Unfair Trade Practices and Prohibited Conduct

Idaho strictly regulates insurance trade practices to protect consumers and ensure fair competition. Understanding prohibited practices is essential for passing the exam and conducting business ethically.

Idaho Unfair Trade Practices Act

Legal Foundation

Idaho Code Title 41, Chapter 13 governs unfair trade practices:

• Prohibits unfair methods of competition
• Prohibits unfair or deceptive acts or practices
• Authorizes Director to investigate and enforce
• Establishes penalties for violations

Categories of Prohibited Conduct

Misrepresentation

What Constitutes Misrepresentation

Making false or misleading statements about:

Policy Terms:

• Benefits and coverage
• Policy conditions
• Exclusions and limitations
• Premium amounts

Insurer Information:

• Financial condition
• Company ratings
• Claims-paying ability
• Ownership or affiliations

Dividends:

• Promising specific dividend amounts
• Guaranteeing dividend performance
• Misrepresenting dividend nature

Examples of Misrepresentation

Exam Tip: On the exam, any statement that is false, incomplete, or designed to mislead is likely misrepresentation. Choose answers that require complete and accurate disclosure.

Rebating

Idaho Rebating Prohibition

Rebating is offering anything of value not specified in the policy as an inducement to purchase:

Prohibited:

• Sharing commission with policyholder
• Giving gifts of significant value
• Providing free services not in policy
• Paying policyholder's bills
• Kickbacks or referral payments

Not Considered Rebating:

• Small promotional items (pens, calendars)
• Legitimate policy dividends
• Group insurance rate advantages
• Volume discounts properly filed

Examples of Rebating

Rebating Penalties

• License suspension or revocation
• Fines up to $10,000 per violation
• Civil liability
• Criminal prosecution possible

Twisting and Churning

Twisting

Twisting is misrepresenting policy terms to induce a policyholder to replace existing coverage:

Elements:

1. Existing policy in force
2. False or misleading statements made
3. Purpose is to cause replacement
4. Producer benefits (commission)

Examples:

• "Your current policy is worthless"
• "That company is going bankrupt" (false)
• "You have no coverage for X" (false)
• Omitting replacement costs (surrender charges)

Churning

Churning is excessive replacements to generate commissions:

Indicators:

• Multiple replacements in short time
• No benefit to policyholder
• Surrender charges and fees incurred
• Producer earns new commissions

Difference from Twisting:

• Twisting: Uses misrepresentation
• Churning: May not misrepresent, just excessive
• Both harm the consumer
• Both are prohibited

Defamation

What Is Defamation?

Making false statements that harm another's reputation:

In Insurance Context:

• False statements about competitors
• Disparaging other insurers' financial condition
• False claims about competitor products
• Libel (written) or slander (spoken)

Permitted:

• Truthful comparisons
• Accurate financial information
• Honest product comparisons
• Factual competitive analysis

Boycott, Coercion, and Intimidation

Prohibited Conduct

Boycott:

• Refusing to do business to force action
• Group refusal against an entity
• Unlawful coordination against competitors

Coercion:

• Threatening harm to induce action
• Forcing purchase of particular coverage
• Requiring insurance from specific provider
• Tying product sales to insurance

Intimidation:

• Threatening action to prevent claims
• Intimidating claimants
• Threatening employees or competitors

Unfair Claims Settlement Practices

Idaho Claims Handling Standards

Idaho law requires fair claims handling:

Unfair Claims Practices

Prohibited Conduct:

1. Misrepresenting Coverage

   • Claiming coverage doesn't exist
   • Understating policy benefits
   • Denying valid claims

2. Failing to Acknowledge

   • Ignoring claims submissions
   • Unreasonable delays
   • Not responding to communications

3. Failing to Investigate

   • No investigation of claims
   • Incomplete investigation
   • Biased investigation

4. Failing to Settle Promptly

   • Unreasonable delays
   • Low-ball offers to force litigation
   • Refusing reasonable settlements

5. Compelling Litigation

   • Denying claims to force lawsuits
   • Not making reasonable offers
   • Frivolous defenses

6. Failing to Explain Denial

   • Not providing reasons
   • Vague denial letters
   • No policy citation

Bad Faith Claims Handling

First-Party Bad Faith:

• Insurer unreasonably denies claim
• No reasonable basis for denial
• Insurer knew or should have known claim was valid

Potential Damages:

• Contract damages (policy benefits)
• Consequential damages
• Emotional distress in some cases
• Attorney fees
• Punitive damages possible

Unfair Discrimination

Prohibited Discrimination

Insurance discrimination occurs when rates or availability are based on factors not related to risk:

Prohibited Factors:

• Race or ethnicity
• Religion
• National origin
• Gender (in some contexts)
• Sexual orientation/gender identity
• Arbitrary distinctions

Permitted (Actuarially Justified):

• Age (when actuarially supported)
• Driving record
• Claims history
• Credit (in Idaho, with restrictions)
• Location (related to risk)
• Property characteristics

Rating Discrimination vs. Risk Classification

Controlled Business

What Is Controlled Business?

When a producer writes insurance primarily on:

• Their own life/property
• Family members
• Business associates
• People with whom they have controlling influence

Idaho Controlled Business Rules

• Not prohibited outright
• Cannot be primary business
• Must demonstrate legitimate agency business
• Excessive controlled business raises concerns

Unauthorized Insurance

Selling Unauthorized Insurance

Violations include:

• Selling for unlicensed insurers
• Placing coverage with non-admitted companies (except surplus lines)
• Acting as agent for unauthorized insurer

Exceptions:

• Licensed surplus lines placements
• Self-procurement (limited)
• Exempt transactions under law

Penalties for Violations

Range of Penalties

Specific Penalties

Fines:

• Up to $10,000 per violation
• Can multiply by number of violations
• Additional penalties for patterns

License Actions:

• Suspension (temporary loss)
• Revocation (permanent loss)
• Conditions on continued licensure

Other Consequences:

• Restitution to harmed parties
• Reporting to national databases
• Impact on future licensing
• Civil liability exposure