Marketing Practices

Quiz

Question 1 Which penalty can the Commissioner impose if an agent commingles premiums with his or her personal funds? bond forfeiture *license suspension or revocation up to one year imprisonment restitution The Commissioner may impose a fine and place on probation, suspend, or revoke a person's license for violating the commingling rules. A willful violation is considered a misdemeanor or a felony if the amount involved is more than $500. Question 2 The Georgia Life and Health Insurance Guaranty Association does not provide coverage for which of the following types of insurance? group life insurance policies *reinsurance policies individual life insurance policies annuity contracts The Georgia Life and Health Insurance Guaranty Association provides coverage for individual life insurance policies, health insurance policies, annuity contracts, contracts supplemental to life and health insurance policies and annuity contracts, and direct group life insurance policies, health insurance policies, and annuity contracts. Question 3 When holding insurance premiums and other funds, producers act in which of the following capacities? guarantor trustee *fiduciary principal Licensed producers hold insurance premiums and other funds in a fiduciary capacity. A willful violation of the duties imposed upon a fiduciary is considered a misdemeanor. Question 4 Zelda, a producer selling health insurance, assures a prospective applicant that the insurance company she represents is backed by the protections of the Georgia Life and Health Insurance Guaranty Association. Which of the following is a correct statement regarding this kind of assurance? It is highly regulated by the Insurance Department. It is recommended when selling health insurance. *It is prohibited at all times. It is required when selling to Medicare-eligible individuals. It is an unfair trade practice to use the existence of the Georgia Life and Health Insurance Guaranty Association, or the protections the association offers, for the purpose of selling life or health insurance. When asked about the payment of dividends by a prospect, Maloney states that policy dividends are always guaranteed, even though they are not. Which unfair trade practice has the agent committed? coercion unfair discrimination *misrepresentation twisting It is considered misrepresentation to circulate misleading information about an insurance contract, such as by assuring policyholders that they will receive future dividends when they are not guaranteed. Question 2 Malloy received $10,000 in premiums from clients on June 1. Which statement best describes his responsibilities with regard to these funds? He must deliver the premiums to the insurer within 5 days. He must immediately deposit the premiums in a trust account and remit them to the insurer within 10 days. *He must promptly pay all premiums to the insurer and may not commingle them with his personal funds. He must deposit the premiums in a trust account and deliver them to the insurer within 21 days. An agent may not commingle insurance premiums with personal funds and must promptly pay all funds to the insurer or insured. However, agents are not required to maintain a separate bank deposit for the funds of each principal, if the funds are readily ascertainable from the agent's accounts and records. Question 3 Acme Insurance and Apogee Insurance agree to offer different premium rates for persons of equal risk within a particular class. They also agree to limit benefits paid to insureds within this class if the insureds live in certain towns in Georgia. What are Acme and Apogee engaging in? acceptable marketing and underwriting practices insurance fraud false advertising *unfair and prohibited business practices Acme and Apogee are agreeing to an unreasonable restraint of trade in the insurance business of Georgia. Furthermore, they are engaging in unfair discrimination by charging persons of the same class and substantially equal risk different premium rates and by paying different benefits to persons in this class. Question 4 Smith received $20,000 in premiums from his clients and used half of the funds to buy a new entertainment system for his office. Which of the following penalties may be imposed for this misconduct? license suspension for up to six months fine of up to $50,000 *felony conviction restitution An agent may not commingle premiums with his or her personal funds and must promptly pay all funds to the insurer or insured. A willful violation is considered a misdemeanor or a felony if the amount involved is more than $500. To boost her insurance sales at the end of the year, Trudy offered potential clients a $250 cash gift card in exchange for purchasing a life insurance policy. Which ethical sales practice has Trudy violated? false information twisting churning *rebating Agents cannot offer anything of value to induce someone to buy insurance, including a rebate of the premium, dividends, stocks or bonds, or paid employment. They also cannot pay or offer to pay anything of value that is not specified in the insurance contract. This unfair trade practice is known as rebating. Question 2 When meeting with a prospect to discuss life insurance, Tyler makes disparaging comments about the financial stability and reputation of a competitor to dissuade the prospect from purchasing its policies. Which unfair trade practice has Tyler committed? rebating *defamation coercion unfair discrimination It is considered defamation to publish or circulate a false, deceptive, or misleading statement about—or a statement that is maliciously critical of or derogatory to—the financial condition of an insurer, when such a statement is designed to injure anyone in the insurance business. Question 3 Which statement describes the purpose of the Georgia Life and Health Insurance Guaranty Association? *It protects policyholders against an insurance company's failure to perform its contractual obligations because of impairment or insolvency. It provides access to life and health insurance to individuals who would otherwise be uninsurable. It protects domestic and foreign insurers that are experiencing financial problems. It guarantees that insurers will pay minimum returns on variable insurance and annuity contracts. The Georgia Life and Health Insurance Guaranty Association protects policyowners, insureds, and beneficiaries if insurers become impaired or insolvent and unable to perform their contractual obligations. Question 4 When comparing her insurance company's policies to those of Zenith Insurance, Melanie makes a misleading statement to convince an insurance prospect to terminate a policy with Zenith and buy one from Melanie's company. What has Melanie engaged in? rebating *twisting defamation unfair discrimination A person cannot make a false or misleading statement or comparison about an insurance policy in order to induce someone to lapse, surrender, terminate, retain, or convert an insurance policy or buy a policy with another insurer

