Unfair trade practices involving an agent are the specific sales and marketing behaviors that state insurance departments treat as violations when an agent commits them: lying about a policy, pushing you to replace coverage for commission reasons, offering secret inducements, discriminating between similar customers, smearing competitors, pressuring you to buy from a particular source, or recommending a product that doesn’t fit your situation. The National Association of Insurance Commissioners (NAIC) sets out these categories in its Model Unfair Trade Practices Act, and nearly every state has adopted some version of it.1National Association of Insurance Commissioners. Model Laws – About Because the McCarran-Ferguson Act leaves insurance regulation primarily to the states, your state insurance department is the agency that investigates and penalizes an agent’s conduct.2Office of the Law Revision Counsel. 15 U.S.C. 1012 – Regulation by State Law
Misrepresentation
Misrepresentation is the most common violation at the agent level. It happens when an agent gives you false or misleading information to get you to buy, keep, or change a policy. The Model Unfair Trade Practices Act covers false statements about a policy’s benefits, terms, or conditions, as well as false statements about an insurer’s financial health or dividend history.3National Association of Insurance Commissioners. Unfair Trade Practices Act – Model 880 The statement doesn’t need to be an outright lie; what matters is that it’s designed to influence your decision.
Watch the vocabulary agents use. Describing a life insurance policy as an “investment plan,” a “savings plan,” or a “profit-sharing” arrangement misleads buyers into thinking they’re purchasing a financial product rather than insurance. Telling a policyholder that premiums will “vanish” or “disappear” without guaranteed policy rates to back the claim is another recognized form of misrepresentation, and it has driven major regulatory actions and class-action settlements.
When a state insurance department finds misrepresentation, consequences typically start with a cease-and-desist order and can escalate to fines, license suspension, or permanent revocation. Consumers who lost money because of the false information can also sue in civil court.
Twisting and Churning
Twisting and churning both involve an agent persuading you to replace an existing policy for the agent’s benefit rather than yours. The difference is which company writes the replacement.
Twisting is when an agent uses misleading comparisons to get you to drop a policy with one insurer and buy a policy from a different insurer. The agent may exaggerate flaws in your current coverage or overstate the benefits of the new one.
Churning is the same pattern inside a single insurer. The agent gets you to replace a policy with a new one from the same company, often using the accumulated cash value in an existing life insurance or annuity contract to fund the new policy. Your built-up equity drains, and the agent earns a fresh commission.
Most states require agents to complete replacement disclosure forms that compare the old and new policies side by side, specifically to create a paper trail regulators can review.
Costs You May Not See
If an agent churns your life insurance or annuity, the damage isn’t always obvious on the day of the sale. Surrender charges on the old policy can take a significant percentage of its value, often starting around 7 to 8 percent and declining over roughly six to ten years. Cashing out before that period ends means you absorb the penalty.
Taxes are the second trap. Federal law allows you to exchange one life insurance policy for another, or one annuity for another, without triggering a taxable event, but only if the exchange follows specific rules.4Office of the Law Revision Counsel. 26 U.S.C. 1035 – Certain Exchanges of Insurance Policies If the agent handles the replacement as a cash surrender followed by a new purchase instead of a qualifying exchange, any gains in the old policy become taxable income. An agent focused on commission has little incentive to walk you through the tax-free transfer process.
Rebating
Rebating is when an agent offers you something of value outside the policy itself as an incentive to buy. The clearest example is an agent sharing part of their commission with you, but it also covers expensive gifts, event tickets, or cash payments tied to a purchase. Most states prohibit it because it lets agents compete on secret discounts instead of on coverage and price, which hurts the consumers who don’t get the same deal.
Small promotional items like pens, calendars, or branded merchandise are generally allowed as long as the value stays under a state-set threshold, often around $25. Above that, you may have a violation. In many states, both the agent who offers a rebate and the consumer who accepts one can be penalized.
Some value-added services are permitted when they relate directly to the coverage and are offered on a nondiscriminatory basis, such as risk assessments, loss-control consultations, claims-filing help, and safety evaluations. Services unrelated to the insurance itself, like payroll processing or general HR work, usually fall outside that exception and may be treated as prohibited inducements.
Unfair Discrimination
Unfair discrimination happens when an agent or insurer treats people with similar risk profiles differently without a legitimate reason tied to risk, claims history, or expense factors. Not every pricing difference is illegal; insurance is built on risk classification. The violation lies in distinctions that aren’t justified by the underwriting.
