Beware of Unfair Trade Practices

The Unfair Trade Practices Act is divided into two specific parts -- unfair marketing practices and unfair claims practices. In each state, specific laws define and prohibit certain trade and claims practices which are unfair, misleading or deceptive. This article will reveal some of the marketing practices that you should be wary of from insurance agents or companies. Know what’s illegal; know your rights.

Simply put, a misrepresentation is a lie. It’s a violation of the Unfair Trade Practices Act for any person to make, issue, or circulate any illustration, sales material, or to make any statement that’s false, misleading or deceptive. Misrepresentations include, but are not limited to, the misstatement of benefits, advantages or terms of any insurance policy; misrepresenting policy dividends by stating or implying that they are guaranteed; misrepresenting the financial condition of an insurer with an inaccurate or incomplete financial comparison; and the misrepresentation of an insurance policy by using any name or title that’s misleading or untrue or by indicating that an insurance policy represents shares of stock.

It’s illegal for anyone to formulate or use false or misleading advertising or to make a statement which is untrue, deceptive or misleading about an insurer or someone associated with an insurer.

Twisting occurs when an insurance agent convinces a policyholder to surrender or allow to lapse a current policy in order to sell him or her another policy. However, if the agent proves to the policyholder that the protection which he or she has isn’t the best available and the policyholder decides to switch to a better policy, there is no wrongdoing.

Churning, which is closely related to twisting, is a term which describes the practice of using misrepresentation to persuade a policyholder to replace his or her current policy (which is issued by a competitor) with one that’s issued by the insurer whom the agent represents.

It’s a violation of unfair marketing practices for any person to deliberately make any false financial statements about the solvency of an insurer with the intent to deceive someone.

It’s illegal for any person or company to defame by making any oral or written statements or to circulate literature which is false, maliciously critical or derogatory to the financial condition of any insurer, or which is meant to injure anyone in the insurance business.

It’s illegal to allow discrimination between individuals of the same class or insurance risk in terms of rates, fees, premiums and policy benefits, due to their place of residence, race, creed or national origin.

Splitting a commission with a prospect is illegal in virtually every state. Rebating is a term that refers to any inducement in the sale of insurance which is not specified in the insurance contract. The offer to share a commission payment with an applicant is an inducement that’s not part of the insurance contract and is, thus, rebating.

It’s unlawful for any person or insurer to collect premiums or make charges which are not specified in the insurance contract.

It is a violation of the Unfair Trade Practices Act for any person or organization to commit or be involved in any act of boycott, coercion or intimidation that’s intended to create a monopoly or restrict fair trade in the transaction of insurance. It’s unlawful, for example, for a bank to attempt to force a person to purchase insurance from a particular company or agent as a condition for receiving a loan from that bank.