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17.4 Unfair Trade Practices in Insurance

Rebating​

A corporation, association, or partnership engaged in the guaranty, bonding, surety, or insurance business, other than a life insurer, and its officers, agents, or representatives may not offer or provide improper inducements to encourage a person to purchase insurance. Prohibited inducements include premium rebates, special favors or advantages involving dividends or other policy benefits, paid employment or service contracts, benefits involving stocks, bonds, or other obligations of an insurance company, or any other valuable consideration not specified in the policy. A company or person also may not enter into an agreement promising to secure a loan of money as an inducement or consideration for purchasing insurance.

A person may not receive or accept from an insurance company, agent, or other person any premium rebate, special favor, valuable consideration, or other inducement that is not specifically stated in the insurance policy.

Licensees must market insurance in a fair and nondiscriminatory manner to similarly situated insureds or potential insureds. This requirement helps ensure that consumers are treated consistently and that all licensees compete on a level playing field when conducting insurance business.

It is not prohibited to:

  • Pay customary commissions to an authorized officer, agent, or solicitor on insurance policies or contracts they obtain for themselves as the insured, provided they have been actively and legitimately engaged in the insurance business for at least 6 months before receiving the payment
  • Pay dividends to policyholders of mutual fire insurance companies after the dividends have been earned

It is not a violation of Ohio’s anti-rebating laws for an insurance company to offer a policyholder a rate reduction, loss control, or loss mitigation product or service at no cost or at a reduced cost, even when it is not specified in the policy, if the product or service is:

  • Directly related to the type of insurance offered or purchased
  • Intended to reduce or control risks, rates, or claims for the benefit of policyholders
  • Offered or provided in a fair and nondiscriminatory manner to similarly situated policyholders

Premium Refunds and Other Incentives​

Refunds must be issued within the required timeframes:

  • Within 30 days after the event requiring the refund occurs
  • Within 30 days after the date of the insurer’s refund check when the agent is responsible for issuing a portion of the total refund; OR
  • Within 45 days after the date of the agent’s statement of account on which the refund first appears

False Advertising​

False advertising includes creating, publishing, distributing, circulating, presenting to the public, or preparing to use any information that is false, deceptive, or misleading. It also includes knowingly entering false information, omitting accurate information from any book, report, or record, or altering, destroying, withholding, or concealing records with the intent to deceive an examiner or public official to whom the insurer is required to report its condition.

False advertising also includes issuing or providing company stock, capital stock, benefit certificates, shares, securities, or contracts promising returns or profits as an inducement for a person to purchase insurance.

An insurance company or agent authorized to conduct insurance business in the state may not advertise or represent that it possesses funds or assets that it does not actually have. Any funds or assets claimed in a newspaper, magazine, circular, insurance policy, certificate, or renewal must be available to pay losses and claims and held for the protection of policyholders.

An insurance company authorized to conduct business in the state may not advertise or publicly represent its financial condition unless the information is consistent with the company’s most recent verified financial statement filed with a state insurance department.

An unauthorized foreign or alien insurer may not advertise or circulate information to state residents through newspapers, publications, radio, or television that misrepresents its financial condition, policy benefits or advantages, or expected dividends. If the Superintendent believes an insurer is engaging in unlawful advertising, the Superintendent will send notice by registered mail to the insurer and the appropriate insurance official in the insurer’s state of domicile or, for an alien insurer, its state of entry or principal office.

A person, firm, association, partnership, company, or corporation may not publish or distribute advertising materials that solicit insurance business unless the advertiser complies with Ohio’s insurance advertising regulations.

Misrepresentation​

Misrepresentation is a specific form of false advertising. It occurs when a person makes, issues, circulates, or prepares an estimate, illustration, or statement with the intent to use it in a misleading manner. Misrepresentation includes:

  • Misrepresenting the terms, benefits, advantages, or dividends of an insurance policy
  • Making false or misleading statements about dividends previously paid on similar policies
  • Misrepresenting an insurer’s financial condition as shown in its most recent verified statement filed with the insurance department
  • Using a policy name or title that misrepresents the true nature of the policy
  • Making a misrepresentation or incomplete comparison to persuade a person to purchase, amend, lapse, forfeit, change, or surrender insurance
  • Misrepresenting the terms, benefits, value, cost, or effective dates of an actual or proposed insurance contract or application

Defamation of Insurer​

Defamation is a specific form of false advertising. It occurs when a person makes, publishes, distributes, circulates, or prepares to use a false statement, article, or other material about an insurer’s financial condition with the intent to harm a person or business engaged in the insurance industry.

