Insurtech Initiatives May Motivate NAIC to Reform Anti-Rebating Regulations

The NAIC Innovation and Technology Task Force announced at its Spring 2019 National Meeting that it would hold an interim meeting in conjunction with the NAIC’s annual Insurance Summit in June to work with interested parties in considering the utility of anti-rebating laws and possible reform. Anti-rebating statutes date back to the early part of the Twentieth Century, when insurance company insolvency was a pervasive and persistent problem. The regulations were meant to create a transparent insurance market, where consumers could easily compare products and prices, and not be enticed to purchase based on other incentives. These regulations have been effective. Given the similarity of most insurance products, consumers today select their insurance based on price and, perhaps secondarily, the reputation of the carrier. This has had the effect of creating an industry that is slow to change, lacking in dynamism, and has little incentive to innovate.

The insurtech industry has brought much needed innovation in product design, marketing, costs savings built on technology, and, above all, ease in acquisition and persistency of coverage. Many of these innovations directly challenge widely adopted industry standards and regulations, including those involving anti-rebating. Recent insurtech initiatives, such as value added services, software, telematics, wearables, and smart home devices, have obvious consumer value but have run up against anti-rebating regulations. The industry as a whole now seemingly agrees a new regulatory balance that both adequately provides consumer protection and encourages product innovation is needed.

The scheduling of the interim meeting comes on the heels of the Task Force’s Fall 2018 meeting, wherein the NAIC legal staff acknowledged a real concern with reconciling dated anti-rebating laws in light of these new insurtech developments. Industry groups are optimistic that the June Insurance Summit will provide an opportunity to reevaluate anti-rebating laws in a way that will promote innovation and competition without compromising paramount consumer protection principles.