Key Takeaways
- Misrepresentation includes any false or misleading statement about policies, coverage, or insurers
- Rebating is offering valuable inducements not specified in the policy to encourage purchase
- Twisting is misrepresenting facts to induce a policyholder to replace existing coverage
- Unfair discrimination uses non-risk-based factors in underwriting or rating
- DISB enforces consumer protection through complaint investigation and disciplinary action
Last updated: January 2026
DC Prohibited Practices and Consumer Protection
Overview of Unfair Trade Practices
DC law prohibits various unfair trade practices in insurance under DC Code Title 31 and DISB regulations. These prohibitions protect consumers from exploitation and maintain industry integrity.
Misrepresentation
Definition
Misrepresentation is making false or misleading statements, or omitting material facts, in connection with insurance transactions.
Types of Misrepresentation
| Type | Description | Example |
|---|---|---|
| False Statements | Untrue assertions about coverage | "This policy covers flood damage" (when it doesn't) |
| Misleading Information | Technically true but deceptive | "Most people buy this coverage" (implying requirement) |
| Omissions | Failing to disclose material facts | Not mentioning major exclusions |
| Fraudulent Applications | False information on applications | Underreporting driving violations |
| Insurer Misrepresentation | False statements about insurer | Misrepresenting financial strength |
Misrepresentation Examples
Prohibited Conduct:
- Claiming coverage exists when it doesn't
- Misrepresenting policy terms or conditions
- Using misleading policy names
- Falsifying information on applications
- Making unauthorized guarantees about claims
- Misrepresenting the financial condition of an insurer
- Implying government endorsement of products
Penalties for Misrepresentation
| Penalty | Details |
|---|---|
| License Suspension | Up to 2 years |
| License Revocation | Permanent loss of license |
| Fines | Up to $10,000 per violation |
| Restitution | Repayment to harmed consumers |
| Criminal Prosecution | For fraudulent misrepresentation |
Rebating
Definition
Rebating is offering or giving valuable consideration NOT specified in the policy as an inducement to purchase insurance.
Prohibited Rebating Examples
| Type | Example |
|---|---|
| Cash Returns | Giving client portion of commission |
| Gifts | Providing valuable gifts (over $25) to induce purchase |
| Services | Free services not specified in policy |
| Securities | Offering stock or other investments |
| Special Favors | Advantages not available to all |
| Payments | Paying client's premium or deductible |
Limited Exceptions to Rebating Prohibition
| Exception | Conditions |
|---|---|
| Nominal Gifts | Under $25 per year, marketing purposes |
| Filed Dividends | Declared dividends specified in policy |
| Group Discounts | Approved group discount programs |
| Loyalty Programs | Filed and approved programs |
| Service Improvements | Better service, not cash value |
Why Rebating is Prohibited
- Unfair Competition - Creates unequal playing field
- Consumer Deception - May mask inadequate coverage
- Rate Integrity - Undermines filed rate system
- Insurer Solvency - Threatens premium adequacy
- Agent Accountability - Encourages unprofessional conduct
Exam Tip: In DC, rebating is strictly prohibited. Even small gifts or commission sharing can constitute illegal rebating unless specifically permitted under filed policy terms or within the nominal gift exception.
Twisting
Definition
Twisting is making misrepresentations or incomplete/unfair comparisons to induce a policyholder to lapse, forfeit, surrender, or replace existing insurance.
