Key Takeaways
- NY Insurance Law Section 2403 prohibits unfair methods of competition and unfair trade practices
- Rebating is prohibited in New York with limited exceptions for group premium discounts
- Twisting and churning are prohibited practices subject to license revocation and criminal penalties
- Insurers must handle claims in good faith within specified timeframes under Regulation 64
- Unfair discrimination based on protected characteristics is prohibited in underwriting and rating
Unfair Trade Practices
NY Insurance Law Section 2403 prohibits unfair methods of competition and deceptive practices in the insurance industry. New York enforces these provisions strictly.
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 strongest" | Unless objectively verifiable |
| "You must buy today or lose this rate" | False urgency |
False Advertising
New York 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
Social Media Rules
- Same standards apply to social media
- Must be clear it's an advertisement
- Cannot make claims that can't be substantiated
- Producer and company must be identified
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 individuals
- Sharing commission with non-licensed persons
Limited Exceptions
New York allows:
- Premium financing arrangements
- Dividends specified in policy
- Group premium discounts
- Nominal value promotional items
Exam Tip: Rebating is generally prohibited in New York. The limited exceptions are narrowly defined and should not be confused with prohibited inducements.
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 in New York
| Violation | Potential Penalty |
|---|---|
| First offense | Warning, fine, or suspension |
| Repeat offense | License revocation |
| Per violation | Up to $1,000 fine (individual) |
| Insurer violations | Up to $10,000 per violation |
| Willful violations | Criminal prosecution possible |
Unfair Claims Practices
New York Regulation 64 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
Claim Handling Timeframes (Regulation 64)
| Action | Timeframe |
|---|---|
| Acknowledge claim | 15 business days |
| Request additional information | 30 calendar days |
| Accept or deny claim | 30 calendar days after documentation received |
| Pay undisputed amounts | Promptly after settlement |
Bad Faith
If an insurer acts in bad faith, policyholders may recover:
- Policy benefits owed
- Consequential damages
- Punitive damages in egregious cases
- Attorney's fees
Unfair Discrimination
New York prohibits unfair discrimination in insurance:
Protected Characteristics
| Protected | Cannot Discriminate Based On |
|---|---|
| Sex | Limited use for rates |
| Sexual Orientation | Full protection |
| Gender Identity | Full protection |
| Marital Status | Cannot penalize unmarried |
| Domestic Violence Status | Cannot use in underwriting |
| Race/Ethnicity | Prohibited |
| Religion | Prohibited |
| Genetic Information | Cannot use in underwriting |
What IS Permitted
Risk-based underwriting using:
- Age
- Health history (for life and disability)
- Claims history
- Occupation (with limitations)
- Lifestyle factors (smoking, hazardous activities)
Which of the following is generally PERMITTED in New York insurance sales?
Within how many business days must a New York insurer acknowledge receipt of a claim under Regulation 64?