Home | New Insurance Rebate Law Addresses Agent Marketing
New Insurance Rebate Law Addresses Agent Marketing
NEW INSURANCE REBATE LAW ADDRESSES AGENT MARKETING
Insurance companies and producers can offer more extensive noncash gifts and meals to customers in connection with the marketing and sale of insurance under a new state law that takes effect on January 1, 2023. The new law also permits insurance agencies and producers to conduct raffles or drawings with larger prizes. But the new laws come with certain limitations and requirements, and you can bet that competitors will be closely watching for slip-ups.
History of State Rebate Law. Minnesota law has long prohibited insurance companies and producers from offering anything of value not specified in the insurance policy as an inducement to buy insurance. Current state law provides an exemption for promotional advertising items or gifts of $25 or less per year, so long as the item or gift is not conditioned on the sale of an insurance policy. The Minnesota Department of Commerce has been active in recent years in enforcing the rebate laws against insurance producers who provided meals, concert tickets, referral promotions and drawings, and other items of value exceeding $25 to customers and potential customers.
New Law Expands Rebate Exceptions. The new state statute repeals and replaces three existing rebate statutes. It will be codified at Minn. Stat. § 72A.071 and becomes effective on January 1, 2023. It is based on a model act of the National Association of Insurance Commissioners (NAIC) and addresses many types of promotional offerings already widely-offered by some in the insurance industry, despite existing laws to the contrary. Subdivision 1 of the new statute continues to prohibit insurers and producers from paying anything of value not specified in the insurance policy, but subdivisions 2 and 3 contain new exceptions for “value-added” products or services provided to customers at no or reduced costs and larger financial limits and more clear “safe harbors” for noncash gifts and raffles and drawings.
Marketing Gifts, Meals, and Charitable Donations. Effective January 1, 2023, an insurer or producer may offer or give noncash gifts, items, or services, including meals or charitable donations on behalf of a customer, in connection with the marketing, sale, or retention of insurance policies, so long as: (1) for noncommercial customers, the cost does not exceed the lesser of five percent of the current or projected policyholder premium or $250 “per policy year per term”; and (2) the customer is not required to purchase, continue, or renew an insurance policy in exchange for the gift, item, or service. The $250/5% of premium cap (whichever is less) does not apply to commercial or institutional customers. Instead, for commercial or institutional customers, the noncash gift, item, service, or charitable donation must simply be reasonable in comparison to the premium or proposed premium, and the cost may not be included in any amounts charged to another person or entity. For all classes of customers, insurers and producers may not offer cash to the customer, and any offer must not be unfairly discriminatory.
Raffles and Drawings. Effective January 1, 2023, an insurer or producer may conduct raffles or drawings to the extent permitted by state law, so long as: (1) there is no financial cost to entrants to participate; (2) participants are not required to purchase, continue, or renew a policy; (3) the raffle or drawing is open to the public; (4) prizes do not exceed the lesser of five percent of the current or projected policyholder premium or $500; and (5) the raffle or drawing is conducted in a manner that is not unfairly discriminatory.
As noted in the prior paragraph, raffles and drawings are only authorized “to the extent permitted by state law.” This means that agencies and producers must comply with existing non-insurance laws in conducting raffles or prize drawings. For example, Minn. Stat. § 349.173 regulates the conduct of raffles. The raffle statute requires, among other things, the following: (1) tickets must list the three most expensive prizes to be awarded and the location, date, and time of selection of winning entries, (2) all entries must have an equal chance of selection, (3) the selection must be made in a public forum and cannot be manipulated, (4) an entrant does not need to be present to win. Minn. Stat. § 325F.755 also regulates prize notices and solicitations. Both statutes (a comprehensive review of which are beyond the scope of this article) are enforced by the Minnesota Attorney General’s Office.
No Quid Pro Quos. As noted above, a producer or insurer may not require a customer to purchase, continue to purchase, or renew a policy in exchange for a gift, item, or service. A producer and insurer may not offer or provide insurance at no cost as an inducement to the purchase of another policy.