Elements of Twisting
| Element | Description |
|---|---|
| Misrepresentation | False or misleading statements |
| Target | Existing policy or proposed replacement |
| Intent | To induce replacement or lapse |
| Motive | Typically for producer's financial benefit |
Twisting Examples
| Scenario | Why It's Twisting |
|---|---|
| Exaggerating defects | Overstating problems with current policy |
| Misrepresenting benefits | Falsely claiming new policy is superior |
| Hiding disadvantages | Not disclosing replacement policy limitations |
| Unfair comparisons | Misleading side-by-side comparisons |
| Urgency tactics | Creating false urgency to replace |
Distinguishing Twisting from Legitimate Replacement
| Twisting | Legitimate Replacement |
|---|---|
| Uses misrepresentation | Provides accurate information |
| Hides replacement disadvantages | Discloses all material differences |
| Benefits producer primarily | Benefits client primarily |
| Uses high-pressure tactics | Allows informed decision |
| Incomplete comparisons | Complete, fair comparisons |
DC Replacement Regulations
When replacing existing coverage, DC producers must:
| Requirement | Details |
|---|---|
| Written Comparison | Side-by-side comparison of old vs. new |
| Notice to Existing Insurer | May be required to notify current insurer |
| Free Look Period | Client has right to cancel within free look |
| Full Disclosure | Reveal all costs and disadvantages of replacement |
| Documentation | Maintain records of replacement transaction |
Churning
Definition
Churning is excessive replacement of insurance policies by a producer to generate commissions, without regard to client benefit.
Churning Indicators
| Indicator | Concern |
|---|---|
| Frequent Replacements | Same producer replacing policies repeatedly |
| No Client Benefit | Coverage not improved significantly |
| Pattern of Behavior | Multiple clients with similar replacement patterns |
| Internal Replacement | Replacing policies within same company |
| Premium Increases | Client paying more for similar coverage |
Unfair Discrimination
Definition
Unfair discrimination is making distinctions between insureds NOT based on sound actuarial principles or reasonable classification systems.
Prohibited Discriminatory Factors in DC
| Factor | Status |
|---|---|
| Race or Color | Strictly prohibited |
| Religion | Strictly prohibited |
| National Origin | Strictly prohibited |
| Sex/Gender | Generally prohibited (limited actuarial exceptions) |
| Sexual Orientation | Prohibited under DC Human Rights Act |
| Gender Identity | Prohibited under DC Human Rights Act |
| Marital Status | Prohibited |
| Family Status | Prohibited |
| Personal Appearance | Prohibited under DC Human Rights Act |
| Disability | Prohibited unless actuarially justified |
| Genetic Information | Prohibited |
| Political Affiliation | Prohibited under DC law |
Permitted Risk-Based Factors
| Factor | Permitted Use |
|---|---|
| Driving Record | Auto insurance rating |
| Claims History | All lines of insurance |
| Property Condition | Property insurance |
| Location | If based on actual risk data |
| Credit Score | Limited use, must be actuarially justified |
| Occupation | If directly related to risk |
| Coverage Amount | Rating by policy limits |
Exam Tip: DC's anti-discrimination protections are among the most comprehensive in the nation. The DC Human Rights Act protects additional classes not covered by federal law.
Other Prohibited Practices
Coercion and Intimidation
| Prohibited Conduct | Example |
|---|---|
| Tying | Requiring purchase of insurance with loan |
| Threats | Threatening policy cancellation without basis |
| Intimidation | Using fear tactics to sell |
| Coerced Claims | Forcing insured to use specific vendors |
False Advertising
| Prohibited Conduct | Example |
|---|---|
| Misleading Claims | "Lowest rates guaranteed" without basis |
| False Comparisons | Unfounded competitor criticism |
| Fake Endorsements | Using celebrity without permission |
| Hidden Conditions | Advertising rates with hidden qualifications |
Unfair Claims Practices
| Prohibited Conduct | Description |
|---|---|
| Unreasonable Delays | Not processing claims promptly |
| Lowball Offers | Offering less than reasonable value |
| Misrepresenting Coverage | Denying valid claims falsely |
| Failure to Investigate | Not properly investigating claims |
