Unfair Trade Practices & Fraud
The Uniform Trade Practices Act
Chapter 20 of the Michigan Insurance Code — formally titled the Uniform Trade Practices Act — prohibits unfair methods of competition and unfair or deceptive acts or practices in the business of insurance. Derived from a model law promoted by the NAIC, Chapter 20 applies to all insurers, producers, adjusters, and any other person engaged in the business of insurance in Michigan. Sections 2001 to 2050 are collectively known as “the uniform trade practices act.”
Misrepresentation and False Advertising
It is unlawful to make, issue, or circulate any estimate, illustration, circular, statement, or sales presentation that:
- Contains an incorrect statement of a material fact
- Omits a material fact
- Creates a misleading impression about a policy, its benefits, or its financial soundness
This prohibition extends to oral and written communications alike. Producers must not misrepresent the terms of any policy or use comparisons that unfairly disparage a competing insurer’s products.
Example Violation:
A producer tells a prospect that a competitor’s term policy “will definitely lapse before you die” without any factual basis. This disparagement is a violation of MCL 500.2005, even if the statement is framed as a personal opinion.
Unfair Discrimination
Insurers and producers may not engage in unfair discrimination among policyholders of the same class and equal hazard. For life insurance, this means charging different premiums or providing different benefits to individuals in the same actuarial class without a valid risk-based justification. For property and casualty lines, rates must reflect actual risk differences.
Discrimination based on protected characteristics unrelated to risk — such as race, religion, or national origin — is expressly prohibited.
Rebating and Illegal Inducements
Michigan law prohibits rebating, which means offering any inducement not specified in the policy as an incentive to purchase insurance. Specifically, no producer may offer to give, pay, or allow:
- Any part of a commission or other consideration
- Any special advantage not available to other policyholders
- Any valuable consideration not specified in the policy
The prohibition applies both to offering a rebate and to accepting one.
Exception: A property-casualty insurer or producer may give an applicant or an insured an article of merchandise costing the insurer $50 or less per calendar year without violating the anti-rebating statute (MCL 500.2024b).
Unfair Claims Settlement Practices
Chapter 20 also addresses unfair claims settlement practices. Insurers and their representatives must:
- Acknowledge receipt of claims promptly
- Conduct a reasonable investigation before denying claims
- Not offer substantially less than the amount a claimant is reasonably entitled to
- Not delay settlement of claims in which liability is reasonably clear in order to influence settlement of another claim
A single act does not necessarily constitute a violation — the law generally requires a showing of a general business practice, meaning a pattern of conduct.
Enforcement and Penalties
The Director may investigate alleged violations through examination, issue cease-and-desist orders, and impose civil penalties:
- Up to $500 per violation for standard violations
- Up to $2,500 for knowing violations
- Criminal penalties including fines and imprisonment for misrepresentation, rebating, and stock manipulation
- Suspension or revocation of the producer’s license