Value-Added Products and Services. Effective January 1, 2023, the offer or provision by insurers or agents of “value-added” products or services at no or reduced cost are not considered to be rebates so long as (1) they relate to the underlying insurance coverage; (2) their cost to the insurer or producer is reasonable in comparison to the particular customer’s premiums; (3) the availability of the value-added product or service is based on “documented objective criteria” and offered in a manner that is not unfairly discriminatory; (4) the documented criteria is produced by the insurer or producer to the Commissioner of Commerce upon request; and (5) the products or services are designed to satisfy one or more of the following:
Provide loss mitigation or control;
Reduce claim or claim settlement costs;
Provide education about liability risks or risks of loss to persons or property;
Monitor or assess risk, identify sources of risk, or develop strategies for eliminating or reducing risk;
Enhance health;
Enhance financial wellness through items such as education or financial planning services;
Provide post-lost services;
Incentivize behavioral changes to improve the health or reduce the risk of death or disability of a current or prospective policyholder;
Assist in the administration of employee or retiree benefit insurance coverage.
If an insurer or producer has a good faith belief that a product or service meets one of the nine criteria listed immediately above but does not have “sufficient evidence” of “documented objective criteria,” the insurer or producer may provide the product or service as part of a pilot or testing program for up to one year, if the insurer or producer notifies the Commissioner of Commerce of the pilot program and the Commissioner does not object within 45 days.
Advertising. The new statute does not specifically address advertising, but the Commerce Department has wide authority to regulate the advertising of insurance agencies. Agencies must be careful not to have advertising or website and social media promotions that run afoul of existing laws or that the Department deems to be “too edgy.” It is not hard to imagine words like “free” or “no cost” catching the attention of the regulator depending on their usage, especially in an industry where competitors often scrutinize the promotions of their peers.
Statutory Nuances. Insurance commissioners in several states with similar rebate laws have issued bulletins to provide further guidance to insurers and producers regarding the regulator’s interpretation of the rebate laws. It does not appear that the Minnesota Department of Commerce has issued any such guidance (as of July 1, 2022).
Competitors are the most frequent source of complaints about rebate infractions. It is not uncommon for one competitor to lodge a complaint with the Commerce Department against another competitor over a marketing promotion. When the new statute takes effect on January 1, it is likely that competitors will continue to watch closely the actions of their peers and that future enforcement actions will continue to define the boundaries for compliant conduct in the eyes of the Commerce Department in areas where the statute is ambiguous or susceptible to multiple interpretations. Open questions may include the following:
For raffles and drawings, the statute allows a prize of the lesser of $500 or five percent of current or projected policyholder premium, but also requires the drawing or raffle to be open to the public. If a member of the public who has not completed an application with the insurance agency and has no intention of buying insurance from the agency participates in a raffle, how is the cap for the amount of the prize calculated?
For noncash gifts for non-commercial customers, the statute allows a cost of the lesser of five percent of current or projected policyholder premium or $250 “per policy year per term.” How will the Department interpret the words “per policy year per term” when it comes to starting the clock anew for these financial caps? For noncash gifts and meals, the statute refers only to “customers” and not to “potential customers.” Will the Commerce Department find it permissible for a producer to provide a noncash gift to a potential customer, and how should the producer calculate “projected premiums” and the statutory cap on gifts if providing marketing promotions to or entertaining a potential lead who is not a current customer where the future premiums are unclear?
Value-added services and products must be based on “documented objective criteria” founded on “sufficient evidence.” The Legislature presumably wanted there to be evidence that the product or service will achieve one of the nine objectives listed above (e.g., improve health, reduce claims, etc.), but the statute does not state so directly. And what will the Commerce Department deem to be “enough” evidence that the product or service is sufficiently tailored to meet one of the nine purposes?
