Twisting in insurance is one of the most common forms of insurance fraud and can have serious consequences for both the policyholder and the insurer. In a nutshell, twisting occurs when an insurance agent or broker misrepresents the terms and conditions of an insurance policy in order to convince the policyholder to purchase a more expensive or comprehensive policy than they actually need.
This type of fraud is especially dangerous because it can lead to policyholders being overcharged for coverage they don‘t need or missing out on important coverage they do need. The good news is that there are steps you can take to protect yourself from twisting in insurance and ensure that you get the coverage you need at the price you can afford.
What Is Twisting In Insurance?
An insurance twisting is when an agent convinces an insured to cancel their existing policy and take out a new one that is not in their best interest. Some agents earn commissions on the sale of their policies and may be motivated to increase their commissions by selling someone a policy they don’t need.
What Is The Definition Of Twisting In Insurance?
Twisting in insurance is the act of inducing a policyholder to transfer their existing policy to another insurer, by providing incentives or making false claims about the benefits of the new policy. It is considered an illegal practice, as it is seen as a form of fraud. Twisting is often done in order to gain business for the new insurer, as the policyholder may be unaware of the full details of the new policy and the potential disadvantages it may have compared to their existing policy.
For the sale of a new policy to meet the definition of misrepresentation of insurance, the agent must have committed fraud to sell the policy. By “twisting” the truth, you end up buying a policy that is not a better replacement for your existing policy. Another aspect of selling a new policy that makes it skewed is whether a higher commission or profit motivates the agent, not their interests.
Whatever the reason, if an agent sells you a policy and twists the truth, you are not buying the best policy for your needs. To qualify as a torsion, there must be an element of cheating, where the agent is cheating on the insured.
Is Twisting In Insurance Illegal?
In brief, the practice of twisting in insurance is illegal (in most US states). There are cases when people are convinced that they are doing a good thing by offering an acceptable price so they don’t look upon it as twisting. At the same time, other people believe that if they pull off a twist in insurance prior to finalizing an agreement, they shouldn’t be found guilty about doing so. However, in each case, you’re still twisting, and either way, it’s not the right thing to do.
Why is twisting illegal you ask?
Simply because twisting involves using deceptive means to get people to change their existing life insurance policies, most states consider twisting a criminal offense, and most agents found guilty could be prosecuted under fraud statutes. And the state of America, i.e., The National Association of Insurance Commissioners has a legal body that protects people from being deceived when it comes to insurance. The Unfair Trade Practices Act doesn’t allow any misrepresentation of such policies.
There are cases when insurance policy replacements can be termed as twisting. For instance, if a customer receives better benefits from a newly proposed policy upgrade, that’s not an illegal replacement/activity. Furthermore, twisting an insurance policy means that it isn’t your best deal; moreover, it only works out for the agent that’s proposing it to you.
Nevertheless, if you think you have been sold a policy under twisting methods, you must contact your state’s insurance commissioner’s office to lodge a complaint and open an investigation.
Example of Twisting in Insurance
What would be an example of intermediary insurance that would fit with your life insurance policy?
Let’s say you bought a lifetime policy with an accrued cash value.
Full life insurance, or premium return insurance, is more expensive than life insurance, and the premiums may have increased too much for your budget.
You contacted an agent for help choosing a cheaper policy that still protects your family.
The agent convinces him to cancel his entire life insurance policy and buy it for life. This will save you money on premiums, but what they don’t say is that you will lose the cash value of your entire life insurance policy or pay tax on it. These taxes can negate any premium savings.
Reputable agents will explain the pros and cons of any policy change you are considering, including any tax implications. They won’t leave out any details to get to a sale.
Example Of Twisting In Home Insurance
Home insurance can be confusing – does your policy cover a detached garage or an extension? What about your new pool, need to increase your liability coverage?
An example of a home insurance twisting would be if you are building a new garage and call your agent to ask if it is covered. If they say no and tell you to add a passenger to your existing policy, if you’re covered, that would be skewed. Keep in mind that you may need to increase coverage if the new garage has a much higher replacement cost, but that’s not the same as saying it’s not included in your existing policy.
