Can Insurance Agents Give Gifts for Referrals?
When it comes to expanding your influence as an insurance agent, referrals are among the most effective and cheap options available. You always want clients to leave with such an exceptional experience that they can't help but refer you to their friends, family, and colleagues. However, sometimes they need a little push to do so, which leaves agents wondering if gifts are the perfect form of incentive.
In most states, a gift provided by an insurer, agent, or broker directly violates anti-rebating laws. However, many make exceptions for referrals using referral fees as long as the gift and its value align with the state legislature and do not discount or affect a client's policy. Common referral gifts include gift cards, cash, and event tickets.
Read on to learn more about the legality surrounding agencies providing gifts in exchange for referrals as well as how this is affected by anti-rebating laws on a state level.
Use of Gifts of Referral Incentive
Before delving too deep into the legality of gift-giving by insurance agencies, we'll start off by stating that an agent may "gift" a past, current, or potential client a gift as long as it aligns with the legal restriction regarding anti-rebating laws within their state.
Countless insurance agencies will use certain gifts to help provide an extra boost of incentive to their clients to refer them to friends and family. Undoubtedly the most common example of a referral gift would be gift cards.
Since the laws regarding gifts and referrals can be tricky depending on the agency's state of residency, many will opt to motivate clients by incorporating them into an insurance referral fee. This is a common amendment in state anti-rebating laws that allow licensed insurance agents to pay a fee to a non-licensee, non-employee as long as:
The non-licensee does not discuss the specific terms and conditions of the policy.
The fee paid is not dependent upon whether the referral results in the sale of insurance.
The payment is typically labeled as a bonus or finders fee when provided by an insured company, and the amount can vary depending on the agency and the state's regulations.
Although gift cards aren't the only form of gift-giving for referrals, they are by far the easiest, most versatile, and most widely used option by insurance agencies.
Some agencies will implement a great tactic to incentivize referrals where they give customers an initial gift, maybe a $5 gift card per referral, and then offer an additional bonus, like a $25 gift card, once any referral buys a policy with the agency.
In addition to gift cards, many agencies will opt for just gifting cash, or they'll even go the extra mile with some more fun or personal gift options. Some ideas include:
Pairing a cash or gift card referral gift with a personalized note from the agent
Event tickets or credit to something in the area (movie theatre, bowling alley, amusement park, etc.)
Various small gifts are labeled on a wheel that clients spin to win.
Pricier product giveaways (ex. $50 Smartwatch, $30 Bluetooth speaker, $40 gift basket)
Monthly grand prize drawings for one individual with the most referrals (can be a more luxurious gift like a flatscreen television, gaming device, $100+ gift card).
(Source: Generating Insurance Referrals with Rewards)
All of these campaigns and gift ideas are exceptional ways to give clients that extra push to refer an insurance company.
However, bear in mind that these options are strictly for non-licensee/non-employees. It is not permissible for an insurance agent to gift or pay a referral fee to another licensed agent because it would be considered "commission splitting," which is an entirely separate legal issue.
In the end, most agencies are permitted to provide gifts for the purpose of referrals, but it is important to remember that the limits and regulations for these are highly dependent on the agency's state(s) of business.
Effect of Anti-Rebating Laws on Agency Gift Giving
Insurance agencies have to be careful with their gifting because they could break several anti-rebate laws if done improperly as a result of the state legislature.
Anti-rebate laws are created with the intent to increase competition between insurance agencies by, more or less, leveling the field. If companies were able to give all sorts of gifts and discounts on policies, not only would it potentially lead to them monopolizing the industry as a result of their rates, but it could also seriously infringe on company judgment as far as policymaking is concerned.
By implementing anti-rebate laws, companies can't have the unfair advantage of affording to offer higher commission rates than others to attract more business.
Although the National Association of Insurance Commissioners made an effort to regulate anti-rebate laws nation-wide with the Unfair Trade Practices Act (#880), states still have their own independent laws regarding the circumstances of gifting by an insurance company.
This is a direct result of the McCarran‐Ferguson Act, which prohibits any act of Congress from invalidating, impairing, or superseding any State enacted law for the purpose of regulating the business of insurance.
Therefore, what is limited in one state's anti-rebating laws might be different in another, particularly when it comes to exceptions and price caps.
Referrals as Exceptions to Anti-Rebating Law
Because anti-rebating laws are created on a state level, the circumstances for gifting in one state can be quite different from another. However, there are some commonalities, such as referrals being a relatively consistent exception to anti-rebating laws in any state.
Most states recognize the business benefits of gift-giving, both to show appreciation to current or past clients and enticing new clients. Therefore, many states will make anti-rebate exceptions that typically fall into five categories:
1) Promotional items
2) Raffles
3) Referrals
4) Charity donations
5) Value-added services
Although states have these common exceptions in their laws, a significant difference and cause for debate are the different amounts they allow agencies to gift consumers.
For instance, N.Y. Ins. Law § 4224(c) (McKinney 2007) clearly states that:
"In connection with property/casualty insurance, Insurance Law § 2324(a) prohibits an insurer, agent or broker from giving anything of value to a client or prospective client that is not specified in the contract, except for an item that has a value of no more than $15.00 and that contains a conspicuously printed or stamped advertisement of the insurer, agent or broker."
So, unless contractually specified, an insurance agent can't give an item over $15 in worth to a current or potential client. This number varies widely between states, with some capping the amount at $10 and others allowing up to $200.
There are nuances within these laws that some agencies have become experts at exploiting to allow them to gift higher-priced objects in exchange for referrals. Some agencies will even operate in multiple states and learn to use discrepancies between their legislatures to their advantage.
Ultimately, gifting for referrals is typically accepted in some form throughout most states in America, and agencies just have to be conscious of their limitations.
Final Thoughts
Although you can give gifts for referrals as long as they align with the state's regulations, it is understandable why some insurance agencies are hesitant to use them for fear of inadvertently breaking anti-rebating laws.
Moreover, it is important to note that, despite their influence, many agencies claim that gifts don't actually incentivize referrals as much as some companies would like to think.
In fact, they argue that a more profound social media presence does more to influence word-of-mouth than gift cards and prizes. Therefore, it might be more beneficial for agencies to turn their attention towards boosting their social media than dancing around state laws.
