by John Darer® CLU ChFC MSSC RSP CLTC
Rebating of insurance commissions is illegal under the laws of most states.
In general, Producers may not reduce premiums or provide free services or other “valuable consideration” as an inducement to prospective insureds to purchase insurance (including annuities) unless such rebate is specified in the policy.Rebating is prohibited in 48 states & D.C. State laws are nearly identical, and are based on NAIC Model Unfair Trade Practices Act. The purpose of the law is Anti-Discriminatory and Insurer Solvency [ Source: Edwards Angell Palmer & Dodge LLP] Here a link to an informative white paper by the Federation of Regulatory Counsel about Anti-Rebating statutes. Download You Can-t Get -- or Give --Something For Nothing.
New York's anti-rebating statute, NYIL §4224, governs Life Insurance, Accident and Health Insurance, and Annuities, similar to those in other states, essentially bar producers from offering any benefit or discount that deviates from the written policy to potential insurance buyers as a means to induce the purchase of insurance.
In response to the 9/11 terrorist attacks, a special exception was written into legislation, which ostensibly allowed licensed agents to work pro-bono, or for a reduced commission in dealing with the victims.
Now a new bill signed into law by New York Governor Andrew Cuomo, "will allow insurers (and their agents) to waive commission fees associated with the purchase of annuity insurance for families affected by any terrorist attack on the United States". This implies that the attack "on the United States" could occur outside the United States.
By waiving the mandatory commission, insurers (and their agents) are able, at their discretion, to offer their services pro-bono and provide further financial relief to families. This bill (S.2152/A.2026) also allows the waivers to be applied to families affected by attacks carried out in the past.
According to the State of New York website, Senator Tim Kennedy said, "When a devastating terrorist attack occurs on our nation, so many Americans search for ways to help, and today, we are taking a critical step in facilitating aid to the families and victims who have suffered. By allowing insurance agents to waive commission fees for providing settlements following a terrorist attack and giving those agents the opportunity to work pro bono for these families, we're making sure these victims receive every penny they deserve. On behalf of myself and all the victim's families and agents, I thank Governor Cuomo for recognizing the significance and the wide-reaching impact of this legislation, and for moving so quickly to sign it into law." (emphasis added)
Assemblyman Sean Ryan said, “Whenever tragedy strikes, Americans always look for ways to assist their fellow citizens, and help them to recover. Insurance agents often want to waive their structured settlement commission fees for families of victims of terrorist attacks who have won settlements. Unfortunately, state law actually prevents insurance agents from legally offering this gesture of assistance. These agents should not be at risk of losing their license because they want to extend a measure of compassion to people who have had to endure the horror of a terrorist attack. This bill is the right thing to do, and I thank Governor Cuomo for signing it into law.” (emphasis added)
If You Are A Victim of a Terrorist Attack and Due to Receive Compensation
Choosing to work with an agent simply because he or she is willing to waive his or her fees on a structured settlement is a dangerous strategy. Always check qualifications and credentials.
In the aftermath of the 9/11 attacks Trial Lawyers Care was a massive effort to provide pro-bono services, not just structured settlement services to the survivors of those killed in the attacks as well as those injured. Yet instead of going with TLC lawyers, many victims picked top lawyers who were working at a reduced fee because of the perceived quality of representation. The same with structured settlement consultants.
Structured settlement agents often deal with a broad spectrum of products as part of an overall settlement planning solution. Thus those who waive their fees on structured settlements may make up compensation on investment management fees and/or trust advisory fees, if there is a recommendation to allocate settlement proceeds in such vehicles. Such compensation is not covered under the new law.