We are diving head first into the new year, but that doesn’t mean some of the most common sales practice issues have changed much. Florida’s Department of Financial Services shared a number of commonly investigated allegations in their December Insurance Insights publication, with many of them focused on sales practices. For example, advertising violations, annuity suitability, fraudulent and deceptive practices, misrepresentation, and twisting are all listed.
Understanding how products are being marketed, positioned, and sold to consumers is important for all members of the sales food chain - insurers, marketing intermediaries and agents – because if complaints do arise, there is a potential for any (or all) of those entities to be at risk for fines or other regulatory action. The DFS highlights a few specific advertising issues to remain mindful of:
- All advertising must have prior approval of the benefiting insurance company before being distributed. Note that even if the benefiting company is not specifically named, the use of product information such as interest rates, pricing or unique features can mean company approval is required. Additionally, once an ad is approved, it must be used exactly as-is. One of the issues the DFS notes is that “some licensees decide to be creative and make changes to preapproved advertisements.” The department states they will verify with the benefitting insurer if they have approved an ad in question. If not, then the agent will be in violation. For more information, you can refer to 69B-150.013(10), F.A.C. and paragraph 626.9541(1)(b), F.S.
- Advertisements must make clear that they relate to insurance products and agents must clearly indicate that they are acting as an insurance agent (s.626.9531(1), F.S.) At CCS, we commonly refer to this as the “golden rule” of insurance advertising – consumers must always understand what is being promoted (insurance) and who is selling it (an insurance agent.) If that message is minimized, rendered unclear, omitted, etc., then there can be a significant risk exposure.
- Fraudulent and deceptive practices (s.626.611(9), F.S.) misrepresentation (s.626.9541(1)(a), F.S.) and twisting (s.626.9541(1)(l), F.S.) can all be found within problematic advertising. As an example, the DFS gives the scenario of an agent using deceptive advertising to induce a sale as a form of misrepresentation.
- While suitability (s.627.4554, F.S.) is not as directly advertising related as using misleading, modified or unapproved materials, it is a sales practice issue that is closely related to advertising. Often suitability issues arise because product information is not being clearly disclosed to consumers during the sales process, whether for an initial purchase or for an exchange or replacement.
While Florida is sharing items that they frequently investigate, it’s important to understand that these issues are not limited to Florida. In fact, it’s fairly common to see the same issues come up in consent orders in many states across the nation. Insurers are expected to have a method and system of control over ads that benefit them, so if that is lacking, there is risk exposure. For intermediaries and/or agents, if modifications are being made to carrier-approved advertising or if ads are not going through carrier review when required, then there is a risk liability present.
Furthermore, to the extent that advertisements don’t meet certain standards such as clearly indicating that they are insurance solicitations, that they are being presented by insurance agents (if that is the case), or not adequately explaining the mechanics, benefits and limitations of the product, then there can be a significant risk liability for any of the parties found to be responsible.
Keep these items in mind as you make a fresh start in any of your marketing initiatives for 2016.