Kickbacks are one way for insurers to drum up business. An all-expenses-paid trip to Hawaii is another.

It has become routine in some corners of the industry for insurers to shower expensive gifts on supposedly independent agents and brokers as a reward for steering business to them. Such incentives are sometimes handed out as prizes in sales contests, in which brokers compete to sell the most policies.

One of the more aggressive gift-givers in the insurance business is

Infinity Property & Casualty

(IPCC)

, the nation's second-largest insurer of so-called high-risk drivers. The Alabama-based insurer routinely doles out jet skis, gift certificates, Caribbean vacations and Alaskan cruises to independent agents who meet specified production goals.

Infinity refers to the giveaways as "incentives," designed to get agents to sign up more Infinity customers. All of the 14,000 agents whom Infinity relies on to sell its insurance policies are independent dealers, free to peddle the products of rival insurers.

To critics, the incentive programs are really no different than the hidden payments that state regulators are targeting in their highly publicized investigation of tawdry insurance industry business practices. They say sales contests and incentive programs encourage independent agents to put their own interests ahead of ordinary consumers shopping for the best car, home or life insurance coverage.

"I find these things very offensive and questionable," says Robert Hunter, director of insurance with the Consumer Federation of America. "Some of them go way over the top."

J.D. Howard, executive director with the Insurance Consumer Advocate Network, says the problem with sales contests is that agents rarely disclose these hidden incentives to sell a particular company's insurance policies to their customers.

"It's sad that the agent

who a consumer will turn to for expertise will in fact put their own consideration ahead of the consumers," says Howard.

Sales contests, however, are a big part of the selling strategy at a small insurer like Infinity, which took in $240 million in revenue in the third quarter, up 26% from a year ago. Shares of Infinity, which have risen 11% this year, began trading Tuesday at $36.63.

Infinity even has a

special Web site where agents can go to convert "points" they've earned signing up Infinity customers into a wide array of free gifts and services. The "InfinityEasyStreet" site is configured like an online reward depot for aggressive agents, featuring a "restaurant row" and "retail alley."

An agent that amasses 1,190,000 points, for instance, can win a five-night trip to Maui for two people, according to the site. A three-day Caribbean cruise can be had for 680,000 points. A $25 gift certificate to

FootLocker

is worth 10,000 points.

Infinity executives didn't return several telephone calls to discuss the sales-contest program. But during a July conference call with Wall Street analysts, company officials openly discussed the contest. In fact, Infinity executives were almost boasting about their plans, which include an aggressive targeting of the Hispanic market in California.

"We've got a big sales contest going on for the last six months of this year in key focus states," said Infinity Chairman and Chief Executive James Gober. "Well, what we do is offer agents a number of options if they meet certain production goals. It could be anything from a vacation in the Bahamas or a cruise to Alaska. It could be other valuable, you know, prizes as well. Gosh, we've given away Seadoos."

Seadoos is a popular manufacturer of jet skis.

Gober said other companies also were offering sales contests, but he didn't identify them. However, he said Infinity was one of the first to make such a big splash.

"I have to raise my hand and say that we're guilty as charged, and to be honest, we may have probably, in my opinion, led, you know, some of this, because we were probably one of the first companies that started doing this toward the end of last year," Gober said, during the call.

The conference call took place a few months before New York Attorney General Eliot Spitzer rocked the insurance industry by filing civil fraud charges against

Marsh & McLennan

(MMC) - Get Report

, the nation's biggest commercial insurance broker. Most of the allegations in the lawsuit revolved around contingent commissions, hefty payments made by insurers to brokers in return for steering work to them.

Since then, other states, including California and Connecticut, have joined the regulatory fray. Just about every big insurance firm and broker, including

American International Group

(AIG) - Get Report

,

Hartford Financial

(HIG) - Get Report

and

Chubb

(CB) - Get Report

, has acknowledged receiving subpoenas from multiple regulators.

So far, Infinity appears to have escaped the scrutiny of the regulators.

But regulators say they are aware that many issuers rely on contests to generate sales.

"Incentive programs to pay supposedly independent agents, whether theybe contingent commissions or contests, are common in the industry," says David Brown, the New York assistant attorney general who heads Spitzer's investment protection division and is overseeing that state's investigation of the insurance business.

While it's not clear what, if any, action regulators might take against sales contests such as the one run by Infinity, similar contests are generally frowned upon on Wall Street. In fact, NASD rules prohibit brokerages from running contests that are designed to promote the sale of specific investment products.

A year ago,

Morgan Stanley

(MWD)

paid a $2 million fine to the NASD after running afoul of that regulation. The NASD found that the big Wall Street ran a series of sales contests to encourage its brokers to sell Morgan's in-house mutual funds at the expense of other mutual fund offerings. Some of the prizes Morgan gave away included tickets to Britney Spears and Rolling Stones concerts, and tickets to the NBA finals.