An Overview of Anti-Steering Laws
Anti-steering laws are regulations that prohibit insurance producers from directing, or "steering," consumers to specific insurers or types of insurers based on the expectation that commission rates will be higher for the recommended insurer. The rationale underlying these laws is to protect consumer choice and ensure fair and orderly competition among insurers. Several states have enacted anti-steering laws that apply to different types and types of insurers, but the applicability of these laws, as well as their scope, varies significantly from state to state.
California, for example, mandates that all insurance companies advise policyholders about insurance ratings and how they impact premiums. The California Department of Insurance (CDI) has issued several Insurance Alerts to educate policyholders about the rights and obligations insurers have with respect to certain programs, including Private Passenger Automobile (PPA) rating plans.
In a December 2018 advisory, the CDI declared that the State’s anti-steering statute prohibits insurers from steering consumers toward an affiliated insurer based solely upon their willingness to pay higher insurance rates. An insurer may suggest an affiliated insurer to a policyholder only where there is a potential benefit to a policyholder and not as a means of avoiding competitive forces in the marketplace. With respect to PPA programs, the CDI took the position that an insurer may suggest its affiliated insurer to a policyholder if the suggested insurance company offers similar coverage and may otherwise benefit a policyholder.
In Maryland, the Insurance Article, §12-23-301 & 302, prohibits a producer licensed by the State from "selling, soliciting, or negotiating" insurance for any insurer that is affiliated with the producer , unless the producer also discloses all other material terms of the proposed insurance transaction and makes available to the prospective insured a comparable policy that the producer is not recommending.
In New Jersey, the Division of Insurance issued Bulletin No. 13-16. The Bulletin states that under its statute and regulations, an agent will be deemed in violation of the anti-steering provisions if (1) the "agent suggests to a prospective consumer that the consumer seek coverage through a particular, affiliated insurer and (2) the agent does so because the affiliated insurer would pay more in compensation to the agent that an unaffiliated insurer."
Other states either allow for "steering" or do not specifically address anti-steering practices. For example, in Massachusetts the Division of Insurance recently clarified its position regarding anti-steering practices with regard to a policyholder’s right to select its "own" insurer. Until recently, it was unclear whether such a right existed. In March 2020, the Division issued a "bulletin" clarifying that section 108 of chapter 175 of the General Laws does not grant a policyholder an unqualified right to select its "own" insurer, but provided that the Division will "apply a two-step process for insurance transactions that involve an affiliated insurer, as follows: After considering the facts, the Division of Insurance may find an arrangement to be unlawful if the transaction fails to meet the two-step test set forth above. The Division of Insurance indicates that "[i]n some cases, as a result of vertical integration, affiliated insurers may offer insurance products to customers at wide price margins. In those situations, a customer’s cost of insurance may depend on the consumer’s decision to shop around for price and/or the producer’s recommendations."
The Evolution and Background of Anti-Steering Laws
Since the dawn of the mortgage industry, lenders have sought to work with their preferred settlement service providers (title insurers, abstractors, closing or title agents, etc.). In the past, faster, more efficient service was frequently delivered by those preferred service providers, who had a vested interest in closing the loan, unlike unconnected providers. Lenders often steered their customers to their preferred providers, and business relationships were formed to encourage the lenders to "continue to send us business," even when current circumstances made it unwise or unnecessary.
The federal government took an active role in curbing abusive referral practices in the 1970s, when it enacted the Real Estate Settlement Procedures Act ("RESPA"). The requirements of RESPA and its implementing regulation, Regulation X (regarding Federal Mortgage Loans – those that are federally related, such as loans made or insured by federally chartered banks or loans made and sold to Fannie Mae or Freddie Mac), have since been supplemented by state anti-steering laws. These laws prevent lenders and others from pressuring consumers to use a particular service provider, including title insurance.
Before RESPA was enacted, states began to respond to the problem of excessive title premiums and poor competition in the title industry by enacting various antisteering laws. The National Association of Insurance Commissioners took up Respa-type provisions in 1969 and issued a model law prohibiting rebates, kickbacks, and conditional sales of goods or services. The NAIC reacted again in 1975 by endorsing a proposed model law with RESPA-type provisions. The NAIC proceeded to draft another proposed model law with RESPA-type provisions in 1980, and then attempted in 1983 to adopt selective parts of that proposal by modifying its model law on unfair trade practices.
However, RESPA was ultimately enacted. Although it limited only lenders and affiliates, not title insurers, it marked the first time that there was a complete ban on kickbacks in the real estate industry. [12 U.S.C. §§ 2607, 2617, and 2618]. States placed RESPA even further in the back seat by adopting anti-steering statutes that restricted the practices of non-lender parties. (See infra.)
