What is rebating in insurance
What is rebating in insurance– In the world today the amount of money you pay for a product or service is negotiable.
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though, for an insurance, the ability of the consumer to negotiate the price with the insuring company is often limited, and that is what rebating is all about.
In this article, you will understand everything you need to know about rebating in insurance, including; what is rebating in insurance, the anti-ban on rebating in insurance and a whole lot of other things which include the disadvantage of rebating in insurance, why it is hardly used and even the difficulty of anti-rebate laws.
What Is Rebating In Insurance?
when you talk about Rebating in insurance it means returning a portion of the premium or the agent’s commission on the premium to the insured or other inducements to place business with a specific insurer.
Basically, rebating occurs when any part of the commission or anything else of value is given to the insured as an inducement to buy a policy.
Rebating seriously violates insurance law that not only comes with legal penalties imposed by state regulators but also various sanctions from insurance companies.
In most cases of rebating, the insurer will terminate its relationship with the agent/broker in which other companies may choose to or refuse to establish a relationship with an agent/broker who committed rebating in the past.
Rebating seems like a simple procedure but its main purpose is to ensure that insurance agents can not share their commissions with their customers.
The idea of rebating is aimed to prevent insurance agents from giving current and prospective customers an inducement to buy a life insurance policy. With that inducement being directly funded by the commissions earned on the sale.
Disadvantages of rebating in insurance
- The huge firms usually work on small margins and destroy competition. So, most persons will not save money but will rather pay more when fewer companies dictate the rules.
- Insurance companies always do have liquid cash available to pay off claims. And the rebating practice can increase the risk of insolvency, which had the tendency of damaging the business built on trust.
- The practice of rebating is a moral hazard for the insurance agents and can lead to unfair deals.
- The brokers can use it to have unfair advantages over other brokers from the same or other company.
- It gives room to tricks over honestly and could damage the insurance industry in the long run of it’s operation
- Equally, it can deatrou long-term relations, especially in life insurances. Thosse on long-term policies and having rebating on them can hurt both sights.
Conclusion
I have a strong conviction that you reading this article have whole understand what rebating is in insurance and the Insurance brokers play which may sometimes also be prevented from providing a discount to clients as a result of provincial legislation restricting “rebates and inducements.”
Insurance agent mostly funds a rebate, sharing some of the commission earned on the sale of a policy.
