Twisting, Churning and Fair Rating
Twisting, churning and unfair rating are quiet abuses. Each looks like ordinary service: a policy review, an “upgrade,” a premium quote. Each can cost the client coverage, cash value or fair treatment. This page explains how Wisconsin polices them, and where the proper exchange of business fits.
Twisting
Wisconsin defines twisting in its Medicare supplement and long-term care rules (ss. Ins 3.39 (24) (c) 1. and 3.46 (23) (b) 1., Wis. Adm. Code) as “knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on or convert any insurance policy or to take out a policy of insurance with another insurer.”
Notice three things. Twisting can be done with a misleading comparison, not just a lie. It can push a client to borrow against a policy or even retain one they would be better off leaving, not only to replace it. And the producer must act knowingly.
Twisting in every line
The conduct is forbidden in every line through the general marketing statute:
- Any communication about an insurance contract, insurer or intermediary that is false or “misleading because of incompleteness” is a misrepresentation (s. 628.34 (1) (a), Wis. Stat.). A side-by-side comparison that shows the new policy’s lower premium but leaves out its higher deductible or narrower coverage is misleading by incompleteness.
- No insurer or intermediary may try to induce someone to terminate an existing contract by offering benefits not specified in the policy (s. 628.34 (2) (a)). “Cancel with them and I’ll cover your first month” is an unfair inducement.
- For life insurance and annuities, prepared sales talks may not contain unfair or incomplete comparisons of policies or unfairly disparage competitors or their policies (s. Ins 2.16 (19)).
Twisting happens in property and casualty sales too. Telling a homeowner that their current insurer “doesn’t cover water damage at all,” when it covers some of it, to move the account is a misleading comparison under s. 628.34.
Replacement rules are Wisconsin’s anti-twisting system
The life and annuity replacement rule exists to “reduce the opportunity for misrepresentation and incomplete disclosure” (s. Ins 2.07 (1) (b)). Any failure to comply with it is a violation of s. 628.34, and the rule names twisting-type conduct as violations (s. Ins 2.07 (9) (a)):
- deceptive or misleading information in sales material;
- failing to ask the application’s questions about replacement or financing;
- intentionally recording an answer incorrectly;
- advising an applicant to answer “no” to a replacement question so the existing insurer is not notified; and
- advising the owner to write to the existing insurer in a way that hides who the replacing producer or insurer is.
For accident and sickness insurance, a violation of the replacement rule is treated as a misrepresentation made to induce a purchase (s. Ins 3.29 (8)).
Churning
Churning means repeatedly replacing a client’s coverage, often with the same insurer, mainly to generate new commissions. No Wisconsin statute or rule uses the word. The life and annuity rules reach the practice anyway, because churning is a replacement in disguise:
- Same-insurer moves count. “Replacement” includes any transaction in which an existing policy is lapsed, surrendered, assigned to the replacing insurer, converted to reduced paid-up or extended term insurance, reissued with any reduction in cash value, or used to finance a new purchase (s. Ins 2.07 (3) (i)). A same-insurer replacement escapes the rule mainly when the owner exercises a contractual change or conversion privilege, or under a replacement program the Commissioner has approved (s. Ins 2.07 (2) (d)).
- Financed purchases are presumed. If values withdrawn, surrendered or borrowed from an existing policy pay premiums on a new policy from the same insurer within 4 months before or 13 months after the new policy’s effective date, that is prima facie evidence the owner meant to finance the new purchase with the old policy (s. Ins 2.07 (3) (d)).
- Insurers watch for it. Each insurer must have procedures to detect unreported replacements of its own policies, and must be able to produce each producer’s replacements and lapses as a percentage of that producer’s annual sales (s. Ins 2.07 (5)).
- Patterns speak for themselves. Owners may replace a policy after saying they did not intend to. But a pattern of that happening among one producer’s clients is prima facie evidence that the producer knew replacement was intended and meant to violate the rule (s. Ins 2.07 (9) (b)).
- The client keeps credit. When the replacing and existing insurers are the same or affiliated, the new policy must credit the time already elapsed under the old policy’s incontestability and suicide periods, up to the old face amount (s. Ins 2.07 (6) (b)).
Annuities have their own check. Before recommending an exchange, you must consider whether the client will start a new surrender period and whether they have had another annuity exchange or replacement, particularly within the preceding 60 months (s. 628.347 (2b) (g)).
Violations of the replacement rule are subject to the forfeitures in s. 601.64 (s. Ins 2.07 (9) (d)), and after a hearing the Commissioner may revoke, suspend or limit the license of an intermediary who has repeatedly or knowingly violated an insurance statute or rule (s. 628.10 (2) (b)).
