Key Takeaways
- Rhode Island Unfair Competition and Practices Act (Title 27, Chapter 27-29) prohibits unfair trade practices
- Misrepresentation, false advertising, and unfair claims practices are prohibited
- Rebating is generally prohibited with limited exceptions
- Twisting and churning are defined as unfair methods of competition
- Insurers must adopt written procedures to prevent twisting and churning
Unfair Trade Practices
The Rhode Island Unfair Competition and Practices Act (Title 27, Chapter 27-29) prohibits various unfair or deceptive practices in the insurance industry.
Misrepresentation
Producers and insurers are prohibited from:
False Statements
- 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
Examples of Misrepresentation
| Prohibited Statement | Why It's Misrepresentation |
|---|---|
| "This policy covers everything" | No policy covers all losses |
| "Your rates will never increase" | Rates can and do change |
| "This company is the largest" | If not true, it's false |
| "You must buy today" | False urgency |
False Advertising
Rhode Island 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
Rhode Island allows:
- Premium financing arrangements
- Dividends specified in policy
- Legitimate marketing items of nominal value
- Group premium discounts
Twisting and Churning
Twisting
Under Rhode Island law, twisting is defined as:
Knowingly making any misleading representations or incomplete or fraudulent comparisons or fraudulent material omissions of or with respect to any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to:
- Lapse, forfeit, or surrender a policy
- Terminate or retain a policy
- Pledge, assign, or borrow on a policy
- Convert a policy
- Take out a policy with another insurer
Churning
Churning is excessive replacement of policies to generate commissions:
- Multiple replacements for same client
- Pattern of replacements in book of business
- Ignoring client's best interests
- Creating new surrender charge periods
Insurer Requirements
Under R.I. Gen. Laws Section 27-29-4.7:
Each insurer shall adopt written procedures sufficient to reasonably avoid twisting and churning of policies or contracts that it has issued.
Exam Tip: Failure to adopt written procedures to avoid twisting and churning is itself an unfair method of competition in Rhode Island.
Unfair Claims Practices
Rhode Island requires insurers to handle claims fairly and promptly:
Prohibited Practices
- Misrepresenting policy provisions to claimants
- Failing to acknowledge claims promptly
- Failing to communicate claim decisions
- Denying claims without reasonable investigation
- Offering substantially less than reasonable value
- Delaying payment to force settlement
Claim Handling Timeframes
| Action | Timeframe |
|---|---|
| Acknowledge claim | Prompt (typically 15 days) |
| Request information | Reasonable time |
| Accept or deny claim | Within reasonable time after proof |
| Pay undisputed amounts | Promptly after settlement |
Unfair Discrimination
Rhode Island prohibits unfair discrimination in insurance:
Prohibited Discrimination
| Protected | Cannot Discriminate Based On |
|---|---|
| Race | Prohibited |
| Religion | Prohibited |
| National Origin | Prohibited |
| Gender | With limitations |
| Disability | With limitations |
What IS Permitted
Risk-based underwriting using:
- Age
- Health history
- Claims history
- Occupation (with limitations)
- Lifestyle factors (smoking, hazardous activities)
Penalties for Violations
| Violation | Potential Penalty |
|---|---|
| First offense | Warning, fine, or suspension |
| Repeat offense | License revocation |
| Per violation | Fines as specified by law |
| Consumer harm | Restitution required |
Notice of Premium or Coverage Changes
Under Section 27-29-17.3, insurers must provide proper notice:
- Written notice required before premium increases
- Notice of coverage changes must be clear
- Policyholder must have time to respond or find alternatives
Under Rhode Island law, what must insurers adopt to comply with unfair trade practices regulations?
Which of the following is generally PERMITTED in Rhode Island insurance sales?