The Effect on the Realty Sector
The effects of anti-steering laws extend well beyond the mortgage industry. They also affect the real estate industry and have a significant impact on consumers. For example, an agent who violates these laws by requiring or requesting a kickback to steer his business to a particular lender could lose his real estate license or face civil penalties and is required to report the conduct to his or her state licensing authority. As a result, most real estate agents are very careful to avoid any form of steering, which may result in fewer good faith referrals being exchanged between the mortgage and real estate industries. In almost all cases, it does not make business sense for a mortgage originator to require a kickback from a real estate agent in order to procure a referral. Typically, the mortgage originator assures a new real estate lead source a commission split is available but will not pay a kickback so as to avoid a violation of the law. This results in a net loss of the expected new business, and can lead individuals to become annoyed with the mortgage originator or lender. However, pursuant to the law, if the agent is willing to forego the commission split in order to protect their license they may be rewarded with continued future business.
Anti-Steering Laws in the Medical Field
According to the National Conference of State Legislatures, 43 states and Washington, D.C. have enacted legislation prohibiting certain types of steering in the insurance industry. States have implemented these laws in both health insurance and automobile insurance contexts since the early 1990s. Georgia, Kentucky, Maine, Montana and New Hampshire are the only states that do not have anti-steering laws.
There are some states, however, that have been prohibited from creating or enforcing anti-steering laws by federal law. This is because anti-steering is inherently anti-competitive and has the potential to violate the Social Security Act, if it impedes access to care. The law prohibits an insurer from steering a Medicare or Medicaid enrollee to a specific provider as a condition of reimbursement, if it would significantly undermine the efforts of insurers to be more competitive and contain costs while increasing access to care. While most states have avoided challenge, some such as California and Texas have had their ordinances enjoined.
State actions, however, are still subject to federal scrutiny. In September 2015, UnitedHealth Group announced it was cutting financial estimates for its fully insured employer group business due to new laws and regulations governing health plan design, sales and marketing of health insurance. Specifically, UnitedHealth pointed to the Consumer Protection in Insurance Sales Act enacted in California which prohibits insurers in the state from offering cash or other payments or inducements to agents, brokers or other selling entities to steer policyholders to a particular carrier. According to estimates, about 25 percent of sales generated by brokers in California were for policies allowing producers greater flexibility in remuneration. Insurers would have faced an additional 15 percent tax starting in 2016. UnitedHealth, which estimates losing about 2.5 percent of its commercial business in 2016 because of the elimination of flexibility on commission fees, says the law is driving up premiums and making it difficult for market competition.
More recently, on May 25, 2016, the office of the Connecticut Attorney General found violations of the Insurance Competitive Pricing Law (Conn. Gen. Stat. § 38a-816, et seq.), the Unfair Insurance Trade Practices Acts (Conn. Gen. Stat. § 38a-815, et seq.) and the Connecticut Unfair Trade Practices Act (§ 42-110a et seq.), when Blue Cross of Northeastern Pennsylvania entered into an exclusive contract with a local health system, to provide Blue Cross customers with discounted rates and rebates on member bills at that provider network. The Attorney General alleges that this payment allowed for steering of local patients to that specific network and restricted consumer choice in medical care.
States have recently modified their anti-steering statutes. For instance, in 2011, Maryland repealed and replaced its 1997 anti-steering law enacted to protect consumers from kickbacks paid to healthcare providers by patient referral sources or from patients’ inability to make informed choices regarding their care. The new law, known as the Patient Referral Star-Plus Act applies to all insurance carriers and providers, and prohibits steering that results in barriers to access or otherwise restricts consumers’ freedom to choose their health care providers.
Having been faced with challenges in the past, anti-steering laws in the healthcare industry will continue to be under scrutiny from both the state and federal government.
Legal Considerations for Entities
The legal implications for businesses are fairly clear on this point. The Federal Trade Commission has long had a formal agreement with the National Association of Insurance Commissioners, which is the national trade group of insurance regulators, to enforce the ant-steering rules. The agreement (which is actually a Memorandum of Understanding) provides that the NAIC will advise the FTC of any instances where an insurance company, agent or broker violates the steering provisions of the GLB or the National Bank Act. In turn, the FTC will advise the NAIC of any instances where an insurance company or agent violates the steering provisions of the federal statutes governing national banks. The FTC treats the NAIC as a formal partner in enforcement of the anti-steering laws, firmly placing primary enforcement authority with the NAIC.
More particularly, some individual state statutes have very directly addressed prohibited practices that insurance vendors in those states could easily violate. These include:
Unlike some federal jurisdictions, these state statutes are definitive about what is prohibited so as to give responsible insurance vendors clear lines of conduct under which they may operate. However , the states have no true means of monitoring or regulating the successfulness of those statutes. In addition, the burden of proof is extremely high for an injured consumer to bring an action, and the power of any penalties that could be imposed ultimately are, too often, discretionary with the neophyte court that has such a case before it.