It also includes filing or presenting a false statement about an insurer’s financial condition to a supervisor, public official, or the general public through publication, distribution, circulation, or delivery.

A company, officer, director, employee, or agent may not make, publish, print, distribute, or circulate any false or malicious statement criticizing an insurance company doing business in the state when the statement is intended to damage the insurer’s reputation or business.

Unfair Discrimination and Declination of Insurance​

Unfair discrimination occurs when an insurer refuses to issue, cancels, or declines to renew an insurance policy because of the applicant’s, insured’s, or policyholder’s sex or marital status. It also includes:

  • Charging individuals of the same class and hazard different premiums, policy fees, or rates for the same coverage, unless the difference is based on sound actuarial principles or actual experience
  • Applying different benefits, underwriting standards, eligibility requirements, practices, terms, or conditions to individuals of the same class and hazard
  • Refusing to offer disability income insurance solely because the applicant’s primary occupation is managing a household

Illegal Inducements​

An illegal inducement occurs when a person knowingly offers an insurance contract with terms that differ from those clearly stated in the contract or offers a premium rebate, special favor, or other valuable consideration to encourage the purchase of insurance.

It is not a violation to offer or provide promotional or advertising items that are:

  • Given to an insured or potential insured with a total market value of $50 or less per calendar year
  • Given to encourage an insured or potential insured to obtain an insurance quote, provided the item is not conditioned on purchasing an insurance policy

A licensee may conduct a contest, raffle, or drawing that is open to the general public and gives every participant a free chance to win a prize, as long as it is not connected to the sale or solicitation of insurance and no purchase or renewal is required to enter, win, or claim the prize.

Penalties​

A person who commits any of the following unfair trade practices is guilty of a 4th-degree misdemeanor:

  • Rebating
  • Offering an illegal inducement
  • Failing to issue a refund within the required timeframe
  • Misrepresentation
  • Defamation of an insurer

A person who commits false advertising may be fined:

  • $500 for the first offense
  • $1,000 for each subsequent offense

An agent is permitted to disregard an insurer’s instructions when following those instructions would require the agent to commit an illegal act.

Unfair or Deceptive Trade Practice Penalties​

If the Superintendent determines by written order that a person has committed an unfair or deceptive business practice, the Superintendent will order the person to cease and desist from the violation. In addition, the Superintendent may:

  • Suspend or revoke the person’s license
  • Prohibit an insurance company or agency from employing the person or allowing the person to serve as a director, consultant, or in another capacity for a period determined to protect the public interest. If the order is indefinite, an application to terminate it may not be filed until at least 2 years after its effective date.
  • Require the person to return any payments received as a result of the violation
    • The Superintendent will also require the person to pay statutory interest on those payments

In addition, each unfair or deceptive act may result in a civil penalty of up to $3,500, with total penalties limited to $35,000 within a 6-month period. Similar acts or practices committed by the same person as part of a single insurance transaction are treated as one violation.

Violating a cease and desist order may result in a penalty of up to $10,000 for each violation.

Unfair Claims Settlement Practices​

The following acts are considered unfair or improper claim settlement practices in Ohio:

  • Failing to maintain claim records for at least 3 years or until completion of the state’s next financial examination
  • Misrepresenting important facts or policy provisions related to the coverage at issue
  • Denying a claim based on a specific policy provision, condition, or exclusion without identifying the applicable provision, condition, or exclusion
  • Failing to investigate and respond to a claim by accepting or denying it within 21 calendar days after receiving notice
  • Forcing an insured to file a lawsuit by offering less than the amount actually owed
  • Failing to establish and follow standards for the prompt investigation and settlement of claims
  • Failing to make a good-faith effort to promptly, fairly, and equitably settle a claim when liability is reasonably clear
  • Failing to notify the claimant when additional investigation time is needed. Notice must be provided within the initial 21-day investigation period and at least every 90 calendar days thereafter regarding the investigation’s status.
  • Attempting to settle a claim for less than a reasonable person would expect to receive based on written or printed advertising materials
  • Attempting to settle a claim using an application that was altered
  • Informing insureds or claimants that the insurer has a practice of appealing arbitration awards
  • Delaying the investigation or payment of a claim by requiring a preliminary claim report and later requiring a formal proof of loss containing the same information
  • Failing to promptly settle a claim when liability is reasonably clear under one portion of the policy in order to influence settlement under another portion
  • Failing to pay an agreed-upon settlement within 5 working days after the agreement is reached
  • Reducing a claim payment for betterment deductions without specifically itemizing those reductions on the written estimate

