Key Takeaways
- Tennessee prohibits unfair trade practices including misrepresentation, twisting, rebating, and churning
- Misrepresentation includes making false statements about policy terms, benefits, or competitor products
- Twisting is inducing a policyholder to cancel and replace coverage through misrepresentation
- Rebating (returning premium as inducement) is prohibited except for legitimate dividends
- Violations can result in license revocation, fines up to $10,000 per violation, and criminal charges
Unfair Trade Practices & Producer Ethics
Tennessee law (Title 56, Chapter 8) prohibits unfair trade practices in insurance to protect consumers.
Prohibited Practices
Misrepresentation
Making false or misleading statements about:
- Policy terms, benefits, or coverage
- Dividends or share of surplus
- Financial condition of any insurer
- Competitor products or insurers
Twisting
Definition: Inducing a policyholder to lapse, forfeit, or surrender insurance through misrepresentation
Characteristics:
- Involves replacement of existing coverage
- Uses false or misleading information
- Not in the policyholder's best interest
- Done for producer's commission benefit
Rebating
Definition: Returning any part of premium or giving anything of value as inducement to purchase insurance
Prohibited Actions:
- Cash refunds of premium
- Gifts of substantial value
- Free services not available to all
- Special advantages not in the policy
Exceptions:
- Legitimate policy dividends
- Items of nominal value (pens, calendars)
- Premium discounts filed with TDCI
Churning
Definition: Excessive replacement of insurance policies to generate commissions
Similar to twisting but may involve:
- Repeated policy replacements
- Using cash value to fund new premiums
- Not necessarily involving misrepresentation
Other Prohibited Practices
| Practice | Description |
|---|---|
| Defamation | Making false statements about competitors |
| Boycott | Refusing to do business to coerce |
| Intimidation | Using threats to force insurance purchase |
| Discrimination | Unfair discrimination in rates or underwriting |
| Unfair Claims Settlement | Failing to act in good faith on claims |
Penalties for Violations
Tennessee can impose severe penalties for unfair trade practices:
Administrative Penalties
| Penalty | Details |
|---|---|
| License Suspension | Temporary loss of license |
| License Revocation | Permanent loss of license |
| Fines | Up to $10,000 per violation |
| Cease and Desist | Order to stop practice |
Criminal Penalties
Serious violations may result in:
- Felony charges for fraud
- Imprisonment
- Restitution to victims
- Permanent industry ban
Producer Ethical Responsibilities
Duties to Clients
- Disclosure - Fully explain policy terms and limitations
- Suitability - Recommend appropriate coverage
- Honesty - Provide truthful information
- Confidentiality - Protect client information
- Competence - Maintain current knowledge
Duties to Insurers
- Loyalty - Act in insurer's interest
- Accuracy - Submit accurate applications
- Premium Handling - Properly handle premium payments
- Reporting - Report claims and changes promptly
Fiduciary Responsibility
Producers have fiduciary duties regarding:
- Premium funds (trust account requirements)
- Client information
- Acting in clients' best interests
Exam Tip: Tennessee producers must maintain the highest ethical standards. Violations of unfair trade practice laws can result in license revocation, fines up to $10,000, and criminal charges.
Complaint Process
If a consumer believes a producer violated the law:
- File Complaint with TDCI Consumer Services
- Investigation by TDCI staff
- Hearing if violations found
- Penalties imposed if warranted
- Appeal rights available
A producer convinces a client to cancel their existing policy and buy a new one by falsely claiming the old policy is worthless. This practice is called:
Which of the following would be considered illegal rebating in Tennessee?
What is the maximum fine per violation for unfair trade practices in Tennessee?