Unfair Trade Practices

Producer Calder writes an application for the term policy his client asked for, then quietly adds an accidental death rider the client never requested and never discussed, and quotes a single combined premium so the extra charge is not visible. Which unfair practice does this describe?

1. A.ChurningChurning is a producer generating new business by replacing his own clients existing policies. No replacement occurred here.
2. B.RebatingRebating gives the consumer something of value as an inducement to buy. Here the consumer is being charged more, not given something.
3. C.TwistingTwisting is inducing the replacement of an existing policy through misrepresentation. No existing policy is being replaced.
4. D.SlidingCorrect. Sliding is the addition of an unrequested coverage or fee whose charge is concealed from the consumer.

Why: This is SLIDING: adding a coverage, product or fee the consumer did not request and did not knowingly agree to, and collecting the charge for it. The essence of the offense is concealment of a charge for something unrequested, which is why Calder combined the premium into one figure. It is distinct from REBATING, which gives the consumer something of value, and from TWISTING and CHURNING, which involve inducing the replacement of existing coverage through misrepresentation. Note that offering the rider openly and having the client accept it would be perfectly proper.

A bank officer tells a small business owner that his loan application will be approved only if he buys the required life insurance through the bank's own affiliated insurance agency. Which unfair trade practice is this?

1. A.Rebating.Rebating is giving a client a share of the premium or anything of value not stated in the policy as an inducement to buy. Here nothing is being given to the borrower; something is being demanded of him.
2. B.Coercion.Correct. Conditioning approval of a loan on buying insurance from a particular source is coercion, denying the consumer a free choice of insurer and restraining the business of insurance.
3. C.Defamation.Defamation is making or circulating a false, maliciously critical statement about the financial condition of an insurer or a person. No statement about anyone's finances is involved.
4. D.Twisting.Twisting is inducing a policyowner to drop an existing policy and buy another through misrepresentation or incomplete comparison. No existing policy is being replaced here.

Why: COERCION is any act of boycott, coercion or intimidation that results in, or tends to result in, an unreasonable restraint of or monopoly in the business of insurance. Conditioning credit on the purchase of insurance from a particular source is the textbook example, sometimes described as tying. It denies the borrower a free choice of insurer and producer and is prohibited by the unfair trade practices statutes and by federal banking rules.

Producer Hollis knowingly records a false answer on a life application, concealing an applicant diagnosed condition so the case will be issued at a better class. The application carried the standard fraud warning statement above the signature line. What is the correct characterization of his exposure?

1. A.He faces only criminal exposure, because a criminal charge preempts any administrative proceedingAdministrative licensing action does not wait on, and is not preempted by, a criminal prosecution.
2. B.He faces criminal exposure for insurance fraud AND separate administrative licensing action, and the two proceed independentlyCorrect. Criminal insurance fraud liability and administrative licensing sanctions are parallel and independent.
3. C.He faces only administrative licensing action, since insurance matters are handled exclusively by the departmentState insurance fraud statutes create criminal liability enforced outside the licensing process.
4. D.He faces no personal exposure, because the insurer may simply rescind the policy within the contestable periodThe insurer contract remedy does not absolve the producer of criminal or licensing consequences.

Why: Knowingly submitting a materially false statement on an insurance application to obtain a benefit is INSURANCE FRAUD, a criminal offense under state insurance fraud statutes, investigated by the state fraud bureau or prosecutor. That is separate from and additional to his licensing exposure: the commissioner may independently suspend or revoke his license and impose administrative penalties. The fraud warning printed on the application exists precisely to establish that the signer was on notice. He also faces civil exposure to the insurer, which may rescind the policy within the contestable period, and to the applicant beneficiary who is left without expected coverage.

An insurer markets a whole life policy under the name Founders Equity Growth Account. Its brochure calls the premium a deposit, the cash value a savings balance, and the producer a financial counsellor, and it never once uses the words insurance, premium or policy. Why is this a problem?

1. A.It is prohibited MISREPRESENTATION in advertising: terminology implying the policy is a share, an investment account or a deposit misleads the buyer about the nature of the contract.Correct. Advertising rules forbid names and descriptions that disguise a life insurance policy as some other kind of financial product, and they judge the net impression on a reasonable consumer.
2. B.It is permissible, because the policy form itself is accurate even if the brochure is not.Advertising is regulated in its own right. A correct contract does not cure sales material that misleads a consumer about what she is buying.
3. C.It is prohibited only once an actual buyer files a complaint.No complaint is required. Regulators review advertising on their own initiative and in market conduct examinations, and the violation exists when the material is used.
4. D.It is rebating.Rebating is an inducement of value offered to a purchaser outside the policy terms. Nothing here is being given away; the problem is how the product is described.

Why: This is prohibited MISREPRESENTATION in advertising. The unfair trade practices statutes and the advertising regulations forbid using terminology that misrepresents the true nature of the contract, including names or descriptions implying that a life insurance policy is a share of stock, an investment plan, a savings account or a bank deposit, and titles implying an adviser status the producer does not hold. The test is the net impression left on a reasonable consumer, not whether any single sentence is literally false.