The following are not considered unfair claim settlement practices:

  • Refusing to pay a claim before receiving the required proof of loss
  • Refusing to pay for services received before the policy’s effective date
  • Refusing to pay a claim when the policy is in a lapsed status
  • Resolving a claim through arbitration

The insurer must act within 15 working days after receiving a first-party claim to acknowledge receipt, provide any required claim forms, and respond to all other relevant communications from the claimant.

The insurer may require the insured to submit a proof of loss, which is a statement describing the details of the loss and includes any necessary supporting documentation. The insured must submit the proof of loss to the insurer within 60 days.

After receiving the proof of loss, the insurer has 21 days to accept or deny the claim or notify the claimant that additional time is needed to investigate the claim.

Insurers must respond to requests from the Department of Insurance for claim-related information within 21 days.

If a person asks to be excused from a hearing because the required testimony or evidence could incriminate them or subject them to a penalty or forfeiture, but is still ordered to testify or provide the evidence, the person must comply. However, the person:

  • Cannot be prosecuted or penalized based on the testimony or evidence provided
  • Can still be prosecuted or punished for perjury committed while testifying

Any unauthorized foreign or alien insurer that conducts an insurance transaction in Ohio automatically appoints the Superintendent as its lawful attorney for receiving statements of charges, notices, and other legal process in proceedings involving misrepresentation.

Examination of Books and Records​

Before issuing a license, the Superintendent may examine an insurer’s financial affairs to determine its financial condition.

The Superintendent may examine the affairs and financial condition of an insurance company whenever necessary and generally at least once every 3 years. This applies to insurers that are organizing, applying for admission, or conducting business in Ohio. When necessary, the examination may be deferred for up to 5 years.

The Superintendent or an appointed examiner must have full access to all books, records, and documents related to the insurer’s business, including records maintained by its agents. If the records are inadequate for examination, the insurer may be required to hire experts to rewrite, post, or balance the records or accounts. All examination fees and expenses must be paid by the insurer being examined.

Insurance companies and their directors, officers, agents, and employees may be examined under oath. An insurer’s refusal to submit to an examination is grounds for suspension, denial, or nonrenewal of any license or certificate of authority held by the company.

After an examiner issues a report, the insurer has 30 days from the postmark date on the envelope containing the report to file any written objections with the Superintendent.

The Superintendent has the authority to administer oaths, summon witnesses, and require attendance through an order or subpoena for matters involving insurance inquiries or investigations. The Superintendent may also require the production of any books, papers, or documents relevant to the matter being investigated.

Insurance Fraud Regulation​

Insurance fraud occurs when a person knowingly provides or conceals false material information to an insurer, agent, or broker with the intent to obtain insurance, an improper rating, or an improper claim payment. Insurance fraud includes:

  • Transferring or concealing property belonging to an insured or insurer to avoid an unfavorable claim settlement
  • Concealing, destroying, altering, mutilating, or making a false entry in a document affecting or relating to an insurer’s property
  • Withholding a document relating to an insurer’s property from a receiver, trustee, or court officer who is legally entitled to possess it
  • Giving, obtaining, or receiving anything of value for acting or attempting to act in a judicial proceeding when the act contributes to an insurer’s financial impairment or insolvency

Insurance fraud laws apply not only to the person who directly commits the fraudulent act, but also to anyone who aids, abets, or otherwise participates in the fraud.

Every insurer must establish an anti-fraud program and maintain a written plan describing the procedures to follow when actual or suspected insurance fraud is identified. The plan must also identify the person or persons responsible for administering the insurer’s anti-fraud program.

The insurer must develop its written anti-fraud plan within 90 days after receiving its license or beginning to conduct insurance business in the state. Once established, the insurer must maintain the written plan on an ongoing basis.

If an insurer changes its procedures for handling actual or suspected insurance fraud, or changes the person or persons responsible for its anti-fraud program, the insurer must update its written anti-fraud plan to reflect those changes.

