The Florida Supreme Court, in a decision with national implications for the insurance industry, has struck down state laws prohibiting insurance agents from returning part of their sales commissions to customers.
The 4-3 decision this week is expected to touch off more intensive price competition among insurance agents in Florida, especially those who sell life insurance. Agents, who could see their income diminish as a result of the ruling, vigorously opposed the court's move.
The ruling also has national implications because it represents the first time a state supreme court has overturned the so-called anti-rebate laws, most of which were enacted around the turn of the century.
The other 49 states and the District of Columbia have passed laws similar to the Florida statutes. If these are overturned, the way insurance agents do their business would change dramatically, industry officials said yesterday.
A legal challenge already has been launched against the California anti-rebate statute, and observers said this week's Florida decision would encourage similar actions in other states.
Consumers who buy insurance pay their premiums directly to insurance companies, who keep most of the money to pay claims and other expenses. Part of the premium, however, is returned to the agent who sold the policy. This commission can total from 10 percent of the premium for automobile insurance to more than 50 percent of the cost of certain types of life insurance.
Under the anti-rebate laws, agents are prohibited from returning any of this commission to the consumer. The laws' purpose is to restrain price competition among agents, who otherwise could offer rebates to lure customers.
In Florida, the insurance department and industry officials argued that the laws are needed to protect consumers. Without such laws, they said, the cost of insurance would be determined by the bargaining ability of the customer, rather than a consistent price for coverage.
Proponents of the laws also fear that insurance companies could face higher administrative costs from a greater turnover of policyholders. Since sales commissions are highest the first year of a life insurance policy, they contend, the loss of antirebate provisions would encourage customers to jump companies each year to collect higher rebates.
But the Florida Supreme Court, upholding the decision of a lower court, found that the laws "unnecessarily limit the bargaining power of the consuming public."
In its opinion, the court majority said it could "find no identifiable relationship between the anti-rebate statutes and a legitimate state purpose in safeguarding the public health, safety or general welfare."
William B. Schultz, a Washington attorney who argued the case before the Florida court, praised the decision, which he said would lower prices and lead to competition.