Property & Casualty Insurance Exam (National Portion)Insurance RegulationMedium
An insurance producer is found to have engaged in 'twisting.' Which of the following best describes this unfair trade practice?
- AMaking false or misleading statements about an insurance policy's benefits or terms.
- BOffering a prospective client a personal gift not specified in the policy to induce them to purchase insurance.
- CInducing a policyholder to lapse, forfeit, or surrender an existing policy to purchase a new one, to the detriment of the insured.
- DCharging different premiums for individuals with similar risk profiles based on non-actuarial factors.
Show answer & explanationAnswer & explanation
Correct answer: C. Inducing a policyholder to lapse, forfeit, or surrender an existing policy to purchase a new one, to the detriment of the insured.
Twisting specifically refers to the act of persuading a policyholder to give up an existing insurance policy in favor of a new one, when doing so is not in the policyholder's best interest, often through misrepresentation of facts or benefits.
Why the other options are wrong
- A. This describes misrepresentation.
- B. This describes rebating.
- D. This describes unfair discrimination.
Twisting
An illegal unfair trade practice in insurance where a producer persuades a policyholder to cancel, lapse, or surrender an existing insurance policy and replace it with a new one, to the detriment of the insured.
- Involves replacing an existing policy
- Must be to the insured's disadvantage
- Often involves misrepresentation or incomplete comparisons
Memory trick: Don't Mislead, Rebate, Twist, or Discriminate for a commission.