Beware of Unfair Trade Practices

Unfair trade practices have been around for as long as trade itself, and it's likely that they will continue to be so. But, you do have protection. The Unfair Trade Practices Act, as part of federal Consumer Protection laws, prohibits certain claims- and trading tactics that are unfair, deceptive or misleading. The Act focuses on two distinct areas – unfair claims tactics and unfair marketing tactics. Although the activities addressed in the law can be applicable to any type of business or professional, the scope of this article will be limited to some of the unfair marketing practices that you may find being used in the insurance industry.

Misrepresentations of any kind are a violation of the Unfair Trade Practices Act. What is a misrepresentation? In layman's terms, it's simply a lie. An insurer or its associate may not make statements of any kind nor create or circulate sales materials that are false, misleading or deceptive. Misstatements of terms, advantages or benefits of a policy; misrepresentation of an insurer's financial condition or deliberately making any false financial statements concerning its solvency in an effort to deceive; misrepresenting a policy by using a misleading name or title to falsely indicate that it represents shares of stock; and using false or misleading advertising to make a misrepresentative statement about an insurer or its associate are just a few examples of various deceptive practices.

Making defamatory statements (whether orally or by written means) or circulating false, malicious or derogatory literature concerning an insurer's financial condition, or disseminating any such information for the purpose of damaging anyone in the insurance industry also violates the law.

There can be no discrimination on the basis of race, religion, national origin or place of residence between individuals of the same rate class or insurance risk with regard to policy provisions such as premiums, benefits or other terms.

The insurance practices of twisting and churning are also violations of the Unfair Trade Practices Act. Twisting is the act whereby an insurance agent encourages a policyholder to relinquish (or allow to expire) his or her current policy for the sole purpose of selling a new policy to replace it; hence, earning another commission. However, no violation occurs if the agent proves that the new coverage is best for the policyholder and he or she then decides to replace their current policy. Similar to twisting, churning occurs when an agent uses misrepresentation of some sort to induce a competitor's policyholder to switch his or her current coverage in favor of a policy sold by the agent's insurance company.

It's illegal for any person or organization to boycott, coerce, intimidate or be a party to such actions intended to foster a monopoly or in any way restrict fair trade in the insurance marketplace. For example, if you apply for a bank loan, the bank may not make approval of that loan conditional upon your purchasing insurance from a particular carrier or agent.

These are just a few examples of unfair tactics that businesses have attempted to use. So, be careful when buying insurance, or whenever you're transacting any business at all. Be aware of the laws that protect you.