4.1 Unfair Trade Practices
Key Takeaways
- New Hampshire's Unfair Insurance Trade Practices Act is codified at RSA 417, with prohibited acts defined in RSA 417:4
- Rebating is barred under RSA 417:4 unless the inducement is specified in the policy (dividends) or is a nominal-value advertising item
- Twisting uses misrepresentation to induce replacement; churning is replacing a client's own policies to generate commissions
- The Insurance Commissioner enforces RSA 417 through cease-and-desist orders, fines, and license action under RSA 417:10
- Unfair claims settlement requires prompt acknowledgment, reasonable investigation, and good-faith settlement where liability is clear
The Unfair Insurance Trade Practices Act (RSA 417)
New Hampshire's consumer-protection backbone is RSA 417, the Unfair Insurance Trade Practices Act. RSA 417:4 lists the specific acts that are illegal, RSA 417:7 authorizes Commissioner hearings, and RSA 417:10 sets penalties. The exam tests RSA 417 heavily because almost every "can the agent do this?" question traces back to it. An act is illegal if it is listed in RSA 417:4 or if the Commissioner finds it unfair under RSA 417:12 after a hearing.
Misrepresentation and False Statements
Producers and insurers may not make any misrepresentation — an untrue, deceptive, or misleading statement — about an insurance product. RSA 417:4 specifically bars misstating policy benefits, terms, dividends, or the financial condition of an insurer. It also bars false statements about a competitor.
| Statement an agent makes | Why RSA 417:4 prohibits it |
|---|---|
| "This whole life policy is really just a savings account" | Misrepresents the nature of the transaction |
| "Dividends are guaranteed every year" | Dividends on participating policies are never guaranteed |
| "Acme Mutual is about to go broke — switch to us" | False statement about a competitor / defamation |
| "You must sign today or lose this rate forever" | Deceptive false-urgency sales tactic |
Defamation and False Advertising
Defamation is making a false, maligning statement about an insurer's financial condition. False advertising covers any printed, broadcast, or online ad that is untrue, deceptive, or misleading. New Hampshire applies its advertising rules to social media and producer websites — the medium does not matter, the message does.
Rebating
Rebating means giving a client any inducement to buy that is not specified in the policy — returning part of the premium, sharing commission, or handing over a gift of real value. RSA 417:4 forbids both offering and accepting a rebate.
Prohibited vs. permitted
- Prohibited: refunding part of the premium, splitting commission with an unlicensed person, cash/prizes tied to a purchase, paying for client referrals.
- Permitted: policy dividends, group premium discounts filed and approved, premium-financing plans, and advertising/promotional items of nominal value (branded pens, calendars). NH also allows the rebate of a producer's commission on commercial insurance when the insurer's approved rate filing expressly provides for it.
Exam tip: Both the giver and the receiver of a rebate violate RSA 417:4. A nominal-value pen is fine; cash back on the premium is rebating.
Twisting and Churning
These two replacement abuses look similar but differ in who is harmed and how.
Twisting
Twisting is using misrepresentation or incomplete comparison to induce a policyholder to lapse, surrender, or replace an existing policy. The fraud is the false statement. Classic examples: calling an in-force policy "worthless," hiding new surrender charges, or overstating the new policy's benefits. Twisting is a form of misrepresentation, so it falls squarely under RSA 417:4.
Churning
Churning is replacing a customer's policy with another policy from the same insurer (often using the existing policy's built-up cash value) mainly to generate a new first-year commission. The key marker is a pattern of internal replacements that restart surrender-charge periods with no real benefit to the client.
| Feature | Twisting | Churning |
|---|---|---|
| Core wrong | Misrepresentation to replace | Needless replacement for commission |
| Insurer involved | Usually a different insurer | Usually the same insurer |
| Telltale sign | False/misleading comparison | Repeated internal 1035-style swaps |
| Statutory home | RSA 417:4 misrepresentation | RSA 417:4 + replacement rules |
Worked scenario: An agent tells a client her 12-year-old whole life policy "earns nothing" (false) and moves her into a new policy with a fresh 10-year surrender charge. That is twisting because the inducement rested on a false statement. If the new policy were from the same carrier and funded by the old policy's cash value purely to earn commission, it would be churning.
Unfair Claims Settlement Practices
RSA 417:4 makes it an unfair practice to mishandle claims when it is done with such frequency as to indicate a general business practice. A single honest error is not a violation; a pattern is.
Insurers must: acknowledge claim communications promptly, adopt reasonable standards for prompt investigation, and attempt good-faith settlement when liability is reasonably clear.
Insurers may not: misrepresent policy provisions to a claimant, deny a claim without a reasonable investigation, offer substantially less than a reasonable person would accept, or delay payment to pressure a lowball settlement.
Unfair Discrimination
NH bars unfair discrimination — charging different rates or benefits to people of the same class and equal expectation of life or risk. Discrimination by race, religion, or national origin is always prohibited.
| Factor | Allowed in underwriting? |
|---|---|
| Race, religion, national origin | No — never |
| Age, health history, tobacco use | Yes — actuarially justified |
| Occupation, hazardous hobbies | Yes — risk-based |
| Two healthy 40-year-old non-smokers charged different rates | No — unfair discrimination |
Exam tip: "Unfair" discrimination is between people of the same risk class. Charging a smoker more than a non-smoker is fair discrimination and fully legal.
Under which New Hampshire statute are unfair insurance trade practices defined and prohibited?
An agent uses an existing policy's built-up cash value to replace it with a NEW policy from the SAME insurer, mainly to earn a fresh first-year commission, restarting the surrender-charge period. This is best described as:
Which of the following is PERMITTED under New Hampshire's rebating rules?
An insurer denies a life claim without ordering medical records or contacting the attending physician. If this reflects a general business pattern, it violates New Hampshire law because the insurer: