The practice of offering inducements not specified in the insurance policy to a client in exchange for purchasing that policy is a central concern in insurance regulation. Such inducements can take many forms, including cash, gifts, or special services. For example, an agent might offer a portion of their commission back to the client or provide valuable merchandise as an incentive to choose their insurance product.
Prohibiting this practice ensures fair competition among insurers and agents, prevents discriminatory pricing, and protects consumers from potentially misleading or unfair sales tactics. Historically, it was recognized that allowing such incentives could lead to instability in the insurance market, as companies might prioritize attracting customers through extraneous benefits rather than offering sound and financially secure insurance products. Furthermore, it ensures that all policyholders within a similar risk class receive the same premium, preventing preferential treatment.
