Property and Casualty Insurance Practice Exam

What is rebating?

1. Providing returning clients with premium discounts

2. Offering benefits outside of the policy to induce a sale

3. A legal incentive program for new policyholders

4. Providing educational materials to potential clients

The correct answer is: Offering benefits outside of the policy to induce a sale

Rebating refers to the practice of offering benefits or incentives outside of the standard policy offerings to encourage potential customers to purchase insurance. This could involve a variety of extras, such as cash gifts, trips, or other rewards that are not explicitly included in the policy terms. This practice is viewed as unethical and potentially illegal in many jurisdictions because it can distort market conditions and undermine the integrity of the insurance sales process. In contrast, the other options describe practices that may be acceptable within regulatory frameworks. For instance, returning clients receiving premium discounts is a common business strategy but does not fit the definition of rebating as it typically involves legitimate adjustments in pricing rather than added inducements. Likewise, legal incentive programs for new policyholders focus on structuring benefits within the policy itself, while providing educational materials is aimed at informing clients rather than incentivizing purchases through extraneous benefits. Thus, the correct understanding of rebating lies in the offering of incentives external to the policy that may sway purchasing decisions.