Key Takeaways
- New Mexico has adopted the Unfair Insurance Practices Act under NMSA 59A-16
- Rebating is prohibited under New Mexico law with limited exceptions
- Twisting and churning are prohibited replacement practices
- The Superintendent of Insurance has enforcement authority
- Insurers must handle claims fairly and promptly
Unfair Trade Practices
New Mexico has adopted comprehensive unfair trade practices regulations under Chapter 59A, Article 16 of the New Mexico Statutes Annotated.
Unfair Insurance Practices Act
New Mexico prohibits various unfair or deceptive practices in the insurance industry.
Misrepresentation
Producers and insurers are prohibited from:
- Making false statements about policy terms or benefits
- Misrepresenting the financial condition of an insurer
- Using misleading policy illustrations
- Making false statements about competitors
- Misrepresenting the nature of the insurance transaction
False Advertising
New Mexico prohibits deceptive insurance advertising:
- Ads must be truthful and not misleading
- Must clearly identify as insurance advertisement
- Cannot use testimonials that are not genuine
- Cannot imply government endorsement
- Must include insurer's name
Rebating
Rebating is offering inducements not specified in the policy to purchase insurance:
What Is Prohibited
- Returning part of premium to insured
- Offering gifts or prizes of significant value
- Paying for referrals to individuals
- Sharing commission with non-licensed persons
Limited Exceptions
New Mexico allows:
- Dividends specified in policy
- Legitimate marketing items of nominal value
- Group premium discounts
- Premium financing arrangements
Rebating Penalties
| Violation | Penalty |
|---|---|
| First Offense | Fine up to $5,000 per violation |
| Repeat Offense | Fine up to $10,000 + suspension |
| Pattern of Violations | License revocation |
| Consumer Involved | Both parties may face penalties |
Exam Tip: Rebating is generally prohibited in New Mexico. Violations can result in fines up to $10,000 and license revocation.
Coercion and Intimidation
NMSA 59A-16-5 prohibits coercive practices:
Prohibited Coercive Acts
| Act | Description |
|---|---|
| Tie-In Sales | Requiring purchase of insurance with other products |
| Threats | Threatening adverse consequences for not purchasing |
| Intimidation | Using position of power to force purchase |
| Credit Coercion | Making loans contingent on insurance purchase |
Banking/Insurance Coercion
| Prohibition | Example |
|---|---|
| Cannot Require | Bank cannot require specific insurer for loan |
| Cannot Threaten | Cannot threaten credit denial for declining insurance |
| Must Disclose | Must disclose insurance is optional |
Twisting and Churning
Twisting
Twisting is misrepresenting the terms of an existing policy to induce replacement:
- Falsely claiming existing policy is worthless
- Misrepresenting surrender values
- Hiding costs of replacement
- Exaggerating benefits of new policy
Churning
Churning is excessive replacement to generate commissions.
Penalties
| Violation | Potential Penalty |
|---|---|
| First offense | Warning, fine, or suspension |
| Repeat offense | License revocation |
| Consumer harm | Restitution required |
Claims Handling Requirements
New Mexico has guidelines for fair claims handling:
Required Practices
Insurers must:
- Acknowledge claims with reasonable promptness
- Act reasonably promptly on communications
- Adopt reasonable standards for prompt investigation
- Attempt in good faith to settle claims where liability is clear
Prohibited Practices
Insurers cannot:
- Misrepresent policy provisions to claimants
- Fail to acknowledge claims promptly
- Deny claims without reasonable investigation
- Delay payment to force settlement
Unfair Discrimination (NMSA 59A-16-7)
New Mexico prohibits unfair discrimination in insurance:
Prohibited Discrimination Bases
| Protected Class | Prohibition |
|---|---|
| Race | Cannot discriminate in rates, terms, or availability |
| Color | Cannot discriminate in rates, terms, or availability |
| Religion | Cannot discriminate in rates, terms, or availability |
| National Origin | Cannot discriminate in rates, terms, or availability |
| Disability | Cannot discriminate except for actuarially justified reasons |
| Gender | Limited health insurance restrictions |
| Genetic Information | Cannot use for underwriting (health insurance) |
| Domestic Violence Status | Cannot discriminate based on victim status |
Permitted Underwriting Factors
Insurers MAY consider actuarially justified factors:
| Factor | Life Insurance | Health Insurance |
|---|---|---|
| Age | Yes | Yes (within ACA limits) |
| Health Status | Yes | No (ACA-compliant plans) |
| Tobacco Use | Yes | Yes (50% max surcharge) |
| Occupation | Yes | Limited |
| Hobbies/Activities | Yes | Limited |
Exam Tip: Know the difference between prohibited unfair discrimination and permitted actuarial risk classification.
Insurance Fraud
New Mexico aggressively prosecutes insurance fraud under NMSA 59A-16C:
Types of Insurance Fraud
| Type | Description |
|---|---|
| Application Fraud | False statements on applications |
| Claims Fraud | Exaggerated or fabricated claims |
| Premium Fraud | Non-payment or diversion of premiums |
| Agent Fraud | Misappropriation, forgery, unauthorized policies |
Fraud Penalties
| Offense Level | Penalty |
|---|---|
| Misdemeanor | Up to 1 year jail + $1,000 fine |
| Fourth Degree Felony | 18 months jail + $5,000 fine |
| Third Degree Felony | 3 years jail + $5,000 fine |
| Second Degree Felony | 9 years jail + $10,000 fine |
Fraud Reporting
| Obligation | Requirement |
|---|---|
| Insurers | Must report suspected fraud to OSI |
| Producers | Should report suspected fraud |
| SIU | Special Investigations Unit investigates |
| Immunity | Good faith reporters have civil immunity |
Under which statute does New Mexico regulate unfair trade practices?
Which of the following is generally PERMITTED in New Mexico insurance sales?
What is twisting in New Mexico insurance law?
What can an insurer NOT do under New Mexico claims handling rules?