Achievable Casualty

29. Iowa Insurance Regulations

29.3. Iowa Unfair Practices, the Insurance Fraud Act, and Producer Responsibilities

Iowa Unfair Trade Practices and Claims Practices

8 min read

The Iowa Unfair Trade Practices Act (Iowa Code Chapter 507B)

Iowa’s central trade practices statute is Iowa Code Chapter 507B, which defines and prohibits specific unfair or deceptive insurance practices. It applies to insurers and producers alike. Violations can trigger administrative penalties under Iowa Code 505.7A and 507B.7, license suspension or revocation under Iowa Code 522B.11, cease-and-desist orders under Iowa Code 507B.6A, civil liability, and — in serious cases — criminal prosecution.

Misrepresentation (Iowa Code 507B.4(3)(a)(1)–(10))

Iowa’s misrepresentation prohibition is broad. Iowa Code 507B.4(3)(a) makes it an unfair practice to make or circulate any estimate, illustration, statement, sales presentation, omission or comparison that misrepresents in any of the ways it lists; the statute requires no proof that the person knew the statement was false or meant to deceive. Among them:

Misrepresenting the benefits, advantages, conditions, or terms of any insurance policy.
Misrepresenting the dividends or share of surplus to be received on a policy.
Making false or misleading statements about dividends or share of surplus previously paid on policies.
Misrepresenting the financial condition of an insurer or the legal reserve system.
Using a name or title that misrepresents the true nature of a policy or class of policies.
Misrepresenting the policy as a share of stock.
Using untrue or misleading statements in connection with a policy’s sale, conversion, or replacement.
Misrepresentation by omission — leaving out information the consumer would need to make an informed decision.
Misrepresenting to induce a lapse, forfeiture, exchange, conversion, or surrender of a policy, or to effect a pledge, assignment of, or loan against a policy.
Using “burial insurance”, “funeral insurance”, “burial plan” or “funeral plan” in a policy’s name, unless the policy is made with a funeral provider as beneficiary under a price-fixing contract.
A misrepresentation, including an intentional misquote of the premium rate, made to induce the purchase of a policy.

Sidenote

EXAM FOCUS — Misrepresentation by silence

You do not have to say something false to commit misrepresentation under Iowa Code 507B.4(3)(a). Omitting a material fact — a policy limitation, a surrender charge, a waiting period — that the client needed to make an informed decision is itself a violation. The exam likes scenarios where the producer never tells a literal lie but leaves out a critical detail.

False Information and Advertising (Iowa Code 507B.4(3)(b)(1); Iowa Admin Rule 191-15.3)

Iowa prohibits any false, deceptive, or misleading information about an insurer or its policies, whether published or circulated. Iowa Admin Rule 191-15.3 provides detailed advertising standards:

Identification. Advertising must clearly identify the insurer.
Truthfulness. Statements about policy benefits must be accurate and not misleading.
Comparisons. Comparisons with other policies or insurers must be fair and complete.
Testimonials and endorsements. Must be genuine, must not be paid for in a way that creates an undisclosed bias, and must include any required disclosures.

Twisting

Twisting is the act of inducing a policyholder to lapse, surrender, exchange, or replace an existing policy by using misrepresentations or incomplete and misleading comparisons. The replacement itself is not the violation; the misrepresentation that drives the replacement is. A legitimate replacement — fully and honestly disclosed under Iowa Admin Rule 191-16 — is permitted.

Churning

Churning is twisting’s same-company cousin. It occurs when a producer replaces a client’s policy with another policy issued by the same insurer, primarily to generate fresh first-year commission rather than to benefit the client.

MEMORY HOOK — Twisting vs. churning

Two companies = twisting (you twist them from one carrier to another). One company = churning (you churn the policy inside the same company). Both require an element of misrepresentation or breach of duty; honest, well-disclosed replacement is neither.

Rebating (Iowa Code 507B.4(3)(i))

Rebating means giving — or offering to give — a prospective or current policyholder any rebate of premium, or any valuable consideration or inducement not specified in the contract, as an inducement to buy insurance (Iowa Code 507B.4(3)(i)). The classic example is a producer who offers to return part of the first-year commission. Less obvious examples count too:

Splitting commission with a client by check, cash, or transfer.
Giving a non-trivial gift (a high-value gift card, expensive meal, event tickets) as an inducement.
Promising future services unrelated to the policy as a reason to buy.
Offering a discount, refund, or premium rebate not contained in the contract itself.

Two things are not rebating, even though they sometimes look like it:

Dividends on a participating (mutual) policy — a return of premium when the insurer’s results are better than expected.
Uniform discounts that apply to everyone in a defined risk class (group rates, multi-policy discounts, payroll deduction credits).