| Bad Faith | Acting dishonestly in claims handling |
DC Consumer Protection
DISB Consumer Services Division
DISB protects DC insurance consumers through:
| Function | Description |
|---|---|
| Complaint Handling | Investigate consumer complaints |
| Mediation | Help resolve disputes |
| Education | Consumer education programs |
| Enforcement | Disciplinary actions against violators |
| Licensing | Ensure only qualified producers are licensed |
Filing a Consumer Complaint
| Step | Details |
|---|---|
| 1. Contact DISB | Phone: (202) 727-8000 or online |
| 2. Provide Documentation | Policy, correspondence, claims records |
| 3. DISB Investigation | Department contacts insurer/producer |
| 4. Response Required | Producer/insurer must respond |
| 5. Resolution | DISB works toward resolution |
| 6. Enforcement | Action taken if violations found |
Consumer Rights in DC
| Right | Description |
|---|---|
| Information | Right to clear policy information |
| Fair Treatment | Freedom from discrimination |
| Prompt Claims | Timely claims handling |
| Appeal | Right to appeal adverse decisions |
| Privacy | Protection of personal information |
| Complaint | Right to file complaints with DISB |
Disciplinary Process
Grounds for License Discipline
| Violation | Potential Penalty |
|---|---|
| Material Misrepresentation | Revocation, fines |
| Fraud | Revocation, criminal prosecution |
| Rebating | Revocation, fines up to $10,000/violation |
| Twisting | Revocation, restitution |
| Unfair Discrimination | Fines, cease and desist |
| Record Keeping Failures | Fines, suspension |
| Premium Misappropriation | Revocation, criminal charges |
| Failure to Report | Suspension, fines |
| CE Non-Compliance | License not renewed |
| Criminal Conviction | Suspension or revocation |
Disciplinary Procedure
| Step | Process |
|---|---|
| 1. Investigation | DISB investigates complaint or violation |
| 2. Notice | Written notice of charges to producer |
| 3. Response | Producer may respond to charges |
| 4. Hearing | Administrative hearing if requested |
| 5. Decision | Commissioner issues findings |
| 6. Appeal | Right to appeal to DC Superior Court |
| 7. Publication | Disciplinary actions are public record |
Penalty Ranges
| Penalty Type | Range |
|---|---|
| Fines | Up to $10,000 per violation |
| Suspension | 30 days to 2 years |
| Revocation | Permanent (may apply for reinstatement later) |
| Probation | Supervised practice with conditions |
| Restitution | Full repayment to harmed parties |
| CE Remediation | Additional education requirements |
Building an Ethical Practice
Best Practices for Compliance
| Practice | Implementation |
|---|---|
| Written Procedures | Documented compliance policies |
| Regular Training | Annual ethics and compliance training |
| Documentation | Thorough records of all transactions |
| Disclosure Forms | Standardized disclosure documents |
| Supervision | Oversight of staff and agents |
| Self-Audit | Regular review of practices |
When Facing Ethical Dilemmas
| Step | Action |
|---|---|
| 1. Pause | Don't act impulsively |
| 2. Gather Facts | Understand the full situation |
| 3. Identify Stakeholders | Who is affected? |
| 4. Consider Options | What are the possible actions? |
| 5. Apply Principles | What do ethics and regulations require? |
| 6. Seek Guidance | Consult compliance, legal, or mentors |
| 7. Document | Record your reasoning and decision |
| 8. Act | Implement the ethical choice |
Long-Term Benefits of Ethical Conduct
| Benefit | Impact |
|---|---|
| Client Retention | Satisfied clients stay loyal |
| Referrals | Happy clients recommend you |
| Reputation | Known as trustworthy professional |
| Career Longevity | Avoid discipline and legal issues |
| Personal Satisfaction | Pride in doing the right thing |
| Industry Trust | Contribute to positive industry image |
Exam Tip: On ethics questions, always choose the answer that puts client interests first, provides full disclosure, complies with regulations, and maintains professional integrity—even if it means less commission or losing a sale.
Test Your Knowledge
What is twisting in insurance?
A
B
C
D
Test Your Knowledge
A producer offers a client a $100 gift card to purchase a policy. Is this permitted in DC?
A
B
C
D
Test Your Knowledge
Which of the following is a permitted rating factor in DC auto insurance?
A
B
C
D