Prohibited Practices and Disciplinary Actions

Rebating

What is Rebating?

Rebating is offering or providing valuable consideration not specified in the policy as an inducement to purchase insurance.

Examples of Rebating

Prohibited rebates include:

What is NOT Rebating

Legal practices:

• Authorized policy dividends returned by insurer
• Experience rating refunds properly calculated
• Company-approved discounts filed with Department
• Educational materials of nominal value
• Normal business courtesies (coffee, calendar)
• Loss control services included in policy

Penalties for Rebating

Exam Tip: Rebating is one of the most serious violations. Producers cannot share commissions or offer anything of value not specified in the filed policy to induce purchase.

Twisting

What is Twisting?

Twisting is making false or misleading statements to induce a policyholder to:

• Lapse an existing policy
• Forfeit an existing policy
• Replace an existing policy with a new policy

Elements of Twisting

For twisting to occur:

1. Misrepresentation of material facts
2. Intent to induce replacement
3. Financial harm to policyholder
4. Benefit to producer (new commission)

Examples of Twisting

Prohibited statements:

Legitimate Policy Replacement

Legal replacement involves:

• Honest comparison of policies
• Accurate information about both policies
• Full disclosure of costs and benefits
• Client's best interest as primary motivation
• Proper documentation of replacement

Policy Replacement Requirements

Rhode Island requires for replacements:

1. Replacement Notice to applicant
2. Comparison of existing and proposed policies
3. Cost disclosure including all charges
4. Notice to existing insurer
5. Retention of records for 5 years

Exam Tip: Policy replacement is legal if done honestly with full disclosure. Twisting involves misrepresentation or misleading statements to induce replacement.

Unfair Discrimination

Prohibited Discrimination

Rhode Island law prohibits discrimination based on:

• Race or color
• Religion
• National origin
• Age (unless actuarially justified)
• Sex or gender
• Marital status
• Sexual orientation
• Disability (unless affects risk)

What is Unfair Discrimination?

Unfair discrimination means treating similarly situated individuals differently based on non-risk-based factors.

Examples of Unfair Discrimination

Prohibited practices:

Permitted Risk-Based Distinctions

Legal underwriting factors:

• Driving record for auto insurance
• Claims history
• Credit-based insurance scores (if properly used)
• Building construction and condition
• Home protection devices (alarms, sprinklers)
• Business operations and exposures
• Health conditions (for health/life insurance)

Anti-Discrimination Requirements

Insurers and producers must:

• Use risk-based factors only
• Apply factors consistently
• Document underwriting decisions
• Avoid prohibited factors
• Comply with fair housing and civil rights laws

Churning

What is Churning?

Churning is inducing policyholders to replace policies excessively, primarily to generate commissions, without benefit to the insured.

Characteristics of Churning

Examples of Churning

Red flags:

• Replacing policy every year or two
• Moving client between similar policies
• Convincing client to replace recently purchased policy
• Recommending replacements for commission purposes
• Pattern of replacements across multiple clients

Preventing Churning

Ethical producers:

• Replace only when beneficial to client
• Document reasons for replacement
• Consider surrender charges and costs
• Compare long-term benefits
• Act in client's interest not own commission

Misrepresentation

Types of Misrepresentation

Common Misrepresentations

Prohibited statements:

• False statements about policy terms or benefits
• Misrepresenting financial condition of insurer
• Exaggerating dividends or returns
• Minimizing exclusions or limitations
• False comparisons with other policies
• Misleading statements about policy values

Materiality

A misrepresentation is material if:

• It would influence a reasonable person's decision
• It affects the insurer's decision to issue coverage
• It involves a significant fact about coverage
• It causes financial harm to the insured

Fraud

Insurance Fraud

Fraud involves:

• Intentional deception
• Material misrepresentation
• Intent to gain financially
• Harm to another party

Types of Producer Fraud

Consequences of Fraud

Other Prohibited Practices

Defamation

Defamation is making false statements that harm another's reputation.

