FEMA to Agents: Stop Using Commission Rebates to Solicit Business

Federal emergency officials are calling on insurance agents to stop offering clients a cut of the agent’s commission if the client agrees to purchase a flood policy.

The Federal Emergency Management Agency is taking aim at so-called “commission rebating.” It is a practice whereby an insurance agency returns a portion of its commission or some other source of value to clients that purchase an insurance policy.

FEMA Deputy Administrator for Federal Insurance Edward L. Connor said that the Federal Insurance and Mitigation Administration has received numerous complaints’ over the years. Many of those complaints have focused on the federal National Flood Insurance Program.

In some states, the NFIP is a lucrative market where the competition among agents is high. In Florida alone, there are 459 communities in the state that participate in the program, representing over two million flood policies with a total exposure of over $471 billion.

FEMA does not directly regulate insurance agents who sell standard flood insurance policies and financial assistance/subsidy arrangements.

Instead the policies are written through Write Your Own (WYO) private insurers that market the policies through their own networks of agents, administer any claims and are reimbursed by the NFIP.

In a recent memo, Connor said WYOs will no longer be authorized to sign-off on any agreement with agents that allows them to rebate part of their commission to a client in order to solicit business.

The new policy takes effect Oct. 1, 2012.

Topics Agencies Flood