Sidenote

PITFALL — Who can be sanctioned

Iowa Code 507B.4(3)(i) reaches whoever gives or offers a rebate, and for insurance other than life, annuities and accident and health, an insured who knowingly receives or accepts one also violates the law (507B.4(3)(i)(3)(a)). “But the client asked for it” is not a defense.

Defamation (Iowa Code 507B.4(3)©)

Making or circulating a statement that is false, or maliciously critical of or derogatory to the financial condition of any person, and that is calculated to injure that person, is defamation under Iowa Code 507B.4(3)©. Iowa typically pairs defamation with the unfair-comparison concept — using inaccurate or biased comparisons to undermine a competitor’s reputation.

Boycott, Coercion, and Intimidation (Iowa Code 507B.4(3)(d))

Iowa prohibits collective refusals to deal (boycotts), economic threats, and other forms of coercion used to restrict insurance competition. The classic fact pattern is a producer or insurer threatening to withhold business from a competitor’s broker unless the broker stops placing certain accounts.

Unfair Discrimination (Iowa Code 507B.4(3)(g)(1)–(3); Iowa Admin Rule 191-15.11)

Iowa Code 507B.4(3)(g) prohibits unfair discrimination in three specific contexts:

Life insurance. Unfair discrimination between individuals of the same class and equal expectation of life — in premium charged, dividends, benefits, or any other policy term (507B.4(3)(g)(1)).
Insurance other than life. Unfair discrimination between insureds of the same class for essentially the same hazard, in the premium, fees or rates charged, the benefits payable, or the terms of the contract (507B.4(3)(g)(2)).
Domestic or sexual abuse. Any discrimination in the sale of insurance solely on the basis of domestic abuse or sexual abuse (507B.4(3)(g)(3)).

Iowa Admin Rule 191-15.11 prohibits discrimination based on the applicant’s marital status, sex, race, color, national origin, ancestry, age (subject to actuarial justification), creed, religion, and other defined categories where no demonstrable risk correlation exists.

CORE IDEA — Insurance has to discriminate by risk to function — “unfair” is the question

Insurance pricing differentiates by risk by design. The legal question is whether the distinction is actuarially justified and applied to a permissible characteristic. A 65-year-old paying more for term life than a 35-year-old is not unfair discrimination; an applicant being declined because of religious affiliation is.

Unfair Claims Settlement Practices (Iowa Code 507B.4(3)(j)(1)–(15))

Iowa Code 507B.4(3)(j) lists specific claims practices that are unfair when committed or performed with such frequency as to indicate a general business practice. Highlights:

(1) Misrepresenting policy provisions in connection with a claim.
(2) Failing to acknowledge and act reasonably promptly upon communications about claims.
(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims.
(4) Refusing to pay claims without conducting a reasonable investigation.
(5) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed.
(6) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
(7) Compelling insureds to institute litigation to recover amounts due under a policy by offering substantially less than the amounts ultimately recovered.
(8) Attempting to settle a claim for less than the amount to which a reasonable person would have believed the insured was entitled, based on advertising materials accompanying or made part of an application.
(9) Attempting to settle claims on the basis of an application that was altered without notice to or knowledge or consent of the insured.
(10) Making claim payments not accompanied by a statement explaining the coverage under which payments are being made.
(11) Making known a policy of appealing from arbitration awards in favor of insureds or claimants, to compel them to accept less than the amount awarded.
(12) Delaying the investigation or payment of claims by requiring a preliminary claim report and then formal proof of loss forms that contain substantially the same information.
(13) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of policy coverage in order to influence settlements under other portions.
(14) Failing to promptly provide a reasonable explanation of the basis in the policy, the facts or the law for denying a claim or offering a compromise settlement.
(15) Failing to comply with the Commissioner’s procedures for auditing claims submitted by health care providers (this item does not apply to liability, workers’ compensation, auto or homeowners medical payments, disability income or long-term care insurance).

Next | 29.3.2 Iowa Insurance Fraud and Producer Responsibilities

Iowa Unfair Trade Practices and Claims Practices

The Iowa Unfair Trade Practices Act (Iowa Code Chapter 507B)

Misrepresentation (Iowa Code 507B.4(3)(a)(1)–(10))

Misrepresenting the benefits, advantages, conditions, or terms of any insurance policy.
Misrepresenting the dividends or share of surplus to be received on a policy.
Making false or misleading statements about dividends or share of surplus previously paid on policies.
Misrepresenting the financial condition of an insurer or the legal reserve system.
Using a name or title that misrepresents the true nature of a policy or class of policies.
Misrepresenting the policy as a share of stock.
Using untrue or misleading statements in connection with a policy’s sale, conversion, or replacement.
Misrepresentation by omission — leaving out information the consumer would need to make an informed decision.
Misrepresenting to induce a lapse, forfeiture, exchange, conversion, or surrender of a policy, or to effect a pledge, assignment of, or loan against a policy.
Using “burial insurance”, “funeral insurance”, “burial plan” or “funeral plan” in a policy’s name, unless the policy is made with a funeral provider as beneficiary under a price-fixing contract.
A misrepresentation, including an intentional misquote of the premium rate, made to induce the purchase of a policy.

