Unfair Trade Practices in Maine

Maine law prohibits unfair and deceptive trade practices in the insurance industry. Understanding these prohibitions is essential for ethical practice and exam success.

Unfair Claim Settlement Practices

Maine's Unfair Claims Laws

Under Title 24-A MRS § 2436, Maine prohibits specific unfair claim settlement practices:

Prohibited Practices

Maine Standards for Claims Handling

Prompt Investigation Required:

• Begin investigation within reasonable time (typically 15-30 days)
• Request necessary documentation
• Communicate with insured regularly
• Provide status updates

Timely Payment Required:

• Pay undisputed claims promptly
• Typically within 30 days of proof of loss
• Interest may accrue on delayed payments
• Penalties for unjustified delays

Communication Standards:

• Acknowledge all claim communications
• Respond to inquiries within reasonable time
• Provide clear explanations for decisions
• Use plain language (not insurance jargon)

Exam Tip: Maine law requires insurers to handle claims in "good faith" with prompt communication, fair investigation, and timely payment. Systematic delays or low-ball offers violate Maine law.

Misrepresentation and False Advertising

Prohibition on Misrepresentation

Maine prohibits producers from:

False Statements:

• Making false or misleading statements about:
  • Policy terms, benefits, or advantages
  • Dividends or share of surplus
  • Insurer's financial condition
  • Competitor's policies or practices
  • Nature of coverage

Omissions:

• Failing to disclose material information
• Concealing policy limitations or exclusions
• Not explaining coverage gaps

Examples of Misrepresentation

Prohibited Conduct:

1. "This policy covers everything!"

   • False - all policies have exclusions
   • Must accurately describe coverage

2. "My company has never denied a claim."

   • False advertising
   • Misleading statement about company practices

3. "You don't need to list all drivers."

   • Material misrepresentation
   • Could void coverage

4. Not disclosing flood exclusion when selling homeowners policy near coast

   • Omission of material fact
   • Violates disclosure duty

Penalties

• License suspension or revocation
• Fines up to $10,000 per violation
• Restitution to harmed consumers
• Criminal prosecution for fraud

Rebating

Prohibition on Rebating

Rebating Definition: Offering or giving anything of value not specified in the insurance policy as an inducement to purchase insurance.

What Constitutes Rebating

Prohibited Rebates:

Why Rebating is Prohibited:

• Creates unfair competition
• Discriminates between customers (some get rebates, others don't)
• May lead to inadequate coverage (customers choose based on rebate, not coverage)
• Undermines rate integrity

Permitted Practices

NOT Rebating:

• Standard commissions paid by insurer to producer
• Advertising and promotional items of nominal value (pens, calendars under $25 typically)
• Educational materials and policy services
• Premium discounts approved by insurer and filed with Bureau
• Multi-policy discounts authorized by insurer

Exam Tip: Rebating involves giving something of value NOT specified in the policy. Approved premium discounts (multi-policy, good driver) are NOT rebating—they're part of the filed rate structure.

Twisting and Churning

Twisting

Definition: Inducing a policyholder to lapse, forfeit, or surrender existing insurance through misrepresentation or incomplete comparison to purchase new coverage.

Elements of Twisting:

1. Misrepresentation or incomplete information
2. About existing policy
3. To induce replacement with new policy
4. That is not in insured's best interest

Examples of Twisting

Scenario 1: Life Insurance Twisting

Producer tells client:

• "Your current term policy is terrible"
• "This whole life policy is much better"
• Fails to mention higher premiums, lower death benefit initially
• Client surrenders term policy and buys whole life

Result: Twisting—misrepresented existing coverage to sell new policy.

Scenario 2: Auto Insurance Twisting

Producer tells client:

• "Your current 50/100/25 coverage is inadequate"
• "You need 100/300/100 immediately"
• Exaggerates risks, creates fear
• Doesn't fully explain cost increase

Result: May be twisting if misrepresentation or incomplete disclosure occurred.

Churning

Definition: Repeatedly replacing insurance policies to generate new commissions without benefit to insured.

