When Insurance Law Meets Consumer Finance: Navigating Embedded Insurance Products

There could be a lot of them, depending on the scenario.

To digress for a second, one question that we get almost on a weekly basis is, is a product insurance or not? You would think that's a black and white type of question, but not so much.

And if it's close to the line, we might try to help.

deconstructed a little bit, so it's not an insurance product.

But to answer your question more directly, sales practice, UDAP, we have our own UDAP laws in the insurance code.

We have an Unfair Trade Practices Act, which prohibits, among other things, inducements and rebates.

So if I'm bundling a product, Many state insurance departments will take the position and interpret those inducement laws as potentially being violated if I'm saying, here's the insurance product, but you only can get it if you buy the underlying non-insurance product.

Commission sharing is still a challenge in some states that prohibit or restrict severely the ability of, we call them insurance producers, to share compensation based on the sale of insurance.

One of the basic questions where you have an embedded-like scenario is proper attribution of the insurance transaction to the licensed party, either a licensed insurance company or a licensed insurance producer.

And that involves looking at the website and making sure that under a reasonable person test that the consumer would understand that they're dealing with a licensed insurance industry party and that that is the party conducting the sale.

Privacy laws, we, the insurance industry, also subject to our own Gramm-Leach-Bliley privacy laws.

So data sharing, you have to be careful to determine whether you need consent and whether the financial institution or whoever's selling the primary product can share data with the insurance regulated entity and vice versa.

John, you might want to add a couple of other items that we encounter.

Yeah, I think the biggest areas that we've seen are one, the licensing impact.

Because there is going to be an unlicensed entity that is at least tied to that transaction.

And sometimes our clients say, you know what? We're just going to go ahead and form and license a separate entity to be a licensed broker or agent.

And we've done that before to eliminate any solicitation or sales activity issues.

And the other one is a compensation arrangement.

Obviously, you have an insurance company, for example, an insurance agent that might be unaffiliated.

And you have the other non-licensed entity whose product is tied to that.

How are they going to get paid? What's the compensation structure? You think even a referral fee structure would be very simple, but it's not.

Again, we're a 50-state regulated industry, so you have to comply with 50 different set of laws.

And even a simple referral fee might be $20 or $50 or $100.

Those are regulated.

Some have caps, for example.

There could be a lot of them, depending on the scenario.

To digress for a second, one question that we get almost on a weekly basis is, is a product insurance or not? You would think that's a black and white type of question, but not so much.

And if it's close to the line, we might try to help.

deconstructed a little bit, so it's not an insurance product.

But to answer your question more directly, sales practice, UDAP, we have our own UDAP laws in the insurance code.

We have an Unfair Trade Practices Act, which prohibits, among other things, inducements and rebates.

So if I'm bundling a product, Many state insurance departments will take the position and interpret those inducement laws as potentially being violated if I'm saying, here's the insurance product, but you only can get it if you buy the underlying non-insurance product.

Commission sharing is still a challenge in some states that prohibit or restrict severely the ability of, we call them insurance producers, to share compensation based on the sale of insurance.

One of the basic questions where you have an embedded-like scenario is proper attribution of the insurance transaction to the licensed party, either a licensed insurance company or a licensed insurance producer.

And that involves looking at the website and making sure that under a reasonable person test that the consumer would understand that they're dealing with a licensed insurance industry party and that that is the party conducting the sale.

Privacy laws, we, the insurance industry, also subject to our own Gramm-Leach-Bliley privacy laws.

So data sharing, you have to be careful to determine whether you need consent and whether the financial institution or whoever's selling the primary product can share data with the insurance regulated entity and vice versa.

John, you might want to add a couple of other items that we encounter.

Yeah, I think the biggest areas that we've seen are one, the licensing impact.

Because there is going to be an unlicensed entity that is at least tied to that transaction.

And sometimes our clients say, you know what? We're just going to go ahead and form and license a separate entity to be a licensed broker or agent.

And we've done that before to eliminate any solicitation or sales activity issues.

And the other one is a compensation arrangement.

Obviously, you have an insurance company, for example, an insurance agent that might be unaffiliated.

And you have the other non-licensed entity whose product is tied to that.

How are they going to get paid? What's the compensation structure? You think even a referral fee structure would be very simple, but it's not.

Again, we're a 50-state regulated industry, so you have to comply with 50 different set of laws.

And even a simple referral fee might be $20 or $50 or $100.

Those are regulated.

Some have caps, for example.