Unfair Trade Practices

The South Carolina Insurance Trade Practices Act (S.C. Code Ann. Sections 38-57-10 through 38-57-320) 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

Section 38-57-130

Under this section, it is prohibited to make or permit any policy of insurance other than as plainly expressed in the policy.

Rebating

Under Section 38-57-130, rebating is prohibited:

What Is Prohibited

No person may pay, allow, give, or offer to pay, allow, or give, directly or indirectly, as inducement to the purchase or renewal of insurance:

• Any rebate of premiums payable on the contract
• Any special favor or advantage in benefits not specified in the contract
• Any valuable consideration or inducement not specified in the contract

Limited Exceptions

South Carolina allows:

• Paying bonuses to policyholders out of surplus from nonparticipating insurance (if fair and equitable)
• Making allowances to policyholders on debit plan policies who make premium payments directly to an office

Note: Nothing permits an unfair method of competition or unfair/deceptive act even within exceptions.

Twisting and Churning

Twisting

Twisting is making misrepresentations to induce replacement of insurance:

• Falsely claiming existing policy is worthless
• Misrepresenting surrender values
• Making incomplete or false comparisons
• Omitting material information

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

Unfair Discrimination

Under Section 38-57-130, unfair discrimination is prohibited:

Prohibited Discrimination

No person may make or permit any unfair discrimination:

• Between individuals of the same class
• Of essentially the same hazard
• In the amount of premium, policy fees, or rates charged

What IS Permitted

Risk-based underwriting using:

• Age
• Health history
• Claims history
• Occupation (with limitations)
• Lifestyle factors (smoking, hazardous activities)

Claims Practices Act

South Carolina's Claims Practices Act (Sections 38-59-10 through 38-59-270) establishes standards for claims handling.

Prohibited Claims Practices

• Misrepresenting policy provisions to claimants
• Failing to acknowledge claims promptly
• Denying claims without reasonable investigation
• Delaying payment to force settlement
• Requiring excessive documentation

Regulatory Framework

Insurance Trade Practices Act vs. Unfair Trade Practices Act

South Carolina has two separate consumer protection laws:

The UTPA specifically exempts conduct covered by the ITPA. All unfair trade practices in insurance are regulated by the ITPA.

Penalties for Violations

Enforcement

The Director of the Department of Insurance:

• Monitors compliance with trade practices laws
• Takes enforcement action where warranted
• May impose penalties under S.C. Code Ann. Section 38-2-10

Producer Responsibilities

Producers must:

• Avoid all prohibited trade practices
• Treat all clients fairly
• Make truthful representations
• Disclose material information
• Document suitability of recommendations