Insurance fraud is generally a 1st-degree misdemeanor. However, the offense becomes a felony based on the amount of the false or deceptive claim:

  • $1,000–$7,500 — 5th-degree felony
  • $7,500–$150,000 — 4th-degree felony
  • $150,000 or more — 3rd-degree felony

In the absence of fraud or malice, a person, including the Superintendent or the Superintendent’s employees, is not liable for damages such as libel or slander for filing required reports or providing information under insurance laws. This protection also applies when information about suspected insurance fraud is provided to or received from:

  • Any law enforcement official, employee, or agent
  • The Superintendent, the Superintendent’s employees, an Insurance Fraud Bureau, or the NAIC
  • Any other person involved in the detection or prevention of insurance fraud

All documents, reports, and evidence held by the Superintendent or the Superintendent’s designee that relate to an insurance fraud investigation are considered confidential law enforcement investigatory records. Therefore, these records cannot be subpoenaed in civil actions by any court in the state.

Notice of Warning​

All insurance applications and claim forms must clearly include an insurance fraud warning substantially stating:

  • “Any person who intentionally defrauds an insurer, assists in committing fraud, or submits an application or claim containing false or deceptive information is guilty of insurance fraud.”

Fraud Notification​

If an insurer reasonably suspects insurance fraud, it must report the suspected fraud to the Department of Insurance. However, reporting is not required when the suspected fraud involves a claim of less than $1,000.

Insurance Information Privacy​

Personal information is any individually identifiable information collected during an insurance transaction that can be used to evaluate a person’s character, habits, activities, finances, occupation, reputation, credit, health, or other personal characteristics. It includes the individual’s name, address, and medical record information, but does not include privileged information.

An insurance company or agent must provide all applicants and policyholders with a notice of information practices explaining how personal information is collected, used, and handled during insurance transactions.

For an insurance application, the notice of information practices must be provided no later than:

  • When the insurance policy is delivered if personal information is collected only from the applicant or public records; or
  • When collection begins if personal information is obtained from a source other than the applicant or public records

For a policy renewal, the notice of information practices must be provided no later than the policy renewal date. However, a new notice is not required if either of the following applies:

  • Personal information is collected only from the policyholder or public records
  • A notice of information practices was provided within the previous 24 months

For a policy reinstatement or change in insurance benefits, the notice of information practices must be provided no later than when the insurer receives the request. However, no notice is required if personal information is collected only from the policyholder or public records.

The required notice must be in writing and include all of the following:

  • Whether personal information may be collected from persons other than the individual proposed for coverage
  • The types of personal information that may be collected and the sources and investigative methods that may be used to obtain it
  • The types of information that may be disclosed without prior authorization and the circumstances in which such disclosures are commonly made as part of normal business practices
  • A description of the insured’s rights and how those rights may be exercised
  • A statement that information obtained from an insurance support organization may be retained by that organization and disclosed to other persons

An abbreviated notice may be used if it includes all of the following disclosures:

  • Personal information may be collected from persons other than the individual proposed for coverage
  • Personal or privileged information collected by the insurer or agent may, under certain circumstances, be disclosed to third parties without authorization
  • The individual has the right to access and correct personal information that has been collected
  • The full notice of information practices will be provided to the applicant or policyholder upon request

A person may not knowingly obtain information about an individual under false pretenses from an insurance institution, agent, or insurance support organization. A violation of this rule is a 4th-degree felony.

Cybersecurity Requirements​

Cybersecurity Event — An incident involving unauthorized access to or disruption of an information system that has a reasonable likelihood of causing material harm to an Ohio consumer.

Nonpublic Information — Information that is not publicly available and can be used to identify a consumer, such as a Social Security number, credit card number, account password, or health care information.

Encryption — The process of transforming data into a protected form that is difficult to understand or access without the appropriate key or security process.

Each licensee or insurer must maintain a comprehensive written information security program based on its risk assessment to identify and protect against threats to the confidentiality of nonpublic information. The program must also:

  • Establish and periodically review a schedule for retaining nonpublic information and securely destroying it when it is no longer needed
  • Protect against unauthorized access to or use of nonpublic information and minimize the risk of harm to consumers

As part of its information security program, each licensee must maintain a written incident response plan for promptly responding to and recovering from cybersecurity events that compromise the confidentiality, integrity, or availability of nonpublic information, the licensee’s information systems, or the continued operation of its business.

If a licensee discovers that a cybersecurity event has occurred or may have occurred, the licensee must notify the Superintendent as soon as possible. The licensee must also:

  • Maintain records of all cybersecurity events for at least 5 years from the date of the event
  • Provide those records upon request by the Superintendent of Insurance