The Model Unfair Trade Practices Act lists unfair discrimination as a prohibited practice.3National Association of Insurance Commissioners. Unfair Trade Practices Act – Model 880 At the agent level, this can look like steering certain customers toward more expensive policies, selectively applying discounts, or discouraging applications on grounds unrelated to insurability. State insurance departments can respond with fines and license actions.
Defamation of Competitors
An agent commits defamation under insurance trade practice law by making false or malicious statements about a competing agent or insurer. The classic example is telling a prospect that a rival company is financially unstable or near insolvency when it isn’t. The format doesn’t matter: spoken, written, posted online, or printed in marketing materials all count if the point is to damage a competitor’s reputation and redirect business.
Circulating false financial information about a competitor falls under the same rules. State insurance departments treat these violations seriously because they distort the whole marketplace. Penalties usually include cease-and-desist orders, fines, and license suspension or revocation depending on how severe or repeated the conduct is.
Coercion and Tied Insurance Sales
Boycott, coercion, and intimidation involve threats or pressure that limit your freedom to choose your own insurance. A common scenario: a lender tells a borrower they have to buy homeowners insurance from a specific agent or agency as a condition of the mortgage.
These behaviors sit in an unusual position in insurance regulation. The McCarran-Ferguson Act preserves the application of federal antitrust law, including the Sherman Act, to agreements or acts of boycott, coercion, or intimidation in the insurance business.5Office of the Law Revision Counsel. 15 U.S.C. 1013 – Suspension Until June 30, 1948, of Application of Certain Federal Laws That means both state insurance penalties and federal antitrust consequences, including criminal charges, are on the table.
Real estate transactions add another layer. Under the Real Estate Settlement Procedures Act (RESPA), no one may give or receive a fee, kickback, or anything of value for referring settlement service business, including insurance, connected to a federally related mortgage loan.6Consumer Financial Protection Bureau. Regulation X 1024.14 – Prohibition Against Kickbacks and Unearned Fees RESPA separately bars a property seller from requiring you to buy title insurance from any particular company as a condition of the sale, and a seller who violates that rule is liable to you for three times the charges imposed.7Office of the Law Revision Counsel. 12 U.S.C. 2608 – Title Companies; Liability of Seller If a lender or seller is pressuring you toward a specific insurance agent, state and federal law both give you grounds to push back.
Unsuitable Recommendations
An agent can also run afoul of trade practice rules by recommending a product that doesn’t fit your needs. The NAIC revised its Suitability in Annuity Transactions Model Regulation in 2020 to require that annuity recommendations be in the consumer’s best interest, and 48 states have adopted the revisions.8National Association of Insurance Commissioners. Annuity Suitability and Best Interest Standard Under this standard, an agent recommending an annuity must act with reasonable diligence, care, and skill, and may not place their own financial interest ahead of yours.
In practice, the agent has to gather enough information about your financial situation, objectives, and risk tolerance before recommending a product. Selling a complex annuity with a long surrender period to a retiree who needs accessible cash would likely fail that test. The regulation currently applies to annuity products specifically, though it reflects a broader shift toward holding agents accountable for whether a recommendation actually serves the buyer.
Warning Signs With Older Adults
Seniors face a higher risk from unsuitable sales. Warning signs of agent exploitation include sudden changes in policy ownership, unusual purchases of new products, isolation from family members during the sales process, and unexpected changes to beneficiary designations or powers of attorney.9Office of the Comptroller of the Currency. Elder Financial Exploitation Many states require agents and insurers to report suspected financial exploitation of vulnerable adults. If you think an older family member has been sold an unsuitable policy, the state insurance department can investigate.
How to File a Complaint
Your state insurance department is the agency to contact. Every state has a complaint process, and the NAIC maintains a consumer portal where you can find your state’s department and file directly.10National Association of Insurance Commissioners. Consumer Resources The NAIC also offers a Consumer Insurance Search tool for checking an agent’s license status and past disciplinary actions before you do business with them.
Document everything before you file. Keep copies of written communications, note the dates and details of phone conversations, and save marketing materials and policy illustrations the agent gave you. Most departments require complaints in writing, whether online, by mail, or by email, and will assign a file number you can use to track the matter. Once the department reviews the complaint, it can order the agent to stop the conduct, impose fines, suspend or revoke the license, and in some cases refer the matter for criminal prosecution.