Fair rating practices
The standard
For the lines it covers, ch. 625 requires that rates not be excessive, inadequate or unfairly discriminatory, and that no rate tend to destroy competition or create a monopoly (s. 625.11 (1)). One rate is unfairly discriminatory compared with another in the same class if it “clearly fails to reflect equitably the differences in expected losses and expenses” (s. 625.11 (4)). Chapter 625 does not apply to annuities, workers’ compensation, ocean marine insurance, or life and group and blanket accident and sickness insurance other than credit coverage (s. 625.03 (1m)).
One rule does apply to every insurer in every line. No insurer may charge different premiums or offer different terms except on the basis of classifications related to the nature and degree of the risk or the expenses involved (s. 628.34 (3) (a)).
What insurers may not use
| Rule | What it prohibits |
|---|---|
| s. 625.12 (2) | Rate classifications based on race, color, creed or national origin; in auto insurance, classifications based on physical condition or developmental disability |
| s. 628.34 (3) (b); s. Ins 6.67 | Pricing or limiting coverage for a disability without actuarial or experience support; in life and disability insurance, doing so solely for blindness, or using sexual orientation in underwriting or rating |
| s. Ins 6.55 | Refusing coverage or restricting benefits because of sex; any rate difference by sex must rest on sound actuarial principles and experience |
| s. Ins 6.68 | In property and casualty insurance, refusing, canceling or limiting coverage because of the risk’s location, or because of the age of a home of 4 units or less, unless there is a business purpose that is not a pretext; refusing a risk solely because it was previously declined or insured in a residual market |
Fair rating does not mean identical prices. Differences with a real cost basis are allowed: life premiums reduced for payroll deduction plans, rates that vary with the amount of insurance, and family plan policies are expressly not unfairly discriminatory (s. Ins 2.12), and rates averaged broadly across a group are permitted (s. 628.34 (3) (a)).
The producer’s part
Insurers set rates; producers put people into classes. A rate is only fair if the facts behind it are true. Reporting a garaging address in a cheaper territory, listing a driver as occasional when they drive daily, or describing a roofing crew as clerical staff is a false entry or misleading communication under s. 628.34 (1) (a). In workers’ compensation, presenting an application that fraudulently misclassifies employees to lower the premium is a crime (s. 943.395 (1) (e)). You also may not move a client’s price by offering benefits the policy does not specify (s. 628.34 (2) (a)).
Proper exchange of business
A proper exchange of business is forwarding a risk you cannot place with any of your insurers, “after due consideration,” because of capacity, a refusal or onerous conditions, to another licensed agent whose insurers can take it “under conditions more favorable to the insured” (s. Ins 6.66 (2)). The forwarding agent may split the commission.
You already know the conditions: both agents licensed for the line, both signing the application or named on the policy, and a presumption of abuse past 5 risks a year with a single insurer you are not listed with, or 25 risks in total (s. Ins 6.66 (3), (5) (a)). The rest of the rule completes the picture:
- An exchange is “occasional and exceptional.” That is what distinguishes it from brokerage, and from a standing arrangement to feed business to another agency.
- The receiving agent is responsible too: no agent may accept business they know, or have reason to know, was not properly exchanged (s. Ins 6.66 (4)).
- For specialty, nonstandard and professional liability business placed through surplus lines or on an individually rated basis beyond those limits, the forwarding agent must show the exchanges were occasional and proper (s. Ins 6.66 (5) (b)).
- Participation in risk-sharing plans approved under ch. 619 is not limited by the rule (s. Ins 6.66 (6)).
Proper exchange is the licensed exception to the ban on sharing commissions (s. 628.61 (2) (b)). It exists so a client gets coverage.
Lesson summary
- Twisting is knowingly using a misleading representation or an incomplete or fraudulent comparison to induce someone to drop, keep, borrow on or replace a policy.
- In every line, misleading comparisons are misrepresentation and off-policy benefits to induce a switch are unfair inducements under s. 628.34.
- Failing to follow the replacement rules, or coaching a client to deny a replacement, is a violation of s. 628.34.
- “Churning” is not a defined term in Wisconsin law, but the replacement rules reach it: same-insurer replacements count, same-insurer financing within 4 months before or 13 months after is presumed, and patterns are evidence of intent.
- Rates may not be excessive, inadequate or unfairly discriminatory, and every insurer may vary price or terms only for differences in risk or expense.
- Producers keep rating fair by classifying risks truthfully.
- Proper exchange of business is occasional, made for the client’s benefit, and both the forwarding and the receiving agent must comply.