4.1 Unfair Trade Practices

The Unfair Trade Practices Act

North Carolina codifies its consumer-protection rules in General Statutes (NCGS) Chapter 58, Article 63 — the Unfair Trade Practices Act. It lists specific "unfair methods of competition and unfair or deceptive acts" that no producer or insurer may commit. The Commissioner of Insurance enforces it through investigations, cease-and-desist orders, hearings, and penalties. On each Pearson VUE line exam (55 scored questions in 75 minutes, 70% to pass) the North Carolina ethics and unfair-practices content is concentrated here, so memorize the named offenses.

Misrepresentation and False Advertising

Misrepresentation is any false or misleading statement about a policy's terms, benefits, dividends, or an insurer's financial condition. False advertising extends the same prohibition to brochures, mailers, web pages, and social posts.

Prohibited statements and the reason

Social media is held to the identical standard: the post must be identifiable as advertising, the producer must be named, and no claim may be made that cannot be substantiated.

The distinction that trips up candidates is intent versus result. A misrepresentation violation does not require that the client actually relied on the false statement or suffered a loss — making the false or misleading statement is the offense. Similarly, an advertisement is judged by the overall net impression it leaves on an ordinary consumer, not by whether one isolated sentence is technically true. A flyer that buries an exclusion in fine print while the headline implies unlimited coverage is deceptive even if every individual word is literally accurate.

Testimonials must be genuine and representative; an actor portraying a satisfied policyholder, or a single cherry-picked claim experience presented as typical, both violate the act.

Rebating

Rebating is offering any valuable inducement not stated in the policy to persuade someone to buy or keep insurance — returning part of the commission or premium, paying for referrals, or giving prizes of real value. North Carolina prohibits it, and it is the rare offense where both the producer who offers AND the consumer who accepts can be penalized.

Prohibited vs. permitted

Twisting vs. Churning

Both are abusive replacement offenses, and the exam loves to contrast them.

• Twisting: using misrepresentation or incomplete comparison to induce a client to lapse, surrender, or replace a policy — typically moving the client between different insurers.
• Churning: replacing policies (often within the same insurer's own products, sometimes funded by existing cash value) mainly to generate new commissions and reset surrender-charge periods, with no real benefit to the client.

Memory hook: Twisting = Tricky talk (misrepresentation). Churning = Churning the Cash value within the same Company.

Other named Article 63 offenses

• Defamation — false statements that injure a competitor or its agents.
• Boycott, coercion, intimidation — forcing a transaction or restraining trade.
• Unfair financial planning — misusing a "financial planner" title to sell insurance without proper disclosure.

Unfair Claims Settlement Practices

NCGS 58-63-15(11) lists prohibited claim conduct. A critical exam nuance: a single isolated error is not actionable as an unfair practice — the Commissioner acts when the conduct is committed "with such frequency as to indicate a general business practice."

Prohibited claim conduct

• Misrepresenting pertinent facts or policy provisions to a claimant
• Failing to acknowledge and act reasonably promptly on communications
• Failing to adopt reasonable standards for prompt investigation
• Denying a claim without a reasonable investigation
• Not attempting in good faith a prompt, fair, equitable settlement once liability is reasonably clear
• Compelling insureds to litigate by offering substantially less than amounts ultimately recovered

If an insurer acts in bad faith, a North Carolina policyholder may recover policy proceeds plus consequential damages, and — under NCGS 58-63-15(11) tied to the state's unfair trade practices remedies — may pursue treble (triple) damages and attorney's fees.

Unfair Discrimination

North Carolina prohibits unfair discrimination between individuals of the same class and essentially the same hazard or life expectancy in premium, benefits, or dividends.

The trap: charging a smoker more is lawful actuarial classification, not discrimination; denying coverage because of race or religion is an explicit violation.

North Carolina also bars discrimination based solely on blindness or partial blindness and limits the use of genetic information and predictive genetic test results in life and health underwriting. The principle to remember is that distinctions must rest on sound actuarial principles or actual and reasonably anticipated experience. If two applicants are in the same risk class with the same life expectancy and hazard, they must receive the same rates, benefits, and dividends.

Charging different premiums to people in the same class for an impermissible reason — or refusing to insure an entire protected group — is what the statute forbids. A producer who steers minority applicants toward inferior products, or who applies stricter standards to one protected group, commits unfair discrimination even if a price difference is never quoted on paper.