Misrepresentation

No one may misrepresent the terms, benefits, or advantages of an insurance policy. No one may make false or misleading statements about dividends paid on a policy or on similar policies, and no one may make false or misleading statements about the financial condition of an insurer.

Prohibited Advertising Practices

No one may publish or circulate a false, deceptive, or misleading statement about the insurance business or about anyone involved in the insurance business.

Twisting and Churning

A person cannot make a false or misleading statement or comparison about an insurance policy in order to induce someone to lapse, surrender, terminate, retain, or convert an insurance policy or to buy a policy with another insurer. This unfair practice is known as twisting. Churning involves using the policy values in an existing life insurance policy to purchase another policy without having a reasonable basis for believing that the new policy will provide the policyowner with an actual benefit. This unlawful activity generally increases the amount of commission a producer will receive. Churning is illegal and is a violation of the fiduciary responsibility a producer has to act in a client's best interest

Reporting and Disposition of Premiums [33-23-35]

Fiduciary Responsibility - Licensees hold insurance premiums and other funds in a fiduciary capacity. As a result, the licensee must promptly account for and pay all premiums and other funds to the person entitled to them. A willful violation of this requirement is considered a misdemeanor Commingling of Premiums -An agent may not commingle premiums with his or her personal funds and must promptly pay all funds to the insurer or insured. However, agents are not required to maintain a separate bank deposit for the funds of each principal if the funds are readily ascertainable from the agent's accounts and records. -The Commissioner may impose a fine and place on probation, suspend, or revoke a person's license for violating these rules. A willful violation is considered a misdemeanor or a felony if the amount involved is more than $500.

Unfair Discrimination

Unfair discrimination occurs when persons of the same class and substantially equal risk are charged different premium, fees, or other charges, or when different benefits are paid to these persons. It is also unlawful to discriminate unfairly among individuals based on their: -race -color -national or ethnic origin -status as a victim of family violence Individuals who are unfairly discriminated against may bring a civil cause of action for damages, including: -damages for bad faith -attorney's fees -the cost of litigation -punitive or exemplary damages, if the violation is willful

Defamation

No one may publish or circulate a false, deceptive, or misleading statement about—or a statement that is maliciously critical of or derogatory to—the financial condition of an insurer, when such a statement is designed to injure anyone in the insurance business.

Unfair Trade Practices

The Georgia Insurance Code identifies a number of acts that are considered unfair trade practices, which are discussed in this lesson.

