The Texas Department of Insurance (Department) has recently received questions and complaints regarding whether insurance companies, agents and/or agencies may provide administrative services to clients without additional charge. Examples of types of administrative services brought to the attention of the Department include COBRA administration services, Flexible Spending Account administration services, and various human resource related administration services.
This bulletin addresses the Department's position as it relates to the applicability of Chapters 541, 543, and 4005 of the Texas Insurance Code (Insurance Code) to the provision of such services , and reminds agents and other regulated entities of their responsibility to comply with Texas law.
The language of the Insurance Code provisions set out in this bulletin prohibit an insurance company, insurance agent or agency with respect to the sale of health insurance from providing inducements to the sale that are not provided for in the insurance contract. Because many administrative services are not provided for in the insurance contract, they could constitute valuable consideration and an unlawful inducement or rebate in violation of the Insurance Code, regardless of whether they are provided directly or indirectly by regulated entities.
Insurance Code §541.056(a) provides that
Subject to Section 541.058 and except as otherwise expressly provided by law, it is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to knowingly permit the making of, offer to make, or make a life insurance contract, life annuity contract, or accident and health insurance contract or an agreement regarding the contract, other than as plainly expressed in the issued contract, or directly or indirectly pay, give, or allow or offer to pay, give, or allow as inducement to enter into a life insurance contract, life annuity contract, or accident and health insurance contract a rebate of premiums payable on the contract, a special favor or advantage in the dividends or other benefits of the contract, or a valuable consideration or inducement not specified in the contract, or give, sell, or purchase or offer to give, sell, or purchase in connection with a life insurance, life annuity, or accident and health insurance contract or as inducement to enter into the contract stocks, bonds, or other securities of an insurer or other corporation, association, or partnership, dividends or profits accrued from the stocks, bonds, or securities, or anything of value not specified in the contract.
Insurance Code §543.003 provides that
An insurer or an officer, agent, or representative of an insurer may not:
(1) directly or indirectly pay, allow, or give or offer to pay, allow, or give as an inducement to insurance a thing of value or other inducement that is not specified in the policy, including:
(A) a rebate of premium payable on the policy;
(B) a special favor or advantage in the dividends or other benefits to accrue on the policy; or
(C) paid employment or a contract for service . . .
Insurance Code §4005.053(c) provides that
(c) An agent may not pay, permit, or give or offer to pay, permit, or give, directly or indirectly, to any person who does not hold a license as an agent:
(1) a rebate of premiums payable, a commission, employment, a contract for service, or any other valuable consideration or inducement that is not specified in the insurance policy or contract for or on account of the solicitation or negotiation of an insurance contract . . .
The Insurance Code §541.056 applies to life insurance, accident and health insurance, and annuities, and prohibits, among other things, an insurer, insurance agent or other regulated entity from offering an insured or prospective insured an inducement or valuable consideration not specified in the insurance policy. It also specifically references §541.058, which enumerates certain practices legislatively declared not to constitute a rebate or inducement, and was amended by the 80th Legislature.
Because many administrative services are not provided for in the insurance contract, they could constitute valuable consideration and an unlawful inducement or rebate in violation of the prohibitions set out in §541.056. For essentially the same reasons, an insurance company, insurance agent or agency hiring an outside third party to provide administrative services on a no-additional-fee basis that the insurance company, insurance agent or agency may not directly or personally provide, also could constitute a prohibited practice.
For example, COBRA administration, Flexible Spending Account administration, and similar types of services are administrative in nature and are not ordinarily provided in an insurance contract by an insurance company, its agent, an agency or a broker. The Department is particularly concerned that the offer or provision of such types of services on a no-additional-fee basis could constitute an unlawful inducement that is not specified in the policy, and could be subject to departmental disciplinary action.
The Department strongly cautions against direct or indirect provision by an insurance company, insurance agent or agency of such services at no additional fee, to avoid violating Insurance Code §541.056 and §543.003 prohibitions against unlawful inducements or rebates. Further, provision of such services may result in a violation of §4005.053(c) provisions addressing unlawful inducements and rebates.
Violation of the Insurance Code or Department rules by license holders -- including engaging in unfair or deceptive acts or practices under the Insurance Code Chapter 541 or engaging in rebating or unlawful acts described in Chapters 542, 543, and 4005 -- subjects such holders to disciplinary action, including fine, penalty, license suspension, license revocation, and/or other appropriate administrative remedy.
Additional information on this Bulletin may be obtained from Matt Ray, Deputy Commissioner, Licensing Division, at 512-463-8917.
Commissioner of Insurance
Texas Department of Insurance