Key Takeaways
- Rebating (returning commission to induce sale) is prohibited in Connecticut
- Twisting involves misrepresenting facts to induce policy replacement with another insurer
- Churning is excessive policy replacement within the same company to generate commissions
- Misrepresentation of policy terms or coverage is a serious violation
- Unfair discrimination based on protected characteristics is illegal
Prohibited Practices Under Connecticut Law
Connecticut Unfair Insurance Practices Act (CUIPA)
The Connecticut Unfair Insurance Practices Act (CGS § 38a-815 et seq.) prohibits unfair methods of competition and unfair or deceptive acts in the insurance business. These practices are also subject to the Connecticut Unfair Trade Practices Act.
Rebating
What Is Rebating?
Rebating occurs when a producer offers something of value to a prospective insured as an inducement to purchase insurance, beyond what is specified in the policy.
Examples of Prohibited Rebating
- Returning part of your commission to the client
- Offering cash payments or gifts to purchase insurance
- Paying for services unrelated to the insurance policy
- Providing valuable items as "thank you" for buying
What's NOT Rebating
- Permissible value-added services (as allowed by CT regulations)
- Standard policy dividends
- Experience rating adjustments
- Legitimate discount programs approved by the commissioner
Important: Connecticut follows standard anti-rebating rules. Unlike California and Florida, rebating is fully prohibited in Connecticut.
Twisting
Definition
Twisting is the misrepresentation of policy terms or providing misleading information to induce a policyholder to drop an existing policy and purchase a new one from a different insurer.
Elements of Twisting
- Misrepresentation - False or misleading statements
- Existing policy - Client already has coverage
- Inducement - Purpose is to replace the policy
- Different insurer - New policy is with another company
Examples of Twisting
| Scenario | Why It's Twisting |
|---|---|
| Falsely telling client their current policy doesn't cover something it does | Misrepresentation to induce replacement |
| Claiming current insurer is financially unstable without basis | False statement about competitor |
| Exaggerating benefits of new policy while downplaying current one | Misleading comparison |
| Hiding surrender charges or tax consequences of replacing | Material omission |
Penalties for Twisting
- License suspension or revocation
- Fines
- Requirement to make client whole
- Potential criminal charges
Churning
Definition
Churning is the practice of inducing a policyholder to replace an existing policy with another policy from the same insurer, primarily to generate additional commissions.
Key Differences: Twisting vs. Churning
| Aspect | Twisting | Churning |
|---|---|---|
| Insurer | Different company | Same company |
| Method | Misrepresentation | May or may not involve misrepresentation |
| Primary issue | Deception | Excessive replacement for commission |
Examples of Churning
- Repeatedly replacing life policies using cash values
- Convincing client to "upgrade" when unnecessary
- Generating renewals through unnecessary replacements
- Multiple policy replacements with no client benefit
Misrepresentation
Types of Misrepresentation
| Type | Description |
|---|---|
| About policy terms | Lying about coverage, limits, or exclusions |
| About insurer | False claims about company stability or reputation |
| About competitor | Disparaging other companies without basis |
| About price | Misquoting premiums or fees |
| On applications | Helping clients provide false information |
Consequences
- Policy may be voidable
- Producer license revocation
- Civil liability for damages
- Criminal prosecution for fraud
Unfair Discrimination
Prohibited Discrimination
Connecticut prohibits unfair discrimination in insurance based on:
- Race, color, or national origin
- Religion or creed
- Sex or gender
- Age (except where actuarially justified)
- Disability
- Other protected characteristics
Permissible Underwriting
Insurance companies may use legitimate factors:
- Age (with actuarial justification)
- Health status (for life/health insurance)
- Driving record (for auto insurance)
- Claims history
- Location (for property insurance)
- Credit information (with limitations)
Other Prohibited Practices
Defamation
Making false statements about competitors or other insurers to harm their business.
Coercion/Intimidation
- Forcing clients to buy insurance
- Threatening negative consequences for not purchasing
- Tying insurance to other products improperly
Unfair Claim Practices
- Failing to acknowledge claims promptly
- Misrepresenting policy provisions
- Denying claims without proper investigation
- Delaying payment without justification
Exam Tip: Remember the key differences between twisting (different insurer, involves misrepresentation) and churning (same insurer, excessive replacement for commission). Both are prohibited in Connecticut.
A producer tells a client their current life insurance policy has no cash value, when it actually has $50,000 in cash value, to convince them to buy a new policy from a different company. This practice is called:
What is the key difference between twisting and churning?
A producer offers to pay a prospective client $500 if they purchase a homeowners policy. This practice is called: