4.1 Unfair Trade Practices
Key Takeaways
- Alaska Statute 21.36 prohibits misrepresentation, false advertising, and unfair claims practices
- Rebating is generally prohibited in Alaska with limited exceptions
- Twisting and churning are prohibited practices subject to license revocation
- Tied sales (linking insurance purchase to other transactions) are prohibited
- Unfair discrimination based on protected characteristics is prohibited
Alaska Statute 21.36 (Trade Practices and Frauds) regulates acts or trade practices in the business of insurance in accordance with the McCarran-Ferguson Act and Gramm-Leach-Bliley Act by defining practices that constitute unfair methods of competition or unfair or deceptive acts and prohibiting them.
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
Alaska 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
Social Media Rules
- Same standards apply to social media
- Must be clear it's an advertisement
- Cannot make claims that can't be substantiated
- Producer must be identified
Rebating
Rebating is offering inducements not specified in the policy to purchase insurance:
What Is Prohibited Under AS 21.36.120
- Returning part of premium to insured
- Offering gifts or prizes of significant value
- Paying for referrals to individuals
- Sharing commission with non-licensed persons
- Providing special favors or valuable consideration
What the Insured Cannot Do
An insured named in a policy, or an employee of the insured may not knowingly receive or accept directly or indirectly:
- A rebate, discount, abatement, credit, or reduction of premium
- Special favor or advantage
- Valuable consideration or inducement
Limited Exceptions
Alaska allows:
- Payment of commissions to properly licensed persons
- Lawful dividends, savings, or unabsorbed premium deposits to participating policyholders
- Legitimate marketing items of nominal value (pens, calendars)
- Group premium discounts
Exam Tip: Rebating is generally prohibited in Alaska. Remember the limited exceptions for licensed commissions and nominal value items.
Twisting
Twisting (AS 21.36.050) is making misrepresentations to induce replacement of existing insurance:
Examples of twisting:
- Falsely claiming existing policy is worthless
- Misrepresenting surrender values
- Hiding costs of replacement
- Exaggerating benefits of new policy
Tied Sales Prohibited
The sale of insurance may not be tied to another transaction:
- Lender cannot require insurance from a specific agent
- Cannot condition loans on insurance purchase
- Cannot bundle insurance with unrelated products
Unfair Claims Practices
Alaska requires insurers to handle claims fairly and promptly under the Unfair Claims Settlement Acts or Practices regulations:
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
- Requiring excessive documentation
Unfair Claims Settlement Acts
- Unreasonable claim denial
- Failure to act promptly on claims
- Misrepresenting coverage to claimants
- Offering less than what is owed under the policy
Unfair Discrimination
Alaska prohibits unfair discrimination in insurance under AS 21.36.090 and AS 21.36.120:
What Is Prohibited
An insurer may not make or permit unfair discrimination:
- Between insureds or property having like insuring or risk characteristics
- In the premium or rates charged for insurance
- In the dividends or other benefits payable
- In any other terms and conditions of the insurance
Example of Fair vs. Unfair Discrimination
| Fair Discrimination | Unfair Discrimination |
|---|---|
| Refusing ALL drivers with DUI | Refusing SOME drivers with DUI while accepting others |
| Higher rates for smokers | Different rates for same-risk individuals |
| Risk-based underwriting | Arbitrary treatment of similar risks |
What IS Permitted
Risk-based underwriting using:
- Age
- Health history
- Claims history
- Occupation (with limitations)
- Lifestyle factors (smoking, hazardous activities)
Which of the following is generally PERMITTED in Alaska insurance sales?
What Alaska statute governs unfair trade practices in insurance?
Under Alaska law, can a lender require you to purchase insurance from a specific agent as a condition of a loan?