Characteristics:

• Multiple policy replacements
• In short time periods
• No substantial benefit to insured
• Primary benefit is producer commissions

Example:

Producer replaces client's auto policy three times in 18 months, each time with different insurer. Each replacement generates new commission but provides no additional benefit to client.

Result: Churning—excessive replacement for producer's benefit, not client's.

Maine Policy Replacement Rules

When Replacing Existing Coverage:

Producer Must:

1. Complete replacement form disclosing existing coverage
2. Provide comparison of old policy vs. new policy
3. Disclose disadvantages of replacement (new waiting periods, exclusions)
4. Document reasons why replacement is beneficial
5. Obtain written acknowledgment from insured

Insurer Must:

• Review all replacement transactions
• Notify existing insurer of replacement
• Maintain replacement files for 5 years

Discrimination

Prohibited Discrimination

Maine prohibits unfair discrimination in:

Insurance Activities:

• Rates and premiums
• Policy terms and conditions
• Application acceptance or rejection
• Claims handling
• Policy cancellation or non-renewal

Protected Characteristics

Cannot Discriminate Based On:

Unfair vs. Permitted Discrimination

Unfair Discrimination:

• Based on characteristics unrelated to risk
• Treats similarly situated insureds differently
• Violates protected class prohibitions

Permitted Discrimination:

• Based on legitimate risk factors
• Actuarially sound and justified
• Approved by Bureau of Insurance
• Applied uniformly

Examples:

✅ Permitted: Charging higher auto premiums for young drivers (statistically higher risk)

❌ Prohibited: Charging higher rates based on zip code that correlates with race (redlining)

✅ Permitted: Offering non-smoker discount on life insurance (risk-based)

❌ Prohibited: Denying coverage because applicant is from certain country

Redlining

Definition: Refusing to insure or charging higher rates based on geographic area as proxy for protected class.

Prohibited in Maine:

• Cannot refuse coverage based solely on property location
• Cannot use zip codes as proxy for race/ethnicity
• Must show actuarial justification for geographic rating
• Subject to Bureau review

Maine Insurance Fraud

Criminal Insurance Fraud

Maine law prohibits insurance fraud:

Fraudulent Acts:

Producer Responsibilities

Duty to Detect and Report Fraud:

Producers must:

1. Verify information on applications
2. Question inconsistencies in applicant statements
3. Report suspected fraud to insurer and Bureau
4. Maintain accurate records documenting all transactions
5. Not participate in fraudulent schemes

Penalties for Fraud:

• Criminal prosecution (felony for large amounts)
• License revocation
• Fines and restitution
• Imprisonment for serious fraud

Privacy and Confidentiality

Maine Consumer Information Privacy

Title 24-A, Chapter 24 regulates insurance information and privacy:

Protected Information

Nonpublic Personal Information (NPI):

• Social Security Numbers
• Financial information
• Medical records
• Credit information
• Driving records
• Claims history

Producer Obligations

Must:

• Provide privacy notice at application and annually
• Explain what information is collected and shared
• Describe consumer opt-out rights
• Obtain written authorization before sharing with non-affiliates
• Safeguard confidential information

Must Not:

• Share NPI without consent (except as permitted by law)
• Use consumer information for non-insurance purposes
• Disclose NPI to unauthorized persons

Data Security

Maine Insurance Data Security Law requires:

Information Security Program:

• Written security policies
• Employee training on data protection
• Encryption of sensitive data
• Incident response plans
• Regular risk assessments
• Vendor management

Breach Notification:

• Notify Bureau of Insurance within 3 business days of breach
• Notify affected consumers without unreasonable delay
• Provide information about breach and remediation steps

Record Keeping Requirements

Producer Record Retention

Maine requires producers to maintain records:

Required Records:

Purpose:

• Regulatory compliance verification
• Audit and examination support
• Consumer complaint resolution
• Fraud investigation

Financial Records

Premium Accounting:

• Producers handling premiums must maintain accurate accounting
• Separate premium trust accounts required
• Cannot commingle premiums with personal funds
• Regular reconciliation required

Penalties for Poor Record Keeping:

• License suspension
• Fines
• Inability to defend against complaints
• Presumption against producer in disputes