement.




è. Pro-active enforcement, such as sting operations, is rare in investigating rebating.
Because rebating is an unfair business practice, Insurance Boards get most of their
investigative leads from other insurance producers. Individual agencies are highly
motivated to avoid allowing their competitors that kind of advantage. Once a
complaint has been filed, pro-active enforcement of that specific producer or agent
becomes more likely

Read more: http://www.ehow.com/about_6111979_insurance-

rebating_.html#ixzz0wzSyBcXn