The best advice for the responsible insurance vendor is to interpret these laws broadly. It is in the company’s long-term interest to work cooperatively with its insurance company partners in order to establish a track record of full compliance with all applicable anti-steering rules. In this way, the vendor can reduce the impact or inconvenience of the anti-steering laws on its bottom line. The cost of compliance for the vendor — while it may initially be expensive — need not be exorbitant or unreasonable, so long as the insurer has acted in good faith to cooperate with it. (The insurance vendor also should be aware that its insurers have a corresponding responsibility to cooperate with a complying agent or broker.) This view may seem unduly pessimistic to some, but on the other hand there is no point in trying to reinvent the wheel here.
Consumer Safeguard and Advantages
The driving factor behind anti-steering laws and regulations is consumer protection. These laws are designed to allow consumers to make decisions on coverage and costs fully informed as opposed to making one decision based on recommendations. The laws aim to lower consumer confusion in the buying process and as a result increase customer satisfaction with the insurance industry as a whole. In short, anti-steering laws give consumers the opportunity to make decisions in the marketplace without interference from intermediaries.
The Federal Trade Commission (FTC) is one of the watchdog bodies that is responsible for enforcing anti-steering laws and such regulations vary from state to state. For instance, in Michigan the Anti-Steering Rule specifies how and when intermediaries and corporations can refer products & services to consumers. More importantly, the Anti-Steering Rule prohibits intermediaries from requiring consumers to purchase a certain product as a condition of receiving related products or services and intermediaries are also prohibited from restricting a consumer’s options on which provider to use to obtain related products or services.
Recent Trends and Judicial Examples
Several recent legal cases and regulatory developments provide key insights into the future of anti-steering laws. One significant case is Maryland’s recent successful defense of an anti-steering law regarding the selection of settlement attorneys in consumer bankruptcy cases, which was upheld by the United States Court of Appeals for the Fourth Circuit in Schaffer Associates v. U.S. Trustee, Case No. 14-1570 (4th Cir. 2015). In this case the court found that the state law was a legitimate means of ensuring independent legal counsel for consumers. The rationale of the decision provides a useful template for the analysis of similar laws in other jurisdictions.
Additionally, the case of New Jersey Division of Alcoholic Beverage Control v. Marlton Tavern LLC, Docket No. A-003785-11T3 (N.J. App. Div. February 25, 2015) highlights the potential for state anti-steering laws to step in where federal antitrust laws are unable to fill in the gaps of the coverage of these federal statutes. This case involved a New Jersey liquor license holder who was accused under a federal Sherman Act claim of anti-steering at a post office.
New Jersey law enforcement and regulators attempted to prosecute the license holder under the state anti-steering law because the federal law lacked federal jurisdiction over post offices, thus the New Jersey consumers were unable to obtain stateside liquor without going well out of state. The court held that the state law did fill in that gap, however, without the state law it is likely the New Jersey consumers would have suffered from that same gap in coverage.
Implementing Anti-Steering Laws
Consumers can significantly benefit from the peace of mind that comes with anti-steering laws. By knowing what should and shouldn’t be said to them by manufacturers and dealers, consumers can better identify violations in the marketplace. Additionally, they can potentially use these violations to obtain relief in the form of rebates, discounts, or cash payments. Consumers may also have the opportunity to ensure future compliance.
There are also practical steps consumers can take to mitigate the risk of being steered away from their choice, whether it be a particular car, vehicle service contract, or certain aftermarket product. By learning how to navigate a dealership, consumers have the power to report violations of the anti-steering laws, both at the federal and state levels.
There are a number of proactive steps consumers can take to enhance their bargaining position and avoid potential steering issues: From the moment a consumer steps foot onto a dealership’s lot, they should be aware of a number of things. First, consumers must remember that they are there voluntarily, and they can walk out any time they want. There is no sense of obligation to stay and engage in any negotiation.
Second, if a consumer does feel pressured to proceed with a purchase at a dealership, and he or she notices that a salesperson is trying to keep them in a particular small area (or "pen" of the dealership) where the products of a particular manufacturer or dealer group (such as Ford or General Motors) are on display, then the consumer should be on guard because the salesperson may be violating the anti-steering laws .
Third, while consumers should always sign and review any documents before providing their signature, they should be cautious against signing anything that will prevent them from being able to report steering violations. If a consumer is asked to sign a document indicating that he or she has received information about his or her options from the dealership, they should be wary. This is so because this type of document may be used to show that the consumer has already received the information he or she may still need.
Fourth, consumers should always consider consulting with an attorney if they are uncertain about their rights in the event of a steering violation. Consumers have a number of rights, such as the right to report any violations to the authorities so that they can investigate the dealership and protect other consumers. In addition, consumers should be aware that if they are uncertain as to whether a violation has occurred, they can ask the dealership for more information, and seek clarification to ensure that they fully understand their options and their rights.
Finally, consumers should also be aware that they are not obligated to make any purchase at any time. If a consumer feels that they are being misled, or given only partial information about their options, they can always tell the dealership to cease all discussions immediately and leave the showroom.