In closing, the new rebate law expands the marketing opportunities available to insurance agencies and producers, who will need to carefully apply the new statute to make sure they do not land on the desks of the regulators.
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The law firm of Swanson Hatch, P.A. represents insurance agencies and producers on a wide array of legal, corporate, litigation, and regulatory matters. During their 20 years of combined service as Attorneys General of the State of Minnesota, former Minnesota Attorneys General Lori Swanson and Mike Hatch provided legal representation to the Minnesota Department of Commerce and enforced state consumer protection and insurance laws. Prior to her twelve years as Minnesota Attorney General, Lori Swanson previously served as Solicitor General and Deputy Attorney General of the State of Minnesota and was the Chair of the Federal Reserve Board’s Consumer Advisory Council. Before he became Attorney General, Mike Hatch previously served as Commissioner of the Minnesota Department of Commerce for eight years, where he regulated the insurance industry. Lori Swanson can be reached at lswanson@swansonhatch.com, or at 612-315-3037. Mike Hatch can be reached at mhatch@swansonhatch.com, or at 612-315-3037. The firm’s website is www.swansonhatch.com .
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www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415 612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
Insurance companies and producers can offer more extensive noncash gifts and meals to customers in connection with the marketing and sale of insurance under a new state law that takes effect on January 1, 2023. The new law also permits insurance agencies and producers to conduct raffles or drawings with larger prizes. But the new laws come with certain limitations and requirements, and you can bet that competitors will be closely watching for slip-ups.
History of State Rebate Law. Minnesota law has long prohibited insurance companies and producers from offering anything of value not specified in the insurance policy as an inducement to buy insurance. Current state law provides an exemption for promotional advertising items or gifts of $25 or less per year, so long as the item or gift is not conditioned on the sale of an insurance policy. The Minnesota Department of Commerce has been active in recent years in enforcing the rebate laws against insurance producers who provided meals, concert tickets, referral promotions and drawings, and other items of value exceeding $25 to customers and potential customers.
New Law Expands Rebate Exceptions. The new state statute repeals and replaces three existing rebate statutes. It will be codified at Minn. Stat. § 72A.071 and becomes effective on January 1, 2023. It is based on a model act of the National Association of Insurance Commissioners (NAIC) and addresses many types of promotional offerings already widely-offered by some in the insurance industry, despite existing laws to the contrary. Subdivision 1 of the new statute continues to prohibit insurers and producers from paying anything of value not specified in the insurance policy, but subdivisions 2 and 3 contain new exceptions for “value-added” products or services provided to customers at no or reduced costs and larger financial limits and more clear “safe harbors” for noncash gifts and raffles and drawings.
Marketing Gifts, Meals, and Charitable Donations. Effective January 1, 2023, an insurer or producer may offer or give noncash gifts, items, or services, including meals or charitable donations on behalf of a customer, in connection with the marketing, sale, or retention of insurance policies, so long as: (1) for noncommercial customers, the cost does not exceed the lesser of five percent of the current or projected policyholder premium or $250 “per policy year per term”; and (2) the customer is not required to purchase, continue, or renew an insurance policy in exchange for the gift, item, or service. The $250/5% of premium cap (whichever is less) does not apply to commercial or institutional customers. Instead, for commercial or institutional customers, the noncash gift, item, service, or charitable donation must simply be reasonable in comparison to the premium or proposed premium, and the cost may not be included in any amounts charged to another person or entity. For all classes of customers, insurers and producers may not offer cash to the customer, and any offer must not be unfairly discriminatory.
Raffles and Drawings. Effective January 1, 2023, an insurer or producer may conduct raffles or drawings to the extent permitted by state law, so long as: (1) there is no financial cost to entrants to participate; (2) participants are not required to purchase, continue, or renew a policy; (3) the raffle or drawing is open to the public; (4) prizes do not exceed the lesser of five percent of the current or projected policyholder premium or $500; and (5) the raffle or drawing is conducted in a manner that is not unfairly discriminatory.
