Ethics & trade practices

This material is heavily tested on the state portion of every exam, and it’s the legal backbone of the Glacis TPA / claims-attribution stream. Concepts are STABLE; the exact statute citations are VERIFY per state.

Fiduciary duty & client funds

A producer holds a fiduciary duty of trust, especially over premium funds:

No commingling — keep client/premium money in a separate trust/fiduciary account, never in the producer’s operating funds.
Account for and remit funds promptly. Misusing premium money is conversion — a serious violation.

See 02 Agency law.

Suitability

Recommendations must fit the customer’s needs and circumstances — especially for life/annuity/long-term-care products. An unsuitable recommendation (or one driven by the producer’s commission) is an ethical and often legal violation.

Prohibited practices (know these cold)

Practice	What it is
Misrepresentation	False/misleading statements about a policy’s terms, benefits, or an insurer.
Twisting	Misrepresentation to induce a customer to drop one policy for another (to their detriment).
Churning	Like twisting, but replacing within the same insurer, using the existing policy’s values, to generate commission.
Rebating	Giving the customer something of value (e.g., part of the commission) not stated in the policy to induce a sale. (Illegal in most states — VERIFY.)
Defamation	False statements harming an insurer’s/person’s reputation.
Coercion / boycott / intimidation	Using force/pressure to restrain trade.
Unfair discrimination	Treating similar risks differently without an actuarial basis.
False advertising	Misleading ads about coverage, cost, or the insurer.

These derive from each state’s Unfair Trade Practices Act (UTPA).

Unfair claims settlement practices — the TPA tie-in

Each state’s Unfair Claims Settlement Practices Act governs how claims must be handled. Prohibited conduct includes:

misrepresenting policy provisions relating to a claim,
failing to acknowledge/act promptly on claims,
failing to adopt reasonable standards for prompt investigation,
not attempting good-faith, prompt, fair settlement once liability is clear,
compelling insureds to litigate by offering far less than the eventual recovery,
unreasonable delay or denial without a reasonable basis.

This is exactly the law the AI-claims lawsuits invoke. Kisting-Leung v. Cigna (alleged AI denials without proper review) and Kelly v. State Farm (alleged discriminatory claims algorithms) are unfair-claims-practice / discrimination theories. The NAIC AI Model Bulletin’s enforcement explicitly leans on unfair trade practice and unfair claim settlement practice statutes. GROUNDED · Law360 See 02 AI claims litigation.

This is the legal foundation of the Glacis TPA / claims-attribution stream: attributable, attested claims decisions are evidence of compliant claims handling. See 07 TPA & claims attribution.

Replacement, privacy, and fraud

Replacement regulations — when replacing an existing life/annuity policy, strict disclosure/notice rules protect the consumer (anti-twisting).
Privacy — GLBA (financial privacy) and HIPAA (health information) govern handling of customer data. HIPAA is also a Tech-E&O exposure for healthcare AI.
Fraud statutes — insurance fraud is criminal; federal 18 U.S.C. § 1033/1034 bars a person convicted of a felony involving dishonesty or breach of trust from engaging in the business of insurance — in any capacity, not just money-handling roles — unless the regulator grants written consent (a “1033 waiver”). An employer that willfully permits a prohibited person to participate is itself exposed. STABLE

Commissioner / Superintendent powers (enforcement)

State regulators can examine, hold hearings, levy fines, and suspend/revoke licenses. They also administer guaranty associations (which protect policyholders of insolvent admitted insurers — note surplus-lines carriers are not covered; see 06 Surplus lines).

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