New York Considering Exception to Anti-Rebating Law that Has Been a Speed Bump for Many Insurtechs

New York currently prohibits any licensed property and casualty insurance company, agent or broker from giving an insured any reduction or rebate of an insurance policy premium that is not specified in the policy other than consideration that is $25 or less. See NY Ins. Law § 2324. This restriction can be extremely cumbersome for insurtechs. Take for example an insurtech that offers insurance protecting widgets. In order acquire customers that insurtech may want to run a promotion where any person that purchases its widget insurance will also receive free widget monitoring services from the insurtech. Under the current New York law, that free widget monitoring service would be considered an illegal rebate the value of it exceeded $25.

However, in January and February of this year, companion bills were introduced in the New York state assembly and senate (NY AB 3834 and NY SB 3497) that seek to ease the rebating restriction with respect to automobile insurance. Specifically, these bills would exempt from New York’s rebating prohibition, programs by insurance companies that offer incentives to both insureds and prospective insureds, for participating in certain loss prevention and risk management programs through the use of "telematics devices" to monitor the driving habits of those individuals participating in the rewards program. In this context, "telematics" refers to the technology of sending, receiving, and storing information relating to remote objects, such as vehicles, via telecommunication devices.

For many years, rebating has been one of the proverbial third rails of insurance regulation. However, the proposed exceptions to New York’s anti-rebating law now before the legislature may be an indication that lawmakers are finally willing to consider this taboo topic. If the proposed laws are symbolic of an intention by New York lawmakers to consider practical exceptions to the anti-rebating laws, the current legislation under consideration could just be the tip of the iceberg. For example, a natural extension of the proposed exceptions to New York’s anti-rebating laws would be an exception for free cyber monitoring services offered in conjunction with the sale of cyber insurance. This and other similar exceptions to the anti-rebating laws would be music to the ears of any insurtech that seeks to acquire customers by bundling the sale of insurance with free services for prospective insureds. Although the free services may serve to reduce the risk profile of the prospective insured, the insurtech is generally prevented from offering the services because of anti-rebating laws like the New York law, which certainly was not drafted with insurtech in mind when it was enacted 35 years ago.