Property & Casualty Insurance Exam (National Portion)Insurance RegulationEasy
A state-licensed insurance producer is discussing a new property insurance policy with a potential client. During the conversation, the producer intentionally makes a statement that misrepresents the policy's deductible amount, claiming it is lower than what is actually stated in the policy documents. The client, relying on this statement, purchases the policy. Which of the following unfair trade practices has the producer committed?
- ARebating
- BUnfair Discrimination
- CMisrepresentation
- DDefamation
Show answer & explanationAnswer & explanation
Correct answer: C. Misrepresentation
The producer intentionally made a false statement about a policy's terms to induce a sale, which directly defines misrepresentation. This action is a clear violation of unfair trade practices.
Why the other options are wrong
- A. Rebating is offering a prospective client something of value not specified in the policy as an inducement to purchase.
- B. Unfair discrimination involves treating individuals differently based on characteristics not related to risk.
- D. Defamation involves making false statements about an insurer's financial condition, not a policy's terms.
Misrepresentation (Unfair Trade Practice)
Misrepresentation is an unfair trade practice where an insurer or producer makes false or misleading statements about an insurance policy's terms, benefits, or conditions to induce a sale.
- Involves false or misleading statements.
- Must be made to induce a person to purchase, lapse, forfeit, or surrender insurance.
- Can apply to policy terms, benefits, dividends, or financial condition of an insurer.
Memory trick: Don't 'Misrepresent' or 'Defame' in 'Rebate' or 'Discriminate' unfairly.