State Roundup – CAUTIONARY TALES

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Enforcement Actions from State Insurance Departments

Recent State Department of Insurance enforcement actions in Utah and Minnesota provide cautionary tales for all insurance producers and life insurance agencies, even if you are not licensed to sell insurance products in those states. Broadly, all the enforcement actions involved misleading and/or deceptive advertising and business practices, but the facts in each case shine a light pinpointing specific prohibited activities to avoid when creating marketing material or performing due diligence on third-party marketing vendors. Not surprisingly, most of these enforcement actions involved advertising and marketing practices that were targeted at “senior” consumers: States are getting more aggressive in their efforts to protect seniors from financial abuse and exploitation, since some states define a senior as someone as “old” as 55 years of age, the target audience for such protection can be very expansive indeed.

Marketing Practices: Exaggeration of Policy Benefits and Nondisclosure

In a very recent case out of Utah, two nonresident insurance producer organizations were ordered to pay a joint administrative fine of $6,000 related to a mass-mailing advertising campaign in which they solicited the purchase of pre-need funeral contracts, which were to be funded by the sale of an insurance policy or annuity contract. The advertising “lead” card stated, “[The] Senior Program will pay 100% of all funeral expenses not paid by Social Security, up to $25,000.” Utah insurance rules prohibit the inclusion of terms such as “all” or “up to” or similar words and phrases that exaggerate the extent of any policy benefit when viewing that policy as a whole. Specifically, the Utah Insurance Department found that the use of the terms “all” and “100%” violated that rule. Additionally, the mailing violated Utah insurance rules because it did not disclose the name of the insurer in its advertising. The insurance organization’s argument that the mailer had been approved by the Texas Department of Insurance was of no avail: Because the mailings were directed at Utah residents, Utah—not Texas—had jurisdiction over the matter.

Misleading and Deceptive Advertising

In a second Utah action, a resident insurance agent and the agency he owned were fined $5,000 and $2,000, respectively, and were also placed on a 12-month probation, for advertising that the Department considered misleading and deceptive. Here, the agent posted a notice on the door of a senior Utah resident in which he stated that it was a “DELIVERY NOTICE,” instructing the resident to call within 24 hours to reschedule the “delivery.” The following week he posted a second notice with the same information included, but this time he indicated that it was the “2nd attempt” at delivery and attached his business card, advertising himself as an expert in senior solutions and a managing general agent. The Utah Insurance Department found that the “notices” were misleading because they were not indicating a delivery at all—but rather an attempt to solicit insurance. Moreover, touting himself as an “expert in senior solutions” was an attempt to mislead a prospective consumer into thinking that the agent had special certification or training in advising or servicing seniors, which was not the case. Similarly, it was misleading to state that he was a managing general agent, as that was not the case; in his professional capacity he did not meet the definition of that term. In addition, the notices were misleading because they failed to disclose that they were related to the marketing of insurance and that he is an insurance agent.

Misrepresentation/Nondisclosure

In two similar cases, the insurance division of the Minnesota Department of Commerce found that resident insurance agents violated Minnesota insurance law when their advertisements (1) misrepresented the true purpose of the marketed “workshops”; (2) used language that had the tendency to “mislead or deceive” the prospective purchasers; and (3) failed to make clear the identity of the insurer, agency, or agents. In both cases, the agents were ordered to cease and desist using any advertising that did not comply with Minnesota law and were fined a civil penalty of $2,500 each.

False Endorsement, Nondisclosure, and Misleading Use of Senior-Specific Designation

In a 2012 Utah Insurance Department enforcement action, a resident insurance agent ran afoul of the law when he sent an advertising mailer that implied that the policy he was marketing had been approved or endorsed by the State of Utah. The language in the mailer stated that the policy was a “NEW state regulated insurance program designed for ALL UTAH Citizens.” In fact, the policy was not new and had not been endorsed by the state. In addition, the mailer failed to identify the name of the insurer whose policy was being marketed, failed to identify his insurance agency, failed to identify himself as an insurance producer, falsely identified his sales region as the “Western Region” when such region did not exist and when it tended to “embellish” the size of his insurance business, and finally, used terminology (“Senior Products Advisor”) that indicated that he had special certification or training in servicing seniors, which was not the case. As a result of this action, the insurance producer was ordered to pay a $1,500 fine and had his insurance license placed on probation for six months.

All these enforcement actions underscore a very general rule in insurance and annuity sales: All marketing material must convey to prospective consumers WHAT they are being solicited to buy—that is, it must be clear that the advertising piece is meant to generate interest in an insurance product. Furthermore, all marketing material must make clear WHO is soliciting consumers to buy the advertised product—in other words, disclose that the solicitation is being generated by an insurance agent and/or insurance organization.

In summary, here are just a few of the lessons to be learned from these enforcement actions:

  • DON’T exaggerate benefits, and don’t use in advertising inclusive terms such as “All,” “Unlimited,” “100%,” “Complete,” etc.
  • DON’T rely on the rules and regulations of your resident domiciled state; make sure you investigate and follow the rules/regulations related to insurance marketing and business practices in the state(s) in which you hold a nonresident license and conduct business.
  • DON’T use terms or language that indicates the producer has special training or certification in advising or servicing senior consumers.
  • DO make clear up front that a prospective purchaser is meeting with an insurance agent and will likely be solicited for an annuity or insurance product.
  • DO disclose in all marketing materials that an annuity (or insurance product) is involved, and be sure to identify and include the name of the insurer in the material as well as the identity of the agent(s) involved.
  • DO disclose the true nature of any workshops or meet-and-greets—don’t employ a “bait and switch.”
  • DO make sure that all producer names, agency/organization names, addresses, etc., match those that appear on the actual license.

Keep these tips in mind as you create marketing and advertising material and embark on marketing campaigns. In other words, as Sergeant Phil Esterhaus exhorted at the beginning of every episode of Hill Street Blues, “Hey, let’s be careful out there.”

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