4.1 Unfair Trade Practices

The Kansas Unfair Trade Practices Act

The Unfair Trade Practices Act (UTPA), codified at K.S.A. 40-2401 through 40-2414, is Kansas's adoption of the National Association of Insurance Commissioners (NAIC) model. It declares unlawful any "unfair method of competition" or "unfair or deceptive act" in insurance. The Commissioner of Insurance enforces it through cease-and-desist orders, hearings, and monetary penalties. On the 140-question, 150-minute combined Life and Accident & Health exam (Pearson VUE, 70% to pass), these prohibited-practice rules recur across the Kansas State Laws content.

Misrepresentation and False Statements

Producers may not make, issue, or circulate any statement that misrepresents policy terms, benefits, dividends, or the financial condition of an insurer. This includes misusing policy illustrations and making false statements about a competitor to lure away its business (defamation of an insurer).

False Advertising

Under K.S.A. 40-2404(2), advertising must be truthful and not deceptive in fact or by implication. Ads may not imply government endorsement, use fictitious testimonials, or omit the insurer's name. The same standard applies to social media, email, and websites: a producer post promoting coverage is an advertisement and must identify the producer and not promise unsupported results.

• Cannot create false urgency ("offer ends today")
• Cannot imply a policy is endorsed by Medicare or any agency
• Must disclose material limitations alongside touted benefits
• Testimonials must be genuine and currently accurate

Rebating

Rebating is offering any valuable consideration or inducement not specified in the policy to persuade someone to buy, keep, or surrender insurance. Kansas prohibits it under K.S.A. 40-2404(8). Critically, both the producer who offers and the consumer who accepts a rebate violate the statute.

Prohibited as rebates

• Returning part of the commission or premium to the buyer
• Sharing commission with an unlicensed person
• Paying a non-licensee for client referrals
• Gifts, prizes, or services of more-than-nominal value tied to a sale

Permitted (not rebates)

• Policy dividends declared by the insurer
• Advertising/marketing items of nominal value (the NAIC model and many states cap this near $25 per person per year — pens, calendars, notepads)
• Educational materials and value-added services described in the policy
• Premium-finance arrangements at market terms

Exam Tip: If an inducement is "specified in the policy" (like a dividend) it is legal; if it is a side benefit "not specified in the policy," it is a rebate.

Twisting and Churning

Twisting is using misrepresentation or incomplete comparison to induce a policyholder to lapse, surrender, or replace an existing policy in favor of a new one. Churning is a narrower abuse: replacing a policy with another from the same insurer (often using the existing policy's cash value) to generate fresh first-year commissions and restart surrender charges.

Kansas's replacement regulations require producers to deliver a Notice Regarding Replacement and a side-by-side comparison so the consumer can evaluate surrender charges, new contestability/suicide periods, and lost benefits before replacing. Failing to follow replacement procedure is itself a violation even when no misrepresentation occurred.

Worked example

A producer tells a client her 8-year-old whole-life policy "has no value" and should be cashed in to fund a new policy with the same carrier. Both statements are false (the policy has accumulated cash value), and the same-insurer swap restarts surrender charges. This is both twisting (misrepresentation) and churning (same-insurer commission harvesting) — a willful violation exposing the producer to a $5,000-per-act penalty and revocation.

Unfair Claim Settlement Practices

K.S.A. 40-2404(9) lists acts that, when committed with such frequency as to indicate a general business practice, constitute an unfair claim settlement practice. A single isolated mistake is not a UTPA violation; a pattern is. Tested prohibited acts include:

• Misrepresenting pertinent facts or policy provisions to a claimant
• Failing to acknowledge and act reasonably promptly on claim communications
• Failing to adopt reasonable standards for prompt investigation of claims
• Refusing to pay claims without conducting a reasonable investigation
• Not affirming or denying coverage within a reasonable time after proof of loss
• Offering substantially less than the amount ultimately recovered, or compelling litigation by lowball offers

Unfair Discrimination

Kansas bars unfair discrimination between individuals of the same class and equal expectation of life. Charging different rates or refusing coverage based on race, color, religion, national origin, or ancestry is prohibited, as is using genetic information to deny or rate coverage. What is allowed is sound actuarial classification using age, tobacco use, medical history, occupation hazard, and avocation to set rates, because those reflect real risk differences rather than prohibited bias.

Common trap: Charging a smoker more is lawful underwriting; charging more based on national origin is unfair discrimination. The exam contrasts risk-based classification against prohibited-class bias.