Examples of twisting in health insurance
Health insurance coverage can be expensive. Even if you want to lower your premiums, if your health insurance doesn’t cover all of your conditions or medications, switching coverage can be disastrous.
If an agent were to sell you a policy and purposely not tell you that your new policy excluded one of your pre-existing conditions, that would be a twisting. Deliberately withholding information to close the sale is unethical and often illegal.
What is Churning?
Churning is another unethical practice an agent can do to sell a policy. Churning is when they convince you to buy a new policy from the same company as your existing policy. Again, the new policy may not provide better benefits or have other benefits for sales to count as revenue. By selling it, they can simply earn an extra commission that is higher than a renewal.
What is Sliding?
This is a less obvious part of selling insurance because it’s not an entirely new policy. Instead, it takes the form of addendums and addendums.
The coupon allows an intermediary to sell an insured product or additional coverage that he or she does not need. An example would be to sell you a passenger for high-end jewelry while your primary coverage limits would pay for the replacement cost.
An insurance commissioner would also consider slipping if you didn’t approve the addendum or thought the passenger wouldn’t increase their premium.
Read also: Kaiser Permanente Health Insurance Reviews
What Is The Difference Between Twisting And Churning Insurance
Insurance products/policies like life insurance, health insurance and other annuity policies are dynamic. They are constantly changing the benefits and adding more options to make them versatile to policyholders. There is a thin line that separates churning from twisting in insurance.
Therefore, you shouldn’t be surprised to find your insurance company persuading you to exchange one product for the other if they believe those specific products best suit your needs. Of course, the insurance agent might have personal reasons for getting their clients to swap policies, and these reasons are primarily commission-based. Anyway, understanding the differences between twisting and churning in insurance is essential.
Churning usually happens when an insurance agent intentionally uses false statements or documents to convince policyholders to give up existing insurance policies in favor of a new one from the same insurer. Additionally, most agents persuade policy owners to take out their accumulated earnings under their current policy to help fund the new one. This is not beneficial to insurance companies, but it is an excellent deal to agents. Hence, it is a smart tactic that agents use to increase their commissions.
Twisting in insurance is essentially the same. However, a twisting insurance example involves intentionally using false/misleading claims or statements to persuade a client to give up a policy from a different insurance company. By doing this, both the agent and the insurance company benefit more by poaching clients from competitors.
Most insurance agents have put measures to prevent insurance churning, such as requiring agents to present official documentation of any policy changes to clients. You can also take further preventive actions like independent research on the dedicated agent. Or, you can ask around about the insurance agency in general and see what people have to say about it.
What Is The Difference Between Twisting And Misrepresentation?
There are a few key differences between twisting and misrepresentation:
Twisting is intentional, while misrepresentation is not always malicious.
Second, twisting generally changes the meaning of the original statement, while misrepresentation can result in a change to the tone or context.
Finally, twisting is more likely to involve an element of intention, while misrepresentation may not always be intentional.
Misrepresentation occurs when individuals provide false statements or information on their coverage applications. That said, it can take many forms, including exaggerating a claim or telling outright lies about the event that led to their filing.
Moreover, misrepresentation would have played an important role in the insurance company’s policy decision if truthfully provided it, which leads to the fact that when discussing misrepresentation instances, it is usually the policyholder who provides misleading information.
Ultimately, when a case of misrepresentation happens on behalf of the person insured, the insurance company has the exclusive right to terminate an insurance policy.
How to Protect yourself against Twisting in Insurance
How can you protect yourself from insurance twisting?
- Watch out for the hard sell first. If your agent is pushing a policy, or a policy change, hard and making you uncomfortable, they may not have the best reasons. Ask for more details.
- Second, get all the details. Good officers know that education is part of their job. They must be willing to explain the pros and cons of their policy choices. If you ask why you need higher coverage limits for your car, they should have a good answer ready.
