Georgia Adjuster Practice Test

What does the practice of rebating involve in the insurance industry?

1. Offering discounts on premiums

2. Making false statements about dividends

3. Providing bonus policies

4. Offering gifts to policyholders

The correct answer is: Making false statements about dividends

Rebating in the insurance industry refers to the practice where an insurance agent or broker provides an inducement, typically in the form of cash or some other benefit, to a potential customer as a means of attracting them to purchase a policy. Although the term may seem to involve simple discounts or bonuses, it traditionally includes misleading or false promises of payments or benefits that are not disclosed in the standard policy itself, such as making false statements about dividends. The key reason why this practice is often considered unethical and is prohibited in many states is that it can mislead consumers about the true price of insurance products and create an unfair competitive advantage for those who engage in it. By making false statements about the benefits like dividends that the policyholder can expect, the practice undermines the transparency and trust that are essential in the insurance industry. Therefore, understanding rebating is crucial for adjusters and agents to ensure compliance with legal and ethical standards in their profession.