Illinois Tells Crop Insurer to Cease ‘Improper Rebate’

March 31, 2009

The Illinois Department of Financial and Professional Regulation’s (IDFPR) Division of Insurance has ordered First Farm Credit Services to discontinue its Patronage Program, calling the program an “improper rebate.”

The insurance division said the action resulted from a Professional Independent Insurance Agents of Illinois request in 2007 seeking an opinion on whether First Farm Credit Services’ proposed “Patronage Program” would violate 215 ILCS 5/151 of the Illinois Insurance Code.

Following an administrative hearing, Illinois Director of Insurance Michael T. McRaith ordered First Farm Credit Services to discontinue the program noting that it constituted an improper rebate under the Illinois Insurance Code because it would distribute a portion of its 2006 earnings to clients as an “inducement to do a larger amount of business” with First Farm Credit Services.

“Rebates can be a financial enticement but are anti-competitive and disrupt the marketplace to the detriment of other market participants,” McRaith said. “Arrangements like the ‘Patronage Program’ are prohibited by law and will result in appropriately stern regulatory action.”

First Farm Credit Services testified that its clients would be eligible for payments from the company, called “patronage,” if they had a loan, lease or crop insurance policy with the company. The exact amount would be determined based on the volume of business an individual had with First Farm Credit Services.

Since each client’s payment was determined by the amount of business conducted with First Farm Credit Services, including insurance purchases, the Director found these payments to be rebates in violation of Section 151 of the Insurance Code.

Under the Illinois Administrative Review Law, First Farm Credit Services has the right to appeal the decision and request a stay of the order.

Source: Illinois Division of Insurance,

Topics Carriers Agribusiness Illinois

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