Joining a majority of states, Pennsylvania recently enacted a “de minimis exception” to its rebating and inducement laws. Pennsylvania law generally prohibits providing policyholders any valuable consideration or inducement which is not specified in the contract of insurance. However, Pennsylvania’s new de minimis exception permits producers and insurers to spend as much as $100 annually on an insured or potential insured to market insurance so long as the offer is not contingent on the purchase of insurance and does not constitute “money.” This new law is effective July 3, 2018.
The purpose of this legislation was to modernize the law to allow “reasonable, practical marketing in a competitive field without jeopardizing the pricing integrity of insurance.” Pennsylvania’s maximum threshold of $100 is higher than the majority of states that have a de minimis exception. Only a handful of states, including Georgia and Utah, have a $100 maximum threshold level.
Insurers and producers need to be cognizant of the rebating exceptions in each state as they are not uniform. Most states not only limit the value of the consideration but also limit the types of items that may be provided to the insured or potential insured. In some states, the type of item that can be provided is limited to “articles of merchandise” or “promotional materials,” such as pens or coffee mugs with the insurer or producer’s logo, and cannot be in the form of cash or cash equivalent. In Pennsylvania, the new law permits “any favor, advantage, object, valuable consideration or anything other than money” that has a value of $100 or less. Pennsylvania’s categories of permitted consideration are broader than most other states, meaning that a larger variety of items may be provided without violating rebating/inducement laws.
Pennsylvania’s recent amendment also addresses another rebating exception that has prompted other states to issue clarifying bulletins. The new law makes clear that rebating prohibitions do not prohibit providing certain value-added services related to loss control. Most states have not clarified their positions on this issue, and producers and insurance companies need to be mindful of this when contemplating new programs that would provide value-added services that are not addressed in the policy.
Insurers and producers need to monitor the evolving landscape of rebating exceptions and permissible value-added services before providing insureds and potential insureds with anything of value not specified in the policy. It is important to remember that what may be a permissible gift, service, or charitable contribution in one state could be an impermissible rebate or inducement in another state.
