Unfair trade practices (insurance)
Unfair trade practices in insurance are marketing and sales activities prohibited by state law, such as misrepresentation, twisting, rebating, coercion, and false advertising. Violators face fines, license suspension, or license revocation.
Unfair trade practices are activities that state insurance laws prohibit because they deceive consumers or distort fair competition. Every state has an unfair trade practices act, modeled on National Association of Insurance Commissioners (NAIC) guidelines, and the state insurance commissioner (or director/superintendent) enforces it against insurers and producers alike.
The classic prohibited practices include misrepresentation — making false or misleading statements about a policy's terms, benefits, or dividends; twisting — using misrepresentation to induce a policyholder to replace an existing policy to their detriment; rebating — returning part of a commission or offering anything of value not stated in the policy as a sales inducement (illegal in most states); defamation — spreading false statements about another insurer's financial condition; coercion and boycott — using force or restraint of trade to obtain business; and false or deceptive advertising.
A related category, unfair claims settlement practices, targets conduct after a loss: misrepresenting policy provisions, failing to acknowledge or investigate claims promptly, or offering unreasonably low settlements to pressure claimants. A single act can trigger penalties, and a pattern of violations invites harsher discipline, including cease-and-desist orders, fines, and license revocation.
State insurance licensing exams — including the property and casualty exam that Achievable's insurance course prepares you for — test unfair trade practices by name. Be ready to match a scenario to the specific practice, especially the frequently confused trio of misrepresentation, twisting, and rebating.
Key takeaways
- Unfair trade practices are sales and marketing activities prohibited by state insurance law.
- Key examples include misrepresentation, twisting, rebating, defamation, coercion, and false advertising.
- Unfair claims settlement practices cover post-loss misconduct like unreasonably delaying or lowballing claims.
- The state insurance commissioner enforces these laws with fines, cease-and-desist orders, and license suspension or revocation.
- Insurance licensing exams test your ability to match scenarios to the named practice — especially twisting versus misrepresentation versus rebating.