Key Takeaways
- The Texas Insurance Code prohibits misrepresentation, false advertising, and unfair claims practices
- Rebating is prohibited in Texas with limited exceptions
- Twisting and churning are prohibited practices subject to severe penalties
- Insurers must handle claims fairly and promptly according to Texas deadlines
- Unfair discrimination in underwriting based on race, religion, or national origin is prohibited
Last updated: January 2026
Unfair Trade Practices
The Texas Insurance Code 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 insurance transactions
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 is the only policy you need" | May not be true |
| "You must buy today or lose rate" | False urgency |
False Advertising
Texas 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
Rebating
Rebating is offering inducements not specified in the policy:
Prohibited
- Returning part of premium to insured
- Offering gifts of substantial value
- Paying for referrals to unlicensed individuals
- Sharing commission with non-licensed persons
Permitted
- Premium financing arrangements
- Dividends specified in policy
- Marketing items of nominal value
- Legitimate discounts filed with TDI
Twisting and Churning
Twisting
Making misrepresentations to induce replacement:
- 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
Penalties
| Violation | Potential Penalty |
|---|---|
| First offense | Warning to revocation |
| Per violation | Up to $25,000 fine |
| Pattern of violations | License revocation |
| Consumer harm | Restitution required |
Unfair Claims Practices
Texas requires insurers to handle claims fairly:
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
Claim Handling Timeframes
| Action | Timeframe |
|---|---|
| Acknowledge claim | 15 days |
| Request information | Prompt |
| Accept or deny | Within reasonable time |
| Pay claims | Promptly after settlement |
Unfair Discrimination
Texas prohibits unfair discrimination:
Prohibited Basis
- Race
- Religion
- National origin
- Genetic information (in health)
Permitted Underwriting Factors
- Age
- Health history
- Claims history
- Occupation
- Lifestyle factors
Test Your Knowledge
What is the maximum fine per violation for unfair trade practices in Texas?
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D
Test Your Knowledge
Within how many days must a Texas insurer acknowledge receipt of a claim?
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D