Chapter Two: Ethics

An example of an unfair claim settlement practice would include:

Advising a claimant of the possibility that, should the claimant reject a settlement offer, an arbitration award might be less than the offer Trying to discourage a claimant from arbitrating a claim by implying that arbitration might result in an award lower than the amount offered is an unfair claim settlement practice.

Defamation occurs when:

An individual or entity makes false, derogatory statements about an insurer's financial condition that are calculated to injure the insurer's business Defamation occurs when an individual or entity makes false, deliberately malicious and derogatory statements about an insurer's financial condition that are calculated to injure the insurer's business. The individual literally _de fames_ the insurer _ i.e., robs the insurer of its fame or reputation.

The practice of using misrepresentation to induce a policyholder to replace a policy issued by the insurer the producer represents is called:

Churning When a producer misrepresents a policy from the company he or she represents in order to induce a policyholder to replace it with another policy issued by the insurer, the producer has engaged in churning. He or she has recirculated funds and policies within their own company, generally in order to secure a first-year commission.

In discussing a potentially lucrative group policy with a business owner who had purchased a business and just moved into the community, an established producer jokingly remarked, "Well, would it sweeten the pot if I could assure you membership in the country club?"The producer added, "I'm on the membership committee and while we're not accepting new application right now, I'm sure something could be worked out." These remarks constituted:

Rebating While it is possible a little intimidation was intended in the producer's mention of serving on the membership committee of the closed club, it is clearer the producer is engaging in rebating. The producer is offering something that can have significant value to a new member of the business community (club membership) as a bonus for the purchase of a policy. The offer to, sweeten the pot, was clear and the context of the following conversation made it unmistakable rebating. Obviously the producer did not intend to include that service in the insurance contract. Any inducement in the sale of insurance that is not specified in the insurance contract itself is a rebate.

It is illegal to do any of the following, EXCEPT:

To readjust premium rates, made retroactive for the policy year, for group insurance policies based on loss or expense It is not considered to be a rebate or unfair discrimination to readjust premium rates retroactively for group insurance policies based on considerations of loss or expense. This is not based on prejudice, but fair business practices.

In the underwriting of insurance policies, some amount of discrimination is:

Present in many cases, because of differing levels of risk Legitimate discrimination must occur in underwriting of an insurance policy. For instance, two individuals of the same race and sex may present very different risks to an insurer and will be charged different rates based on credible supporting information. Unfair discrimination exists when two people of equal risk are charged different rates or provided different services and benefits solely because of a difference in race, religion, national origin, or where they live. Unfair discrimination is illegal.

Which of the following is considered an unfair claims practice?

Failing to affirm or deny coverage within a reasonable time after receiving proof of loss Splitting a commission, convincing a policyholder to lapse or surrender an existing policy so the agent may sell another policy; making statements that are false, maliciously critical, or calculated to injure a competing producer are all unfair marketing practices. Failing to acknowledge coverage within a reasonable time after receiving proof of loss is an unfair claims practice.

Leo, a producer, sat down with a prospective client to discuss a long-term care policy. He used a computer program to outline and emphasize his remarks. The visual presentation contained the principal benefits of the policy he was trying to sell. Although he mentioned that it also had, the usual, conditions, he did not include those in his visual presentation or specify what they were. The producer was engaging in:

Misrepresentation Statements are deemed to be misrepresentations if, when taken in the context of the whole presentation, they may tend to mislead or deceive a person. By detailing only the benefits, the producer was not giving a fair representation of the policy.

All of the following acts are considered unfair trade practices, EXCEPT:

Replacement Replacement is not, in itself, an illegal practice. It occurs when a new life insurance policy is written to take the place of an existing policy. It can rise to the level of twisting if a producer or insurer induces an insured through misrepresentation to lapse or surrender a policy in order to buy a similar policy from the selling producer or insurer.

All of the following, if performed frequently enough to indicate a general business practice, are unfair claims settlement practices, EXCEPT:

Requiring submission of preliminary claim report or a formal proof of loss before paying a claim. Requiring submission of preliminary claim report or a formal proof of loss before paying a claim is standard practice and not an unfair claim practice. Delaying the investigation or payment of a claim by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;