4.1 Unfair Trade Practices

The Statutory Framework: IC 27-4-1

Indiana's Unfair Competition law — Indiana Code Title 27, Article 4, Chapter 1 — is the single most heavily tested ethics statute on the state portion of the Indiana Life, Accident & Health exam. The exam (delivered by Pearson VUE, 70% passing scaled score) draws directly from the enumerated list in IC 27-4-1-4. Memorize the list as a set, because distractor questions often add a real-sounding but non-enumerated act.

The Enumerated Unfair Practices

Misrepresentation

A producer may not misstate the terms, benefits, dividends, or true nature of any policy, nor misrepresent an insurer's financial condition. Misleading policy illustrations — projecting non-guaranteed dividends as if guaranteed — are a classic violation. So is misrepresenting a transaction's nature, such as describing a variable life policy or annuity as a "savings account" or "retirement plan."

Misrepresentation Traps

False Advertising

Advertising must be truthful and must not, by omission or implication, mislead. Indiana applies the same standard to social media, text, email, and websites: the post must be identifiable as insurance advertising, must name the insurer, and may not imply government endorsement or use fabricated testimonials. A producer cannot escape liability by claiming a third party wrote the post — the producer is responsible for content distributed under their name.

Exam tip: The bar for advertising is whether it tends to mislead a reasonable consumer — actual deception need not be proven. The IDOI can issue a cease-and-desist order before any consumer is harmed.

Rebating

Rebating means giving — or offering to give — any valuable consideration not specified in the policy as an inducement to buy. Indiana prohibits it under IC 27-4-1-4 for both insurers and producers, and the prohibition runs both ways: a consumer may not knowingly receive an unlawful rebate either.

Prohibited

• Returning part of the commission or premium to the buyer
• Cash, gift cards, or prizes of more than nominal value
• Paying a non-licensed person a referral fee tied to a sale
• Sharing commission with anyone not properly licensed for that line

Permitted (Not Rebating)

• Policy dividends paid under a participating policy
• Premium adjustments under an experience-rated group plan
• Nominal-value items — pens, calendars, or similar promotional goods (generally valued under about $25)
• Educational materials and value-added services described in the contract

Exam tip: The line is nominal value plus not contingent on purchase. A $10 logo mug given to anyone is fine; a $100 gift card given because someone bought a policy is rebating — even if everyone in the office gets the same offer.

Twisting and Churning

Both are abusive replacement practices and both are tested as distinct terms.

Twisting is using misrepresentation or incomplete comparison to induce a client to lapse, surrender, or replace a policy to their detriment — for example, falsely calling the existing policy "worthless" or hiding a new surrender-charge period.

Churning is the same harm but within the same insurer's book — repeatedly replacing a client's policies (often funded by the cash value of the old one) mainly to generate fresh first-year commissions and new surrender charges.

Penalty Ladder

Fines for a knowing violation of IC 27-4-1 can reach $25,000 per act, with lower amounts for non-knowing violations. A required replacement comparison form must accompany any life or annuity replacement so the client sees the true cost side-by-side.

Unfair Claim Settlement Practices (IC 27-4-1-4.5)

Indiana separately enumerates unfair claim settlement practices. A single isolated mistake is usually not enough; the statute targets acts "committed flagrantly" or with such frequency as to indicate a general business practice. Producers should recognize these so they can spot insurer misconduct and document it.

Prohibited Claim Acts

• Misrepresenting pertinent facts or policy provisions to a claimant
• Failing to acknowledge and act promptly on communications
• Failing to adopt reasonable standards for prompt investigation
• Refusing to pay claims without a reasonable investigation
• Not affirming or denying coverage within a reasonable time after a proof of loss
• Not attempting good-faith, prompt, equitable settlement once liability is clear
• Compelling insureds to litigate by offering substantially less than amounts ultimately recovered
• Forcing a release on part of a claim by conditioning it on payment of the undisputed part

Timeframe Expectations

Unfair Discrimination

Indiana prohibits unfair discrimination between individuals of the same class and essentially the same hazard — for example, charging two applicants of identical age, health, and life expectancy different life-insurance rates, or denying a claim benefit available to others in the class. Discrimination based purely on race, color, religion, national origin, or sex (where unrelated to actual risk) is barred, and genetic information cannot be used unfairly under both state and federal (GINA) rules.

Permitted vs. Prohibited

Indiana note: Indiana follows the NAIC Unfair Trade Practices Model Act with state-specific wording in IC 27-4-1. The exam rewards knowing that legitimate, actuarially supported distinctions are lawful while same-class differences are not.