Suit Seeks End to Anti-Rebate Insurance Law

A California law making it illegal for insurance agents to shave their commissions, which can amount to as much as 60% of first-year premiums, is unconstitutional and should be overturned, Consumers Union said in a lawsuit filed Wednesday in San Francisco Superior Court.

Consumers Union, a nonprofit organization that publishes Consumer Reports magazine, contends that California’s so-called anti-rebate law violates the state Constitution’s due-process provision because it serves no useful public purpose. The organization is asking the court to prohibit Insurance Commissioner Bruce Bunner and the Department of Insurance from enforcing the law.

“These (anti-rebate) laws serve only to insulate agents against competition and allow them to keep commission rates at artificially high levels,” Carl Oshiro of Consumers Union said in a telephone interview. Similar “price-fixing schemes” have already been dismantled in the state’s dry cleaning, hair cutting, milk and alcoholic beverage industries, he added.

Californians pay about $12 billion a year in individual insurance premiums, he said. Citing what he called industry statistics, Oshiro estimated that allowing agents to rebate a part of their commissions could save consumers up to $770 million a year.

A similar anti-rebate law was declared unconstitutional last fall by the Florida Court of Appeal, Oshiro said, a decision that Florida’s insurance agents have vowed to fight.

Joe Anotti, a spokesman for Independent Insurance Agents and Brokers of California, said the group, which represents 2,400 independent insurance agencies, will oppose the suit. The group disputes the contention that repealing the anti-rebate law would save consumers money.