As noted in the prior paragraph, raffles and drawings are only authorized “to the extent permitted by state law.” This means that agencies and producers must comply with existing non-insurance laws in conducting raffles or prize drawings. For example, Minn. Stat. § 349.173 regulates the conduct of raffles. The raffle statute requires, among other things, the following: (1) tickets must list the three most expensive prizes to be awarded and the location, date, and time of selection of winning entries, (2) all entries must have an equal chance of selection, (3) the selection must be made in a public forum and cannot be manipulated, (4) an entrant does not need to be present to win. Minn. Stat. § 325F.755 also regulates prize notices and solicitations. Both statutes (a comprehensive review of which are beyond the scope of this article) are enforced by the Minnesota Attorney General’s Office.
No Quid Pro Quos. As noted above, a producer or insurer may not require a customer to purchase, continue to purchase, or renew a policy in exchange for a gift, item, or service. A producer and insurer may not offer or provide insurance at no cost as an inducement to the purchase of another policy.
Value-Added Products and Services. Effective January 1, 2023, the offer or provision by insurers or agents of “value-added” products or services at no or reduced cost are not considered to be rebates so long as (1) they relate to the underlying insurance coverage; (2) their cost to the insurer or producer is reasonable in comparison to the particular customer’s premiums; (3) the availability of the value-added product or service is based on “documented objective criteria” and offered in a manner that is not unfairly discriminatory; (4) the documented criteria is produced by the insurer or producer to the Commissioner of Commerce upon request; and (5) the products or services are designed to satisfy one or more of the following:
If an insurer or producer has a good faith belief that a product or service meets one of the nine criteria listed immediately above but does not have “sufficient evidence” of “documented objective criteria,” the insurer or producer may provide the product or service as part of a pilot or testing program for up to one year, if the insurer or producer notifies the Commissioner of Commerce of the pilot program and the Commissioner does not object within 45 days.
Advertising. The new statute does not specifically address advertising, but the Commerce Department has wide authority to regulate the advertising of insurance agencies. Agencies must be careful not to have advertising or website and social media promotions that run afoul of existing laws or that the Department deems to be “too edgy.” It is not hard to imagine words like “free” or “no cost” catching the attention of the regulator depending on their usage, especially in an industry where competitors often scrutinize the promotions of their peers.
Statutory Nuances. Insurance commissioners in several states with similar rebate laws have issued bulletins to provide further guidance to insurers and producers regarding the regulator’s interpretation of the rebate laws. It does not appear that the Minnesota Department of Commerce has issued any such guidance (as of July 1, 2022).
Competitors are the most frequent source of complaints about rebate infractions. It is not uncommon for one competitor to lodge a complaint with the Commerce Department against another competitor over a marketing promotion. When the new statute takes effect on January 1, it is likely that competitors will continue to watch closely the actions of their peers and that future enforcement actions will continue to define the boundaries for compliant conduct in the eyes of the Commerce Department in areas where the statute is ambiguous or susceptible to multiple interpretations. Open questions may include the following:
In closing, the new rebate law expands the marketing opportunities available to insurance agencies and producers, who will need to carefully apply the new statute to make sure they do not land on the desks of the regulators.
www.swansonhatch.com
431 S Seventh Street, Suite 2545
Minneapolis, MN 55415
612-315-3037
The materials in this article are for informational purposes and do not constitute legal advice, nor does your unsolicited transmission of information to us create a lawyer-client relationship. Sending us an email will not make you a client of our firm. Until we have agreed to represent you, nothing you send us will be confidential or privileged. Readers should not act on information contained in this article without seeking professional counsel. The best way for you to inquire about possible representation is to contact an attorney of the firm. Actual results depend on the specific factual and legal circumstances of each client’s case. Past results do not guarantee future results in any matter.
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Swanson | Hatch, P.A.
431 S. 7th Street, Suite #2545
Minneapolis, MN 55415
612-315-3037
www.swansonhatch.com