DFS Discusses Differences Between Referral Fees, Advertising Gifts and Unlawful Inducements
The Department of Financial Services recently published a short article in its Insurance Insights newsletter relating to what constitutes a referral fee, marketing or advertising gift, or unlawful inducement. Insurance licensees will recognize these labels from references to them in the Unfair Insurance Trade Practices statute (Section 626.9541) and Section 626.112(8). Although each situation is fact-specific and might be subject to varying interpretations, the Department of Financial Services provided the following descriptions of the “definition and practical use” of each term:
Referral fees – referral fees are either cash or an item given to the source of a referral provided for the referral of a prospective insurance customer. The fees are lawful provided they are given for every referral, not just those that result in insurance sales. Acceptable fees can be paid in cash, with a gift card, merchandise, lottery tickets, etc. There is NO limit on the amount of a cash referral fee or the value of merchandise. (See Section 626.112(8)).
Marketing/Advertising Gifts – these are items of merchandise given to prospective or current policy holders or to the public that market or advertise a licensee or agency. Acceptable items include coffee mugs, golf balls, golf towels, mouse pads, calendars, etc., and generally include the name of the agent or agency. Cash, gift cards, lottery tickets, etc., are not acceptable advertising gifts. The value of the merchandise given to each person cannot exceed $25. (See Section 626.9541(1)(m)).
Unlawful Inducements – the definition of an unlawful inducement in its simplest terms is to give a prospective customer, existing customer or any other entity or person a “thing of value” in exchange for something of value to the licensee. An example is giving any person or entity cash, its equivalent, merchandise, lottery tickets, tickets to a sporting event, etc. in exchange for the ability to produce an insurance quote or sell insurance. An example is to give every person that asks for an auto insurance quote a $5 gift card. If another agent or agency sells the same product for the same price, the consumer may choose to work with the licensee that offers the gift card. The law was created in part to deter unfair competition among licensees. (See Section 626.6541(1)(h)).
Although the application of provisions of the insurance code often depends on the specific facts at issue, the above summaries reflect the Department’s general interpretations of these concepts and anticipated application of those terms in enforcement actions.