Consumer protection laws in North Carolina are in place to ensure fair insurance practices. One prohibited practice is “twisting,” where an agent uses misleading information to convince a policyholder to replace their current insurance policy with a new one. This action often results in financial harm to the consumer while benefiting the agent.
Understanding Twisting in Insurance
Twisting is distinct from a legitimate policy replacement, where changing policies offers a genuine benefit to the client and all details are explained transparently. In a twisting scheme, the new policy is typically not in the policyholder’s best interest and is sold primarily so the agent can earn a new commission.
For example, an agent might convince a client to surrender a whole life policy, causing them to forfeit its accumulated cash value. The agent may highlight a slightly lower premium on a new term life policy while failing to mention the loss of the savings component and that the new policy’s two-year contestability period has been reset. This reset gives the insurer a new two-year window to deny a claim for material misrepresentations on the application.
North Carolina’s Prohibition of Twisting
North Carolina law forbids the practice of twisting. North Carolina General Statute § 58-3-115 prohibits insurers from making any written or oral statement that misrepresents or makes an incomplete comparison of policy terms to induce a policyholder to terminate or exchange their insurance.1FindLaw. North Carolina General Statutes § 58-3-115. Twisting With Respect to Insurance Policies; Penalties
Twisting is also classified as an unfair trade practice under North Carolina General Statute § 58-63-15.2North Carolina General Assembly. G.S. 58-63-15: Unfair Methods of Competition and Unfair or Deceptive Acts or Practices Defined This statute outlaws making misleading representations or incomplete comparisons of policies to encourage a switch. These prohibitions safeguard consumers from deceptive sales tactics and ensure that any decision to replace a policy is based on accurate information.
Recognizing the Signs of Twisting
Consumers can learn to recognize the warning signs of twisting. Be cautious if an agent pressures you to replace a policy without providing a clear, written comparison of the benefits, costs, and terms of both policies. An agent should be able to articulate why the new policy is better and not rely on vague promises or downplay your existing coverage.
Be wary of an agent who emphasizes new features without explaining what you might be giving up, such as accrued cash values or the restart of a contestability period. An agent’s refusal to provide comparisons or recommendations in writing is another warning sign. Incomplete or misleading information about either policy should be considered a red flag.
Consequences for Insurance Professionals
Insurance professionals who engage in twisting face penalties from the North Carolina Department of Insurance (NCDOI). Under G.S. 58-2-70, the Commissioner of Insurance can impose fines and other administrative penalties on agents found guilty of twisting.3Justia. North Carolina General Statutes § 58-2-70 (2023) – Civil Penalties or Restitution for Violations
The NCDOI can suspend or revoke an agent’s license, and monetary penalties can range from hundreds to thousands of dollars per violation.4Justia. North Carolina General Statutes § 58-33-46 (2023) – Suspension, Probation, Revocation, or Nonrenewal of Licenses Beyond these administrative actions, the agent or their affiliated insurance company could also face civil lawsuits from the harmed policyholder for damages caused by the practice.
Reporting Suspected Twisting in North Carolina
If you suspect you have been a victim of twisting, gather specific information before filing a report. You should collect:
- Copies of your old policy and the new replacement policy.
- Any written correspondence you had with the agent.
- Detailed notes of verbal conversations, including dates and specific misrepresentations.
- Any comparison documents the agent provided.
With this documentation, you can file a formal complaint with the Consumer Services Division of the North Carolina Department of Insurance. Complaint forms are available on the NCDOI website and can be submitted through an online portal or by mail. After receiving a complaint, the NCDOI will launch an investigation into the matter.