- Third, ask for time to reflect on the policy change and review the disclosure statements. If the agent seems reluctant to provide the information in writing or allows you to consider your options, walk away.
What Is Twisting In Insurance – Signs To Look Out For
What else should you pay attention to when purchasing a new policy?
Typically, a major life event will require you to review your existing policies. You bought a new house or car, had a baby, or got a new job. If an agent recommends that you make a policy change when nothing in your life has changed, that’s a red flag.
Premiums are for buying protection, and a higher premium is usually (not always) associated with a higher level of coverage. If a replacement policy gives you better coverage or the same coverage for lower premiums, it’s probably a good deal. But when the premiums are shockingly low and the broker makes tons of promises, this can be tricky.
Does the comparison seem incomplete? When the agent compares your old policy and the policy you’re selling side by side and something is missing, that’s a red flag. Don’t see the franchise? And the maximum coverage? Is there something on one side of the equation but not on the other? Beware of incomplete or incompatible disclosures.
Finally, what commission will the broker receive if you buy the new policy? You have the right to ask. Good agents know that their commission reflects the time and effort they put into helping them find the best policy and that satisfied customers value their experience and are willing to pay. While some people just don’t feel comfortable talking about money, keep it in mind if they’re dodging the question or protecting your answer.
How To Get Protection Against Insurance Twisting?
Well, you already know what is twisting in insurance. First of all, pay attention to hard sales. If your agent is promoting a policy change and making you uncomfortable, they may not be acting in your best interest or asking for more details. Second, get as much information as possible. Good cops understand that education is part of their job. It would help if you were willing to discuss the pros and cons of your policy choices.
For example, you wanted to know why your agent is recommending wider coverage; in this case, he should be ready to give you an excellent answer. Third, take the time to review the policy change and disclosure statement. If the agent is reluctant to provide written information or time to review your options, move on.
What does the law say about the twisting in insurance policy?
The insurance industry is highly regulated, with laws and professional codes of conduct governing how agents can behave. If an agent is found to have broken a law or violated the code of conduct, he could lose his license.
In general, your insurance agent should act to protect your financial well-being. They cannot sell you a policy that conflicts with your interests. They should also provide you with comprehensive information to make the best choice.
Agents cannot lie, cheat, or misrepresent a policy, and they certainly cannot recommend one policy over another based on their commission. Giving questionable advice or violating your “duty of care” is an act of bad faith with serious consequences. Consequences alone provide a measure of protection.
What to do if you think you’ve been twisted?
The safeguards are there to help consumers who believe they have been scammed. Before taking any action, talk to an agent you trust and ask them to review your old and new policies. Most agents would like to earn your trust and maintain their reputation in the industry and will review their policies for signs of fraud.
You can report the insurance company to the Ministry of Insurance. They will investigate and may ask the company to resolve the issue. Agents found guilty can pay fines and lose their license.
The state insurance commissioner can file a complaint against them, but they do not represent individuals. Any lawsuit filed by the state insurance commissioner won’t compensate you, so if you need financial redress, talk to a lawyer about direct representation.
Pros And Cons Of What Is Twisting In Insurance
Twisting has pros and cons – but the pros are all on the agent’s side.
When a new policy is sold, the broker receives a new commission.
The more expensive the policy she convinces you to buy, the better your opinion.
You, on the other hand, have the disadvantages:
The policy may reduce coverage or impose restrictions that were not in the original.
If it’s a life insurance policy, much of the cash value you built up with your old policy may be lost when you make the replacement.
Twisting in insurance is a type of fraud that is damaging, and can cause serious financial losses for all parties involved. It is important to be aware of the risks and consequences of this type of insurance fraud so that policies can be updated to protect against it. Insurance companies need to be more aware of the potential for this type of fraud and implement more stringent measures to prevent it. Consumers should also be informed about the potential for insurance fraud, and ensure that their policies are up to date and cover all of their needs. By taking the right steps, both insurance companies and consumers can help to protect themselves and their investments.