Types:

• Libel: Written defamatory statements
• Slander: Spoken defamatory statements

Examples:

• False statements about competitor's financial condition
• Untrue statements about competitor's claims practices
• Spreading false rumors about competing insurers

Coercion and Intimidation

Prohibited coercion:

• Forcing purchase of insurance as condition of loan
• Threatening to cancel existing coverage
• Intimidating consumers to purchase coverage
• Tying insurance to unrelated products

Failure to Disclose

Required disclosures:

• Material information about policy
• Conflicts of interest
• Limitations and exclusions
• Compensation if asked
• Policy changes affecting coverage

Negligence and Incompetence

Producers can be disciplined for:

• Failing to obtain requested coverage
• Missing deadlines causing coverage lapse
• Providing incorrect information
• Inadequate knowledge of products
• Failing to maintain professional standards

Disciplinary Actions

Department Authority

The Rhode Island Department of Business Regulation can:

• Investigate complaints against producers
• Examine records and conduct audits
• Suspend or revoke licenses
• Refuse to renew licenses
• Impose fines and penalties
• Issue cease and desist orders
• Require restitution to injured parties

Grounds for Discipline

Types of Disciplinary Actions

Penalties

Possible penalties include:

• Fines: Up to $1,000 per violation
• Multiple violations: Fines multiply
• Restitution: Repay harmed parties
• Costs: Pay investigation and hearing costs
• CE Requirements: Additional education required

Appeals Process

Producers can appeal discipline:

1. Request hearing within specified time
2. Present evidence and testimony
3. Legal representation allowed
4. Hearing before Department officer
5. Appeal to Superior Court if unsatisfied

Reporting Obligations

Producer Must Report

Within 30 days to Department:

• Criminal convictions (felonies, misdemeanors involving dishonesty)
• Administrative actions by other states
• License suspensions or revocations elsewhere
• Judgments or liens related to insurance business
• Material changes in background information

Failure to Report

Consequences:

• Separate violation from underlying conduct
• Additional discipline possible
• License suspension for non-reporting
• Presumption of dishonesty

Consumer Protection

Consumer Rights

Rhode Island consumers have right to:

• Honest representation of coverage
• Fair treatment without discrimination
• Prompt claims handling
• Privacy of personal information
• File complaints with Department
• Receive policy as applied for

Filing Complaints

Consumers can complain to:

Rhode Island Department of Business Regulation

• Phone: (401) 462-9520
• Email: DBR.Insurance@dbr.ri.gov
• Address: 1511 Pontiac Avenue, Cranston, RI 02920
• Online: dbr.ri.gov complaint portal

Department Investigation

When complaint received:

1. Review complaint for jurisdiction
2. Contact producer for response
3. Investigate facts
4. Attempt mediation if appropriate
5. Take enforcement action if warranted
6. Notify complainant of outcome

Ethical Decision-Making Framework

When Facing Ethical Dilemma

Ask these questions:

1. Is it legal? Does it comply with laws and regulations?
2. Is it fair? Does it treat all parties fairly?
3. Is it honest? Am I being truthful?
4. Would I want this done to me? The Golden Rule test
5. How would it look in the newspaper? Public scrutiny test
6. Is it in the client's best interest? Fiduciary duty test

The "Smell Test"

If something feels wrong, it probably is:

• Trust your instincts
• Seek guidance from compliance or attorney
• Don't rationalize questionable behavior
• Consider consequences
• Choose the ethical path

Building Ethical Culture

Producers should:

• Lead by example in ethical conduct
• Support ethical colleagues
• Speak up against unethical practices
• Educate clients about ethical standards
• Participate in industry ethics initiatives
• Maintain high standards for the profession

Best Practices for Compliance

Compliance Checklist

Daily:

• Be honest in all communications
• Put clients' interests first
• Handle funds properly
• Maintain confidentiality

Weekly:

• Review pending applications
• Follow up on outstanding issues
• Update client files
• Return all calls and emails

Monthly:

• Review accounts for proper premium remittance
• Check license status and appointments
• Review advertising for compliance
• Update procedures as needed

Annually:

• Complete CE requirements
• Review E&O insurance coverage
• Audit files for compliance
• Update business practices
• Attend ethics training

Red Flags to Avoid

Warning signs of ethical problems:

• Cutting corners on documentation
• Rationalizing questionable practices
• Avoiding difficult conversations
• Prioritizing commissions over clients
• Ignoring regulations
• Resisting oversight
• Defensiveness about practices

Creating Ethical Environment

In your practice:

• Written compliance procedures
• Regular ethics training
• Open communication about ethical issues
• Accountability for violations
• Recognition of ethical behavior
• Zero tolerance for fraud or dishonesty

Final Tip: Ethical conduct is not just about avoiding discipline—it's about building a sustainable, respected career based on trust, integrity, and professional excellence. The producers who succeed long-term are those who consistently do the right thing.