Georgia Adjuster Practice Test

What is the definition of rebating in the context of insurance?

1. Giving a portion of the premium to the insurer

2. Inducing business by offering a portion of the premium to the insured

3. Returning excess commission to the broker

4. Offering bonuses for policy renewals

The correct answer is: Inducing business by offering a portion of the premium to the insured

Rebating is defined as the practice of inducing business by offering a portion of the premium to the insured. This means that an insurance agent or company provides a financial incentive, typically in the form of a discount or a cash payment, to the potential policyholder as a way to persuade them to purchase an insurance policy. This practice is often discouraged or prohibited in many states due to concerns over fairness and consumer protection, as it may lead to unethical practices and disrupt normal market competition. The other options do not accurately capture the essence of rebating. Giving a portion of the premium to the insurer does not pertain to inducements for business. Returning excess commission to the broker pertains more to commission structures than to rebating. Offering bonuses for policy renewals is related to customer retention strategies but does not align with the definition of rebating, which specifically involves offering incentives to potential clients at the point of sale.