Eye On The Law

Eye on the Law How the Grinch Stole Your Holiday Gifts!

A Quick Guide to Insurance Marketing Practices

by Amy T. Harriman and Robert C. Procter

As we approach the holiday season, many marketing directors start to think about sending holiday items to clients such as a basket of cheese, a tin of popcorn, or a bottle of wine. In the insurance industry, this type of marketing activity is regulated as unfair inducements.

Unfair inducements, sometimes referred to as “rebating,” are a subset of unfair marketing practices. Under section 628.34(4) of the Wisconsin Statutes, no insurance company, employee, or intermediary may influence another person to buy an insurance policy or to terminate an existing insurance policy by offering benefits or making agreements that are not specified in the policy. Anti-rebating laws are intended to protect insurance solvency and prohibit discriminatory pricing. These laws also protect consumers from scams that persuade consumers to purchase products they do not actually need.

Historic examples of unfair inducements that the Office of the Commissioner of Insurance (OCI) would likely prosecute include an intermediary refunding all or part of its commission, providing cash, or paying all or part of premiums on behalf of an insured. Unfortunately, Wisconsin’s unfair inducement law does not distinguish between de minimis, reasonably priced thank you gifts like a basket of cheese, a tin of popcorn, or a bottle of wine, and commission refunds, cash payments, and payments of premiums intended to induce someone to purchase a policy. Thus, as a technical matter, insurance companies, employees, and intermediaries are precluded from providing current or potential clients with holiday packages such as a box of chocolates.

Some marketing activities are permissible under the antirebating statute. For example, section 628.34(4) of the Wisconsin Statutes does not preclude a reduction of premiums by reason of expense savings, including commission reductions, resulting from any form of mass marketing. In the past, OCI has not rigorously enforced this statute as it relates to inexpensive gifts for two primary reasons. First, OCI rarely receives complaints about inexpensive gifts from licensed intermediaries. It is unlikely that a consumer, another insurance agency, or a carrier would complain to OCI that an agent gave a reasonably priced box of chocolates to an insured. Second, OCI’s staff has limited resources and is unable to devote the time and investigative resources towards uncovering every inexpensive gift that may be considered an unfair inducement.

Unfair inducements as a prohibited marketing practice has had a fresh spotlight on it in recent years. In December of 2020, the National Association of Insurance Commissioners (NAIC) adopted language to allow insurance companies and agents to give non-cash gifts, items, or services, including meals to or charitable donations on behalf of a customer, in connection with the marketing, sale, purchase or retention of contracts of insurance. While Wisconsin has not adopted the NAIC, certain states have or may allow gifts and donations. For example, Illinois allows insurers to provide certain marketing gifts of minimal value such as golf balls and other gifts that are provided to the general public. Accordingly, you should review the laws of each of the states in which you operate before providing a gift to a customer or potential customer. If you have any questions about unfair inducements, you should contact the PIA’s Legal Hotline at (844) 672-1221. Happy Holidays!

This information is provided for the convenience of PIAW members, but cannot not be construed as legal advice. Members of PIAW may call toll free (844) 672-1221, or email their questions to insurancehotline@axley.com, to work with an attorney and receive legal information specific to your situation.