4.1 Unfair Trade Practices
Key Takeaways
- Ohio Revised Code Section 3901.21 prohibits unfair and deceptive trade practices
- Rebating is prohibited in Ohio, with limited exceptions for permitted inducements
- Twisting and churning are prohibited practices subject to license revocation and fines
- Insurers must handle claims in good faith within specified timeframes
- Unfair discrimination based on protected characteristics is prohibited
Ohio Revised Code Section 3901.21 prohibits various unfair or deceptive practices in the insurance industry.
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
Ohio 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
Digital and Social Media
- Same standards apply to digital advertising
- 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
- Returning part of premium to insured
- Offering gifts or prizes of significant value
- Paying for referrals to individuals
- Sharing commission with non-licensed persons
Limited Exceptions
Ohio allows:
- Dividends specified in policy
- Legitimate marketing items of nominal value
- Group premium discounts where permitted
- Value-added services disclosed in policy
Exam Tip: Rebating is generally prohibited in Ohio. Remember the limited exceptions for nominal value items.
Twisting and Churning
Twisting
Making misrepresentations to induce replacement of existing insurance:
- Falsely claiming existing policy is worthless
- Misrepresenting surrender values
- Hiding costs of replacement
- Exaggerating benefits of new policy
Churning
Excessive replacement of policies to generate commissions:
- Multiple replacements for same client
- Pattern of replacements in book of business
- Ignoring client's best interests
- Creating new surrender charge periods
Penalties
| Violation | Potential Penalty |
|---|---|
| First offense | Warning, fine, or suspension |
| Repeat offense | License revocation |
| Per violation | Up to $25,000 fine |
| Consumer harm | Restitution required |
Unfair Claims Practices
Ohio requires insurers to handle claims fairly and promptly:
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
Claim Handling Requirements
Ohio law requires insurers to:
| Action | Requirement |
|---|---|
| Acknowledge claim | Promptly upon receipt |
| Investigate | Within reasonable time |
| Communicate decision | In writing |
| Pay claims | Within 30 days of settlement |
Bad Faith
If an insurer acts in bad faith, policyholders may recover:
- Policy benefits owed
- Consequential damages
- Punitive damages in egregious cases
- Attorney's fees
Unfair Discrimination
Ohio prohibits unfair discrimination in insurance:
Protected Characteristics
| Protected | Cannot Discriminate Based On |
|---|---|
| Race | Prohibited |
| Color | Prohibited |
| Religion | Prohibited |
| National Origin | Prohibited |
| Disability | With limitations |
| Genetic Information | Prohibited (GINA) |
What IS Permitted
Risk-based underwriting using:
- Age (life insurance)
- Health history
- Claims history
- Occupation (with limitations)
- Lifestyle factors (smoking, hazardous activities)
What is the maximum fine per violation for unfair trade practices in Ohio?
Which of the following is generally PERMITTED in Ohio insurance sales?