Georgia Life and Health Insurance Guaranty Association [33-24-7, 33-38-1 through 10]

The Georgia Life and Health Insurance Guaranty Association is a nonprofit organization that protects policyowners, insureds, and beneficiaries if insurers become impaired or insolvent and unable to perform their contractual obligations. The association, which is supervised by the Commissioner, also helps detect and prevent insurer insolvencies and impairments. All licensed life and health insurers must be members of the association and are assessed funds to carry out its purpose. The Commissioner may suspend or revoke an insurer's certificate of authority if it fails to pay assessments when due. The Georgia Life and Health Insurance Guaranty Association provides coverage for: -individual life insurance policies -health insurance policies -annuity contracts -supplemental contracts to life and health insurance policies and annuity contracts -direct group life insurance policies, health insurance policies, and annuity contracts If a domestic insurer is impaired or insolvent, the association may -guarantee or reinsure the insurer's policies; -provide money to assure payment of the insurer's contractual obligations; and -lend money to the insurer. The association's liability is limited to the amount the insurer would have been obligated to pay under the policy or contract. The association's liability is also limited to: -$300,000 in life insurance death benefits for one life (up to $100,000 in net cash withdrawal values) or -$5 million for annuity benefits It is an unfair trade practice for anyone to use the existence of the Georgia Life and Health Insurance Guaranty Association or the protections the association offers for the purpose of selling insurance. Remember that an applicant's statements made on an application for insurance or an annuity are considered a representation of fact, not a warranty. Therefore, an applicant's misrepresentations, omissions, concealment of facts, or incorrect statements will not prevent him or her from receiving benefits unless they are -Fraudulent -Material to the insurer's acceptance of the risk; or -So important to the insurer to know the truth that the insurer would not have issued the policy or annuity or would not have issued it for the amount applied for or at the premium charged.

Key Points

-Insurers and agents cannot pay anything of value to induce someone to buy insurance, including a rebate of premiums or commissions. -It is considered misrepresentation to make statements or comparisons that misrepresent a policy's terms, benefits, and dividends. -An insurer may not unfairly discriminate among policyholders by charging different premiums or offering different terms of coverage. -Making a false or misleading statement or comparison about an insurance policy to induce someone to lapse, surrender, or convert a policy or to buy a policy with another insurer is known as twisting and is unlawful. -Churning involves using the policy values in an existing life insurance policy to purchase another policy without having a reasonable basis for believing that the new policy will provide the policyowner with an actual benefit. -It is unlawful to publish or circulate a false, deceptive, or misleading statement about the insurance business or about anyone involved in the insurance business. -Agents hold premiums and other funds in a fiduciary capacity. -Agents may not commingle premiums with their personal funds and must promptly pay all funds to the insurer or insured. -Agents who violate the fiduciary duty and commingling rules may be guilty of a misdemeanor or felony depending on the amount involved. -The Georgia Life and Health Insurance Guaranty Association protects policyowners, insureds, and beneficiaries if insurers become impaired or insolvent and unable to perform their contractual obligations. -Insurers and others cannot use the existence of the Georgia Life and Health Insurance Guaranty Association or the protections it offers to sell insurance.

Rebating

Insurers and their agents cannot pay or offer to pay anything of value to induce someone to buy insurance, such as: -a rebate of premiums -advantages in dividends or benefits -stocks, bonds, or other securities -any other valuable consideration not included in the contract The following, however, are not considered rebates: -paying equitable bonuses to annuity or life insurance policyholders or lowering premiums out of surplus accumulated from nonparticipating insurance; -in the case of policies issued on the industrial debit plan, making allowance to policyholders who have continuously paid premiums directly to the insurer for a specified period, which fairly represents the saving in collection expense; -readjusting premiums for group insurance policies based on the loss or expense experience at the end of a policy year (made retroactive for that policy year only); -issuing insurance policies covering an insurer's employees at a rate less than the rate charged other individuals in the same class; -reducing premium rates for life or health policies on salary saving or payroll deduction plans because of the savings made by using the plan; -paying commissions to agents and brokers; -returning dividends, savings, or unabsorbed premium deposits to participating policyholders and members; -paying part of an agent's commissions on public insurance to a nonprofit association of insurance agents, to be used for a civic enterprise; -paying for food or refreshments provided to prospective clients during a group sales presentation or seminar; -paying for an agent's or broker's business meals and entertainment with prospective clients; or -advertising or conducting promotional programs where prizes, goods, wares, store gift cards, gift certificates, sporting event tickets, or merchandise are given to current or prospective customers, not exceeding $100 in value per customer in any one calendar year.