NC Rebating Rulings

Anti-Rebating Statue Information
On August 24, 2005, Hearing Officer Wayne Goodwin ordered that in this matter, the language of the statutes is clear: an agent who provides services not found in the contract of insurance at no cost or below fair market value is in violation of the anti-rebating statutes. He found that the Department of Insurance has been consistent in applying this interpretation of the anti-rebating statutes and that N.C. Gen. Stat. § 58-33-85 provides an absolute bar to any service or any thing of value wherein those services or goods are neither (a) referenced specifically or generally in the contract of insurance, nor (b) are advertising in nature.

In general, the Department of Insurance views the following goods to be advertising in nature, does not require the following advertising items to be referenced in the insurance policy and does not view these advertising items to be rebating:

1. taking a client out for a reasonably priced business meal;
2. calendars;
3. small inexpensive personal items such as pens and other marketing items;
4. inexpensive items celebrating holidays or other special events such as birthday, marriage, birth of a child or graduation; and
5. inexpensive snacks and food in conjunction with benefit presentations.

Rebating
The anti-rebating decision of the NC DOI that I recently discussed with you has become a final decision. Yesterday the DOI's Rebecca Shigley reported to me that no appeal will be taken from the case that was under consideration.

The bottom line is that it is the DOI's position that an agent who provides services not found in the contract of insurance at no cost or below fair market value is in violation of North Carolina's anti-rebating statutes. The DOI has noted that items that are more appropriately characterized as advertising expenses for clients are not required to appear in the contract and are, therefore, allowable services and products.

If an agent is to provide a client with a compliance or other service - other than advertising products - at no cost or below fair market value, then that service must be specified in the contract of insurance. If it is not, a violation of the anti-rebating statutes (NCGS 58-33-85 and 58-63-15) will occur.

Robert C. Paschal
Young Moore and Henderson, P.A.
P.O. Box 31627
Raleigh, North Carolina 27622
919-782-6860 phone
919-782-6753 fax
e-mail: rcp@ymh.com

Rebating Decision
The Ruling. The Department’s hearing officer ruled that agents and brokers are prohibited from providing to their (group or individual) clients “any service” or giving “any thing of value wherein those services or goods are neither (a) referenced specifically or generally in the contract of insurance, nor (b) are advertising in nature.” In short, if you give any thing of value to your clients that is not either included in the insurance contract or some item of nominal value which is designed to advertise your agency (e.g. coffee mugs, t-shirts, etc.), it is prohibited.
Rebating Decision (PDF)

David C. Smith
David C. Smith & Associates, PLLC
PO Box 13505
Durham, NC 27709


N.C. Gen. Stat. § 58-33-85(a) provides that: (a) No insurer, agent, broker or limited representative shall knowingly charge, demand or receive a premium for any policy of insurance except in accordance with the applicable filing approved by the Commissioner. No insurer, agent, broker or limited representative shall pay, allow, or give, or offer to pay, allow, or give, directly or indirectly, as an inducement to insurance, or after insurance has been effected, any rebate, discount, abatement, credit, or reduction of the premium named in a policy of insurance, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement whatever, not specified in the policy of insurance. No insured named in a policy of insurance, nor any employee of such insured, shall knowingly receive or accept, directly or indirectly, any such rebate, discount, abatement or reduction of premium, or any special favor or advantage or valuable consideration or inducement. Nothing herein contained shall be construed as prohibiting the payment of commissions or other compensation to duly licensed agents, brokers and limited representatives, nor as prohibiting any participating insurer from distributing to its policyholders dividends, savings or the unused or unabsorbed portion of premiums and premium deposits. As used in this section the word "insurance" includes suretyship and the word "policy" includes bond. (Emphasis added.)

N.C. Gen. Stat. § 58-63-15 provides in part language identical to that found in N.C. Gen. Stat. § 58-33-85: The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance: . . . . (8) Rebates. a. Except as otherwise expressly provided by law, knowingly permitting or offering to make or making any contract of life insurance, life annuity or accident and health insurance, or agreement as to such contract other than as plainly expressed in the contract issued thereon, or paying or allowing, or giving or offering to pay, allow, or give, directly or indirectly, as inducement to such insurance, or annuity, any rebate of premiums payable on the contract, or any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or inducement whatever not specified in the contract; or giving, or selling, or purchasing or offering to give, sell, or purchase as inducement to such insurance or annuity or in connection therewith, any stocks, bonds, or other securities of any insurance company or other corporation, association, or partnership, or any dividends or profits accrued thereon, or anything of value whatsoever not specified in the contract. . . . . c. No insurer or employee thereof, and no broker or agent shall pay, allow, or give, or offer to pay, allow, or give, directly or indirectly, as an inducement to insurance, or after insurance has been effected, any rebate, discount, abatement, credit or reduction of the premium named in a policy of insurance, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement whatever, not specified in the policy of insurance. Nothing herein contained shall be construed as prohibiting the payment of commissions or other compensation to regularly appointed and licensed agents and to brokers duly licensed by this State; nor as prohibiting any participating insurer from distributing to its policyholders dividends, savings or the unused or unabsorbed portion of premiums and premium deposits.