Key Takeaways
- Arizona Revised Statutes Title 20 Chapter 2 Article 1 prohibits unfair trade practices including misrepresentation and false advertising
- Rebating is prohibited in Arizona, with limited exceptions for certain premium adjustments
- Twisting and churning are prohibited practices subject to license revocation and fines
- Insurers must handle claims in good faith and within reasonable timeframes
- Unfair discrimination based on protected characteristics is prohibited in underwriting and rating
Unfair Trade Practices
Arizona Revised Statutes Title 20, Chapter 2 prohibits various unfair or deceptive practices in the insurance industry. These laws protect consumers and maintain market integrity.
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 strongest" | If not factually true |
| "You must buy today" | False urgency |
False Advertising
Arizona 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
- Cannot make claims that cannot be substantiated
Digital and Social Media
- Same standards apply to digital and social media
- Must be clear it's an advertisement
- Producer must be identified
- Disclosures must be clear and conspicuous
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
- Providing anything of value as inducement
Limited Exceptions
Arizona allows:
- Dividends specified in policy
- Legitimate marketing items of nominal value
- Experience rating premium adjustments
- Group discount arrangements
Exam Tip: Rebating is generally prohibited in Arizona. Very limited exceptions exist for nominal value items and policy-specified dividends.
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 in short periods
- 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 $1,000 fine |
| Consumer harm | Restitution required |
Unfair Claims Practices
Arizona 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 Standards
| Action | Standard |
|---|---|
| Acknowledge claim | Prompt acknowledgment required |
| Investigation | Complete and fair investigation |
| Decision communication | Timely notice of decision |
| Payment | Prompt payment upon determination |
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
Arizona prohibits unfair discrimination in insurance:
Protected Characteristics
| Protected | Cannot Discriminate Based On |
|---|---|
| Race | Prohibited |
| Color | Prohibited |
| Religion | Prohibited |
| National Origin | Prohibited |
| Disability | With limitations |
What IS Permitted
Risk-based underwriting using actuarially justified factors:
- Age
- Sex (with actuarial justification)
- Health history
- Claims history
- Occupation (with limitations)
- Lifestyle factors (smoking, hazardous activities)
Note: Arizona allows actuarially justified underwriting factors that some states prohibit. The key is actuarial justification based on risk data.
Which of the following is generally PERMITTED in Arizona insurance sales?
What is the maximum fine per violation for unfair trade practices in Arizona?