Sidenote

EXAM FOCUS — Misrepresentation by silence

False Information and Advertising (Iowa Code 507B.4(3)(b)(1); Iowa Admin Rule 191-15.3)

Iowa prohibits any false, deceptive, or misleading information about an insurer or its policies, whether published or circulated. Iowa Admin Rule 191-15.3 provides detailed advertising standards:

Identification. Advertising must clearly identify the insurer.
Truthfulness. Statements about policy benefits must be accurate and not misleading.
Comparisons. Comparisons with other policies or insurers must be fair and complete.
Testimonials and endorsements. Must be genuine, must not be paid for in a way that creates an undisclosed bias, and must include any required disclosures.

Twisting

Churning

MEMORY HOOK — Twisting vs. churning

Rebating (Iowa Code 507B.4(3)(i))

Splitting commission with a client by check, cash, or transfer.
Giving a non-trivial gift (a high-value gift card, expensive meal, event tickets) as an inducement.
Promising future services unrelated to the policy as a reason to buy.
Offering a discount, refund, or premium rebate not contained in the contract itself.

Two things are not rebating, even though they sometimes look like it:

Dividends on a participating (mutual) policy — a return of premium when the insurer’s results are better than expected.
Uniform discounts that apply to everyone in a defined risk class (group rates, multi-policy discounts, payroll deduction credits).

Sidenote

PITFALL — Who can be sanctioned

Defamation (Iowa Code 507B.4(3)©)

Boycott, Coercion, and Intimidation (Iowa Code 507B.4(3)(d))

Unfair Discrimination (Iowa Code 507B.4(3)(g)(1)–(3); Iowa Admin Rule 191-15.11)

Iowa Code 507B.4(3)(g) prohibits unfair discrimination in three specific contexts:

Life insurance. Unfair discrimination between individuals of the same class and equal expectation of life — in premium charged, dividends, benefits, or any other policy term (507B.4(3)(g)(1)).
Insurance other than life. Unfair discrimination between insureds of the same class for essentially the same hazard, in the premium, fees or rates charged, the benefits payable, or the terms of the contract (507B.4(3)(g)(2)).
Domestic or sexual abuse. Any discrimination in the sale of insurance solely on the basis of domestic abuse or sexual abuse (507B.4(3)(g)(3)).

CORE IDEA — Insurance has to discriminate by risk to function — “unfair” is the question

Unfair Claims Settlement Practices (Iowa Code 507B.4(3)(j)(1)–(15))

Iowa Code 507B.4(3)(j) lists specific claims practices that are unfair when committed or performed with such frequency as to indicate a general business practice. Highlights:

(1) Misrepresenting policy provisions in connection with a claim.
(2) Failing to acknowledge and act reasonably promptly upon communications about claims.
(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims.
(4) Refusing to pay claims without conducting a reasonable investigation.
(5) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed.
(6) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
(7) Compelling insureds to institute litigation to recover amounts due under a policy by offering substantially less than the amounts ultimately recovered.
(8) Attempting to settle a claim for less than the amount to which a reasonable person would have believed the insured was entitled, based on advertising materials accompanying or made part of an application.
(9) Attempting to settle claims on the basis of an application that was altered without notice to or knowledge or consent of the insured.
(10) Making claim payments not accompanied by a statement explaining the coverage under which payments are being made.
(11) Making known a policy of appealing from arbitration awards in favor of insureds or claimants, to compel them to accept less than the amount awarded.
(12) Delaying the investigation or payment of claims by requiring a preliminary claim report and then formal proof of loss forms that contain substantially the same information.
(13) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of policy coverage in order to influence settlements under other portions.
(14) Failing to promptly provide a reasonable explanation of the basis in the policy, the facts or the law for denying a claim or offering a compromise settlement.
(15) Failing to comply with the Commissioner’s procedures for auditing claims submitted by health care providers (this item does not apply to liability, workers’ compensation, auto or homeowners medical payments, disability income or long-term care insurance).

