Key Takeaways
- The Michigan Insurance Code prohibits misrepresentation, false advertising, and unfair claims practices
- Rebating is prohibited in Michigan, with limited exceptions for nominal value items
- Twisting and churning are prohibited practices subject to license revocation and fines
- Insurers must handle claims in good faith within specified timeframes
- Unfair discrimination based on protected characteristics is prohibited in underwriting and rating
Last updated: January 2026
Unfair Trade Practices
The Michigan Insurance Code (MCL 500) prohibits various unfair or deceptive practices in the insurance industry.
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 largest" | If not true, it's false |
| "You must buy today" | False urgency |
| "This is just like a bank CD" | Misrepresenting insurance as banking product |
False Advertising
Michigan 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
Digital and Social Media Rules
- Same standards apply to social media and websites
- Must be clear it's an advertisement
- Cannot make claims that cannot be substantiated
- Producer must be identified
- Records of advertisements must be maintained
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 non-licensed individuals
- Sharing commission with non-licensed persons
- Special favors or services not available to all
Limited Exceptions
Michigan allows:
- Premium financing arrangements
- Dividends specified in policy
- Legitimate marketing items of nominal value (pens, calendars)
- Group premium discounts specified in contract
Exam Tip: Rebating is prohibited in Michigan. Items of nominal value for marketing purposes are permitted.
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 for same client
- 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 | Significant fines |
| Consumer harm | Restitution required |
Unfair Claims Practices
Michigan 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
- Failing to affirm or deny coverage in reasonable time
Claim Handling Standards
| Action | Requirement |
|---|---|
| Acknowledge claim | Promptly |
| Begin investigation | Promptly after notice |
| Accept or deny claim | Reasonable time after proof of loss |
| Pay claims | Promptly after settlement |
Bad Faith
If an insurer acts in bad faith, policyholders may recover:
- Policy benefits owed
- Consequential damages
- Penalty interest on delayed payments
- Attorney's fees in some cases
Unfair Discrimination
Michigan prohibits unfair discrimination in insurance:
Protected Characteristics
| Protected | Cannot Discriminate Based On |
|---|---|
| Race | Prohibited in all circumstances |
| Religion | Prohibited |
| National Origin | Prohibited |
| Disability | With actuarial limitations |
| Genetic Information | GINA protections apply |
| Marital Status | Limitations apply |
What IS Permitted
Risk-based underwriting using:
- Age
- Sex (for life insurance)
- Health history
- Claims history
- Occupation (with limitations)
- Tobacco use
- Lifestyle factors (hazardous activities)
Test Your Knowledge
Which of the following is generally PERMITTED in Michigan insurance sales?
A
B
C
D
Test Your Knowledge
Which practice involves making misrepresentations to induce a policyholder to replace existing coverage?
A
B
C
D