Producer Compensation, Rebates/Inducements and Value-Added Services
The Louisiana Department of Insurance (“LDOI”) has issued two missives on related topics relative to producer compensation, rebates/inducements and value-added services: Advisory Letter 2010-01 (the “Advisory Letter”) and Bulletin 2010-05 (the “Bulletin”).
Advisory Letter No. 2010-01
The Advisory Letter states that its purpose is to advise all insurers, brokers and producers that “serious issues exist regarding producer compensation agreements and the manner in which producer compensation is being addressed among insurers, producers and insureds in Louisiana.” The Advisory Letter goes on to list out a number of specific statutes, including LSA-R.S. 22:855 requiring the quoted premium to include all charges, and LSA-R.S. 22:1964(8) providing that paying or offering any valuable consideration or inducement whatsoever not, specified in a contract for life, health or annuity business, is an unfair or deceptive trade practice.
The Advisory Letter states that, with respect to each separate product line of insurance for which an insurer is required to file rates, the insurer must use “one rating scheme that establishes either a commission based on a percentage of the premium or a commission based on a flat fee.” This scheme must be made available to all producers authorized to write that business for the insurer.
Further, the Advisory Letter specifically prohibits an insurer, producer or broker from quoting a premium “net of commission” because such a quote does not include all charges as required by LSA-R.S. 22:855, and therefore, such a quote does not accurately reflect the total cost of the insurance.
Bulletin No. 2010-05
The Bulletin is directed to all brokers and producers selling accident and health insurance in Louisiana regarding rebating and inducements in the accident and health market. Its stated purpose is to “provide guidance and clarification as to the services often referred to as ‘value added’ services that may be provided to insureds or potential insureds” without violating the rebating and inducement prohibitions set forth in the Louisiana Insurance Code.
Indicating that providing prohibited value-added services may be considered an unfair trade practice, the Bulletin lists examples of services that may be provided in a fair and nondiscriminatory manner, as well as certain services that may run afoul of the applicable rebating and inducement provisions. Examples of prohibited services include, among others:
- COBRA administration beyond billing and collecting insurance premiums for former employees that are forwarded to the contract holder or insurer;
- payroll processing and/or services such as providing employers with check creation and distribution services for their employees; and
- certain types of risk management or loss control services, such as services not routinely available to all clients or that are typically provided on a fee for service basis.
The Bulletin directs all brokers and producers to conduct themselves accordingly, and to bring their practices into immediate compliance with the Code.