The Iowa Unfair Trade Practices Act (Iowa Code Chapter 507B)

Misrepresentation (Iowa Code 507B.4(3)(a)(1)–(10))

Misrepresenting the benefits, advantages, conditions, or terms of any insurance policy.
Misrepresenting the dividends or share of surplus to be received on a policy.
Making false or misleading statements about dividends or share of surplus previously paid on policies.
Misrepresenting the financial condition of an insurer or the legal reserve system.
Using a name or title that misrepresents the true nature of a policy or class of policies.
Misrepresenting the policy as a share of stock.
Using untrue or misleading statements in connection with a policy’s sale, conversion, or replacement.
Misrepresentation by omission — leaving out information the consumer would need to make an informed decision.
Misrepresenting to induce a lapse, forfeiture, exchange, conversion, or surrender of a policy, or to effect a pledge, assignment of, or loan against a policy.
Using “burial insurance”, “funeral insurance”, “burial plan” or “funeral plan” in a policy’s name, unless the policy is made with a funeral provider as beneficiary under a price-fixing contract.
A misrepresentation, including an intentional misquote of the premium rate, made to induce the purchase of a policy.

Sidenote

EXAM FOCUS — Misrepresentation by silence

False Information and Advertising (Iowa Code 507B.4(3)(b)(1); Iowa Admin Rule 191-15.3)

Iowa prohibits any false, deceptive, or misleading information about an insurer or its policies, whether published or circulated. Iowa Admin Rule 191-15.3 provides detailed advertising standards:

Identification. Advertising must clearly identify the insurer.
Truthfulness. Statements about policy benefits must be accurate and not misleading.
Comparisons. Comparisons with other policies or insurers must be fair and complete.
Testimonials and endorsements. Must be genuine, must not be paid for in a way that creates an undisclosed bias, and must include any required disclosures.

Twisting

Churning

MEMORY HOOK — Twisting vs. churning

Rebating (Iowa Code 507B.4(3)(i))

Splitting commission with a client by check, cash, or transfer.
Giving a non-trivial gift (a high-value gift card, expensive meal, event tickets) as an inducement.
Promising future services unrelated to the policy as a reason to buy.
Offering a discount, refund, or premium rebate not contained in the contract itself.

Two things are not rebating, even though they sometimes look like it:

Dividends on a participating (mutual) policy — a return of premium when the insurer’s results are better than expected.
Uniform discounts that apply to everyone in a defined risk class (group rates, multi-policy discounts, payroll deduction credits).

Sidenote

PITFALL — Who can be sanctioned

Boycott, Coercion, and Intimidation (Iowa Code 507B.4(3)(d))

Unfair Discrimination (Iowa Code 507B.4(3)(g)(1)–(3); Iowa Admin Rule 191-15.11)

Iowa Code 507B.4(3)(g) prohibits unfair discrimination in three specific contexts:

Life insurance. Unfair discrimination between individuals of the same class and equal expectation of life — in premium charged, dividends, benefits, or any other policy term (507B.4(3)(g)(1)).
Insurance other than life. Unfair discrimination between insureds of the same class for essentially the same hazard, in the premium, fees or rates charged, the benefits payable, or the terms of the contract (507B.4(3)(g)(2)).
Domestic or sexual abuse. Any discrimination in the sale of insurance solely on the basis of domestic abuse or sexual abuse (507B.4(3)(g)(3)).

CORE IDEA — Insurance has to discriminate by risk to function — “unfair” is the question

Unfair Claims Settlement Practices (Iowa Code 507B.4(3)(j)(1)–(15))

Iowa Code 507B.4(3)(j) lists specific claims practices that are unfair when committed or performed with such frequency as to indicate a general business practice. Highlights:

(1) Misrepresenting policy provisions in connection with a claim.
(2) Failing to acknowledge and act reasonably promptly upon communications about claims.
(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims.
(4) Refusing to pay claims without conducting a reasonable investigation.
(5) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed.
(6) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonably clear.
(7) Compelling insureds to institute litigation to recover amounts due under a policy by offering substantially less than the amounts ultimately recovered.
(8) Attempting to settle a claim for less than the amount to which a reasonable person would have believed the insured was entitled, based on advertising materials accompanying or made part of an application.
(9) Attempting to settle claims on the basis of an application that was altered without notice to or knowledge or consent of the insured.
(10) Making claim payments not accompanied by a statement explaining the coverage under which payments are being made.
(11) Making known a policy of appealing from arbitration awards in favor of insureds or claimants, to compel them to accept less than the amount awarded.
(12) Delaying the investigation or payment of claims by requiring a preliminary claim report and then formal proof of loss forms that contain substantially the same information.
(13) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of policy coverage in order to influence settlements under other portions.
(14) Failing to promptly provide a reasonable explanation of the basis in the policy, the facts or the law for denying a claim or offering a compromise settlement.
(15) Failing to comply with the Commissioner’s procedures for auditing claims submitted by health care providers (this item does not apply to liability, workers’ compensation, auto or homeowners medical payments, disability income or long-term care insurance).